SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


                               -------------------


                                    Form 8-K

                                 Current Report

                       Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934


                         Date of Report: August 29, 1997


                  CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
               (Exact name of registrant as specified in charter)



                   New York         1-1217           13-5009340
                 (State of        (Commission     (I.R.S. Employer
                 incorporation)    File Number)   Identification No.)



                       4 Irving Place, New York, NY 10003
                    (Address of principal executive offices)


                  Registrant's telephone number: (212) 460-4600











                                      - 2 -


INFORMATION TO BE INCLUDED IN THE REPORT


ITEM 5.  OTHER EVENTS

PSC SETTLEMENT AGREEMENT

      The New York State Public Service Commission  ("PSC"), by order issued and
effective May 20, 1996 in its "Competitive Opportunities" proceeding, endorsed a
fundamental  restructuring  of the electric  utility industry in New York State,
based on  competition  in the  generation  and  energy  services  sectors of the
industry. On March 13, 1997, Con Edison, the PSC staff and certain other parties
to the  proceeding  entered into a settlement  agreement,  dated March 12, 1997,
with  respect to the  proceeding.  On August 20,  1997,  the PSC  requested  the
parties  to  negotiate  certain  modifications  to  the  March  1997  settlement
agreement.

      On August 29, 1997,  Con Edison and the PSC staff  entered into a modified
settlement agreement (the "Settlement  Agreement").  The Settlement Agreement is
subject to PSC approval. A PSC order with respect to the Settlement Agreement is
expected in September 1997.

      The  Settlement  Agreement  provides  for a  transition  to a  competitive
electric market by instituting  "retail  access",  a rate plan for the five-year
transition period of the Settlement  Agreement (the "Transition"),  a reasonable
opportunity to recover prior utility investments and commitments that may not be
recoverable in a competitive  electric market (often referred to as "strandable"
costs),  the divestiture by Con Edison to unaffiliated third parties of at least
50 percent of its New York City fossil-fueled  generating  capacity and, subject
to Con Edison shareholder and other approvals, a corporate reorganization into a
holding company structure.

      The Settlement Agreement reflects the following significant  modifications
to the March 1997 settlement agreement:

      -     the reductions to  generation-related  revenues that Con Edison will
            provide  over the  Transition  will  increase  from $655  million to
            approximately   $890  million.   (These  amounts  are  exclusive  of
            additional revenue reductions from lower gross receipt taxes.)

      -     the  additional  depreciation  that Con Edison will  provide for its
            generating units will be reduced from $395 million to $110 million.

      -     the retail access  program has been  accelerated to begin with up to
            500  megawatts of customer  load within nine months  (rather than 12
            months) after PSC approval of the  Settlement  Agreement and to make
            it  available  to all of its  customers  by the earlier of 18 months
            (rather 24  months)  after the ISO  (defined  below)  becomes  fully
            operational or December 31, 2001 (rather than 2002).





                                              - 3 -

      -     the  generation  capacity  divestiture  program has been modified to
            require Con Edison to submit a detailed  divestiture plan to the PSC
            within six months  (rather than 12 months) of the PSC's  approval of
            the  Settlement  Agreement and to initiate the  divestiture  process
            with   respect  to  at  least  30  percent  of  its  New  York  City
            fossil-fueled  generating capacity within 90 days after the later of
            PSC approval of the divestiture plan or implementation by the ISO of
            certain rules related to New York City  capacity.  In addition,  the
            Settlement   Agreement   requires  that  net  gains  from  sales  of
            generation  up to prescribed  amounts be utilized to further  reduce
            rates  during  the  Transition,  rather  than  after  the end of the
            Transition.

      In August 1997, the Emerging Issues Task Force of the Financial Accounting
Standards Board ("FASB") published its consensus that utilities subject to plans
that, like the Settlement Agreement, use a transition period to recover stranded
costs must  discontinue the use of Statement of Financial  Accounting  Standards
("SFAS") No. 71,  "Accounting  for the Effects of Certain Types of  Regulation,"
for the separable  portions of their  businesses that are being  deregulated and
apply the standards in SFAS No. 101, "Regulated  Enterprises-Accounting  for the
Discontinuation  of  Application  of FASB Statement No. 71." Con Edison is still
reviewing the  consensus,  and is unable to determine the extent to which it may
become ineligible to apply SFAS No. 71 to certain portions of its business under
the  Settlement  Agreement.  However,  assuming the PSC approves the  Settlement
Agreement,  Con Edison does not expect that  discontinuation  of SFAS No. 71 for
the  separable  portion of its business  that is being  deregulated  will have a
material adverse effect on Con Edison's financial position.

      The following is a summary of the material  provisions  of the  Settlement
Agreement,  including those provisions that remain unchanged from the March 1997
settlement  agreement,  and is  qualified  in its  entirety by  reference to the
Settlement Agreement, a copy of which is filed as an exhibit to this report.

Retail Access.  Con Edison will  implement an energy and capacity  retail access
program that will permit its customers to choose  alternative  energy suppliers.
The  delivery  of  electricity  to  customers  will  continue  to be through the
Company's  transmission and distribution systems. The program will begin with up
to 500 megawatts of customer load within 9 months  following PSC approval of the
Settlement  Agreement.  This  schedule is contingent  upon timely  approval of a
retail access  implementation  plan and retail access tariffs to be filed by Con
Edison with the PSC and the Federal Energy Regulatory  Commission  ("FERC"),  as
applicable.  The  program  will be expanded  in  increments  and Con Edison will
target  the  phase-in  of  retail  access  to  make it  available  to all of its
customers by the earlier of 18 months after an independent  system operator (the
"ISO"),  which is to  administer  the  wholesale  electric  market  in New York,
becomes  fully  operational  or December 31, 2001.  This  schedule is subject to
adjustment as circumstances warrant. In general, Con Edison's delivery rates for
retail access  customers during the Transition will equal the rate applicable to
other comparable Con Edison customers less a rate  representing the market value
of the energy and capacity being supplied for customers by the other sellers.





                                           - 4 -

Rate Plan. The rate plan reduces the generation-related revenues that Con Edison
would have  received  over the  five-year  Transition  had  current  rate levels
remained  in effect by  approximately  $890  million,  exclusive  of  additional
revenue  reductions  from lower gross  receipts  taxes.  The gross  receipts tax
reductions  will result from lower  customer  billings and from a law enacted in
July 1997 to reduce the New York State gross receipts tax. Rates will be further
reduced for any net  after-tax  gains up to  prescribed  levels from the sale of
generating capacity (see "Divestiture Commitment," below). If such net gains are
achieved, the total revenue reductions over the Transition will be approximately
$1.4 billion,  inclusive of gross receipts tax savings.  Financing  savings from
securitization  of  strandable  costs (see  "Recovery of Prior  Investments  and
Commitments,"  below)  will be  utilized  for  additional  rate  reductions.  In
general, base electric rates will not otherwise be changed during the Transition
except  in the  event  of  changes  in costs  above  anticipated  annual  levels
resulting  from legal or regulatory  requirements  (including a  requirement  or
interpretation  resulting  in  Con  Edison's  refunding  its  tax-exempt  debt),
inflation in excess of a 4 percent  annual  rate,  property  tax  increases  and
environmental  costs,  or in the  event  Con  Edison's  rate of  return  becomes
unreasonable for the provision of safe and adequate service.

      The  Settlement  Agreement  also  provides,  among  other  things,  for  a
non-bypassable  system benefits  charge to recover,  to the extent not otherwise
recovered,  the costs of required  research and development,  energy  efficiency
programs and programs to assist  low-income  customers,  and a penalty mechanism
(estimated  maximum,  $26  million  per year) for  failure to  maintain  certain
service quality and reliability standards.

      For any rate year  during the  Transition,  50 percent of any  earnings in
excess of a rate of return of 12.9  percent on  electric  common  equity will be
retained for shareholders  and 50 percent will be applied for customer  benefit,
with  one-half  of the  amount  to be  applied  to a  reduction  of  rates or as
otherwise  determined  by the PSC and the balance to be deferred  and applied to
reduce the Company's  generating plant balances through additional  depreciation
expense.  The rate of return calculation will exclude any incentives and reflect
any amounts by which the rate of return for earlier  Transition  rate years fell
below 11.9  percent.  This  earnings  sharing will end  beginning in the year in
which  Con  Edison  fulfills  it  divestiture   commitment   (see   "Divestiture
Commitment,"  below)  or in which 15  percent  of the  service  area  peak  load
(excluding the existing load served by the New York Power Authority) is supplied
other than by Con Edison.

      The  Settlement  Agreement  supersedes the provisions of Con Edison's 1995
electric rate agreement  prescribing  overall electric revenue levels for the 12
months ending March 31, 1998.  The  Settlement  Agreement  also  eliminates  the
provisions  of the 1995  electric  rate  agreement  for  incentives or penalties
related to the Enlightened Energy program and customer service performance,  the
Electric  Revenue  Adjustment and related  Revenue per Customer  mechanisms (the
"modified  ERAM"),  earnings sharing and  reconciliation  of amounts included in
base rates with actual costs for pensions  and other  post-employment  benefits,
capacity  charges under Con Edison's  contracts with  non-utility  generators of
electricity ("NUGs"), Enlightened Energy





                                           - 5 -

program  and  renewable  energy  expenses,   property  taxes  and  research  and
development expenses. The Settlement Agreement also requires the reversal of all
related  balances on Con Edison's  books of account at March 31,  1997,  the net
effect of which is not material.  An  incentive-based  fuel  adjustment  clause,
initially  similar to the partial  pass-through fuel adjustment clause under the
1995 electric rate agreement, will be in effect during the Transition.

Divestiture  Commitment.  Con Edison has agreed to divest to unaffiliated  third
parties  at  least 50  percent  of its New York  City  fossil-fueled  generating
capacity  no later  than  December  2002,  unless the PSC  determines  that such
divestiture  should be delayed or reduced  (to  maximize  sales price or address
other  developments).  Divestiture  could also be delayed  under  certain  other
circumstances.  Con  Edison  fossil-fueled  generating  units  not  divested  to
unaffiliated  third parties will be transferred  to an unregulated  affiliate of
Con  Edison by  December  2002.  It is  expected  that Con  Edison  will  retain
ownership of its Indian Point 2 nuclear generating unit.

      Con Edison has  agreed to submit a  detailed  divestiture  plan to the PSC
within six  months of the PSC's  approval  of the  Settlement  Agreement  and to
initiate the divestiture  process with respect to at least 30 percent of its New
York City  fossil-fueled  generating  capacity within 90 days after the later of
PSC approval of the  divestiture  plan or  implementation  by the ISO of certain
rules related to New York City capacity.  The PSC could approve the  divestiture
plan as submitted or modify it to address market power or other concerns.

      After-tax   gains  and  losses  from  the  divestiture  of  generation  to
unaffiliated third parties or transfer to an affiliate will be deferred. Any net
gains up to prescribed  levels on the sale of fossil  generation will be used to
further reduce rates. (See "Rate Plan," above). Additional net gains, if any, or
net losses will be reflected in the strandable  costs to be recovered  following
the Transition.  (See "Recovery of Prior Utility  Investments and  Commitments,"
below.)

Recovery of Prior  Investments and Commitments.  Potential  strandable costs for
Con Edison are those prior utility  investments and commitments  that may not be
recoverable in a competitive retail electric market. Investments for which there
could be strandable costs include Con Edison's  fossil-fueled  generating plants
and Con Edison's Indian Point 2 nuclear  generating unit.  Commitments for which
there could be strandable costs include  decommissioning of Con Edison's nuclear
generating  operations  and capacity  charges under Con Edison's  contracts with
NUGs.

      During the  Transition,  Con Edison will continue to recover its potential
electric strandable costs in the rates it charges all customers. Con Edison will
also provide for $75 million of additional  depreciation  for its  fossil-fueled
generating  units  and $35  million  for its  Indian  Point 2 nuclear  unit.  In
addition,  as indicated above,  certain "excess"  earnings will be applied as an
offset to strandable costs. (See "Rate Plan," above.)





                                           - 6 -

      Following  the   Transition,   Con  Edison  will  be  given  a  reasonable
opportunity to recover remaining electric  strandable costs, as adjusted for any
net gain in excess  of a certain  amount  and any net loss from  divestiture  or
transfer  of Con  Edison  generating  capacity  (see  "Divestiture  Commitment,"
above),  including a reasonable return on investments,  through a non-bypassable
charge to customers. For remaining fossil-related strandable costs, the recovery
period will be 10 years and for the Indian  Point 2 nuclear  unit,  the recovery
period  will be the  then-remaining  life of the unit.  With  respect to its NUG
contracts,  Con Edison will be  permitted  to recover at least 90 percent of the
amount by which the actual costs of its  purchases  under the  contracts  exceed
market  value  after  the  Transition.  Any  potential  disallowance  after  the
Transition  will be limited  to the lower of (i) 10 percent of the  above-market
costs or (ii) $300 million (in 2002 dollars). The potential disallowance will be
offset by NUG contract  mitigation achieved by Con Edison after the beginning of
the Transition  period and 10 percent of the gross  proceeds of generating  unit
sales to third parties. Con Edison will be permitted a reasonable opportunity to
recover  any costs  subject  to  disallowance  that are not  offset by these two
factors  if it makes  good  faith  efforts  in  implementing  provisions  of the
Settlement Agreement leading to the development of a competitive electric market
in its service territory and the development of an ISO.

      Any financing  savings from  "securitization"  of Con Edison's  strandable
costs are expected to be applied to further reduce  customer  rates.  Subject to
satisfying any conditions of any securitization  legislation enacted in New York
State, Con Edison could transfer its right to recover from customers the payment
for the strandable costs to a financing entity that would in return remit to Con
Edison the  proceeds of debt issued by the  financing  entity.  The debt,  which
would be non-recourse  to Con Edison,  would be secured by, and repaid from, the
future customer payments.

Corporate Structure.  The Settlement Agreement authorizes Con Edison to create a
holding  company  and  establishes   guidelines  governing   transactions  among
affiliates.  The formation of the holding  company is subject to the approval of
Con  Edison's  shareholders,  approval  of FERC and the  consent of the  Nuclear
Regulatory Commission.

      Upon formation of the holding company, Con Edison will become a subsidiary
of the holding company,  and Con Edison's common shareholders will automatically
become  the  shareholders  of  the  holding  company.   Con  Edison's   existing
subsidiaries,  ProMark  Energy,  Inc.,  and Gramercy  Development,  Inc. will be
transferred to the holding  company.  ProMark Energy was formed by Con Edison in
1993 to market gas and related  services,  and is expanding  its  operations  to
become a full-service energy service company. Gramercy Development was formed by
Con Edison in late 1996 to invest in energy infrastructure  development projects
and the  marketing  of Con  Edison's  technical  services.  It is expected  that
Gramercy  Development  will develop other  opportunities  in both the energy and
non-energy  fields  domestically  and  internationally.  The holding company may
establish other subsidiaries from time to time, including one or more subsidiary
holding  companies  to  hold  its  Con  Edison  stock  and the  stock  of  other
subsidiaries.






                                              - 7 -

      The Settlement Agreement limits the dividends that Con Edison could pay to
the  holding  company  to not more  than 100  percent  of income  available  for
dividends calculated on a two-year rolling average basis.  Excluded from "income
available  for  dividends"  will be non-cash  charges to income  resulting  from
accounting changes or charges to income resulting from significant unanticipated
events. The limitation will not apply to dividends  necessary to transfer to the
holding  company  proceeds from major  transactions,  such as asset sales, or to
dividends  reducing Con Edison's  capital  ratio to a level  appropriate  to Con
Edison's business risk.

      Without PSC approval,  Con Edison is  prohibited  from making loans to, or
guaranteeing  the obligations of, the holding company or any other subsidiary of
the holding company,  or pledging its assets as security for the indebtedness of
the holding company or any affiliate of the holding company.  Con Edison and the
holding  company's other  subsidiaries  must operate as separate  entities,  and
transfers  of  assets,  services  and  information  between  Con  Edison and its
affiliates  are  subject to  certain  restrictions.  Con Edison and the  holding
company's  other  subsidiaries  must  have  separate  operating  employees,  and
non-administrative  operating  officers  of Con  Edison  may  not  be  operating
officers  of any of the  holding  company's  other  subsidiaries.  Transfers  of
employees from Con Edison to the holding  company's other  subsidiaries are also
restricted.

Litigation.  Pursuant to the Settlement Agreement,  Con Edison will terminate an
appeal of the November  1996  rejection by the Supreme Court of the State of New
York of a challenge to the PSC's May 20, 1996 order.

ITEM 7.     FINANCIAL STATEMENTS AND EXHIBITS

(b)   Exhibits
 
 10 Agreement and Settlement, dated August 29, 1997, between Consolidated Edison
    Company of New York, Inc. and the Staff of the New York State Public Service
    Commission (without Appendices).

                                    SIGNATURE

      Pursuant to the  requirements of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.




                                                CONSOLIDATED EDISON COMPANY
                                                  OF NEW YORK, INC.

                                                By: JOAN S. FREILICH
                                                    JOAN S. FREILICH
                                                    Senior Vice President and
                                                      Chief Financial Officer


DATE:    August 29, 1997














                            BEFORE THE NEW YORK STATE
                            PUBLIC SERVICE COMMISSION


- ---------------------------------------------------------------x

In the Matter of Consolidated Edison Company    :
of New York, Inc.'s plans for (1) electric rate/
restructuring pursuant to Opinion No. 96-12,          :
and (2) the formation of a holding company
pursuant to PSL, Sections 70, 108 and 110, and  :
certain related transactions.

      PSC Case No. 96-E-0897              :

- ----------------------------------------------------------------x







                            AGREEMENT AND SETTLEMENT














Dated:  August 29, 1997





                                             4

                                TABLE OF CONTENTS



I. INTRODUCTION________________________________________________________1

  1. The Commission's May 20, 1996 Order_______________________________1

  a. Procedural History and Background_________________________________1

  b. The Requirements of the May 20, 1996 Order________________________2

  c. Con Edison's October 1, 1996 Filing_______________________________3

  2. Negotiations Among The Parties____________________________________3

II. RATE PLAN__________________________________________________________4

  Objectives and Time Period Covered___________________________________4

Paragraph 1____________________________________________________________4

Paragraph 2____________________________________________________________5

Paragraph 3____________________________________________________________5

  Rate and Revenue Levels______________________________________________5

Paragraph 4____________________________________________________________5

Paragraph 5____________________________________________________________6

Paragraph 6____________________________________________________________8

Paragraph 7____________________________________________________________9

  Applicability of Case 94-E-0334 Settlement Agreement_________________9

Paragraph 8____________________________________________________________9

Paragraph 9____________________________________________________________9

  Pensions/OPEBs and Exceptions to Base Rate Freeze___________________11

Paragraph 10__________________________________________________________11

Paragraph 11__________________________________________________________11

Paragraph 12__________________________________________________________13

  Disposition of Strandable Costs_____________________________________14

Paragraph 13__________________________________________________________14

Paragraph 14__________________________________________________________16

Paragraph 15__________________________________________________________19

  Comprehensive Nature of Settlement Agreement________________________20

Paragraph 16__________________________________________________________20

  Reporting___________________________________________________________20

Paragraph 17__________________________________________________________20

Calculation and Disposition of Certain Earnings_______________________20

Paragraph 18__________________________________________________________20

Rate Design and Revenue Allocation____________________________________21

  19. Case 94-E-0334 Rate Design Changes______________________________21

  20. Unbundled Tariffs_______________________________________________22

  21. Residential Time-of-Use Rates___________________________________22

  22. Industrial Employment Growth____________________________________23

  23. Low Income Rate Program_________________________________________24

  24. RY1 Through RY5 Tariffs Implementing This Agreement_____________24

  25. Rate Design Flexibility_________________________________________24

  26. System Benefits Charge Program__________________________________25

  27. Miscellaneous Rate Provisions___________________________________26

  28. Economic Development Rate Programs______________________________27

  29. Retail Access Tariff and Retail Access Regulation_______________27

  30. Regulatory Reform, Customer Operations  Procedures, and Classification of
      Facilities                                                      29

  31. NYPA____________________________________________________________29

  (i) Revenue Deficiency Under the 1994 Cost-of-Service Study_________29

  (ii) ISO And Standard Cost Recovery_________________________________29

  (iii)_____________________________________________________________  32

  32. Fuel Adjustment Clause__________________________________________33

  33. Customer Service and Electric Service Reliability Incentives____35

  34.  SC No. 11 Buy-Back Energy Rates________________________________35

III. RETAIL ACCESS PROGRAM____________________________________________36

  Objectives and Phase-in Target Dates________________________________36

Paragraph 1___________________________________________________________36

Paragraph 2___________________________________________________________38

Paragraph 3___________________________________________________________38

Paragraph 4___________________________________________________________38

Paragraph 5___________________________________________________________39

  Retail Access Prior to A Fully Operational ISO______________________39

Paragraph 6___________________________________________________________39

Paragraph 7___________________________________________________________40

Paragraph 8___________________________________________________________40

  Retail Access After A Fully Operational ISO_________________________41

Paragraph 9___________________________________________________________41

Paragraph 10__________________________________________________________42

Paragraph 11__________________________________________________________42

IV. DIVESTITURE_______________________________________________________44

  1. Requirements for Divestiture_____________________________________44

  2.  Divestiture Parameters and Methodology__________________________44

  3. Divestiture Plan Procedures______________________________________45

  4. Post-Rate Plan Period____________________________________________46

V. CORPORATE STRUCTURE________________________________________________46

  1. Formation of Holding Company_____________________________________46

  2. Functional Unbundling____________________________________________47

  3. The RegCo________________________________________________________43

  4. Affiliate Relations - In General_________________________________48

  5. Transfer of Assets_______________________________________________49

  6. Personnel________________________________________________________49

  7. Provision of Services and Goods__________________________________50

  8. Maintaining Financial Integrity__________________________________51

  9. Standards of Competitive Conduct_________________________________52

  10. Access to Books and Records and Reports_________________________49

  11. Independent Auditor_____________________________________________54

  12. Royalty_________________________________________________________54

  13. Miscellaneous___________________________________________________50

VI. RESTRUCTURING-RELATED ACTIONS_____________________________________56

VII. CUSTOMER EDUCATION PROGRAM_______________________________________52

VIII. MISCELLANEOUS___________________________________________________57

  1. Provisions Not Separable:  Effect of Commission Modifications____57

  2. Provisions Not Precedent_________________________________________53




Appendix A - Miscellaneous Tariff Changes


Appendix B - SBC Amounts


Appendix C -  Other Rate Changes
Appendix D - 25 Cycle System

Appendix E - NYPA Load


Appendix F - Fuel Targets


Appendix G - Service/Reliability Incentives


Appendix H - Corporate Structure


Appendix I - Cost Guidelines

Appendix J - Privilege

Appendix K- SC No. 11 Buy-Back Rates








                           BEFORE THE NEW YORK STATE
                           PUBLIC SERVICE COMMISSION

- -------------------------------------------------------------x
In the Matter of Consolidated Edison Company     :
of New York, Inc.'s plans for (1) electric rate/
restructuring pursuant to Opinion No. 96-12,         :
and (2) the formation of a holding company
pursuant to PSL, Sections 70, 108 and 110, and     :
certain related transactions.
                                             :
      P.S.C. Case No. 96-E-0897
- -------------------------------------------------------------x


                           AGREEMENT AND SETTLEMENT

I.    INTRODUCTION

      1.    The Commission's May 20, 1996 Order

      a.    Procedural History and Background

            In 1993, the Public Service Commission (the "Commission")  initiated
a  proceeding   aimed  at  addressing   numerous  issues  related  to  potential
competition in the regulated  energy markets in New York State.  Case 93-M-0229,
Proceeding  on Motion of the  Commission  to Address  Competitive  Opportunities
Available  to  Customers  of Electric  and Gas Service and Develop  Criteria for
Utility  Responses,  Order  Instituting  Proceeding (March 19, 1993) (changed to
Case  94-E-0952,  by order  dated  November  30,  1994,  to reflect new focus on
electric service) (the "COB proceeding").

            On July 11, 1994, the Commission issued its Opinion and Order
Regarding Flexible Rates, Opinion No. 94-15, Case 93-M-0229 (July 11, 1994).
In the July 11, 1994 order, the Commission announced "a possible second phase
of this proceeding: an investigation into the appropriate market structure
and regulatory regime for the future." Id. at 32.

            On August 9, 1994,  the  Commission  instituted  phase II of the COB
proceeding,  Order Instituting Phase II of Proceeding, Case 93-M-0229 (August 9,
1994). This phase of the COB proceeding was intended "to identify regulatory and
ratemaking  practices that will assist in the  transition to a more  competitive
electric  industry   designed  to  increase   efficiency  in  the  provision  of
electricity while maintaining safety, environmental,  affordability, and service
quality goals." Id. at 1-2. Parties to phase II of the COB proceeding were urged
to work  together to "examine  issues  related to the  establishment  of a fully
efficient  wholesale market for electricity and any pricing reforms necessary to
reflect those market efficiencies in retail customer rates." Id. at 3.




            On June 7, 1995, the Commission adopted "final principles" to
guide the transition to greater competition in the electric industry.  See
Opinion No. 95-7, Case 94-E-0952 (June 7, 1995).

            On December  21,  1995,  Administrative  Law Judge Judith A. Lee and
Ronald Liberty,  then-Deputy Director of the Energy and Water Division, issued a
Recommended Decision addressing  implementation of the restructuring principles.
On May  20,  1996,  the  Commission  issued  its  Opinion  and  Order  Regarding
Competitive Opportunities for Electric Service, Opinion No. 96-12 ("May 20, 1996
order").

      b.    The Requirements of the May 20, 1996 Order


            The Commission's stated vision for the electric utility industry
is "(1) effective competition in the generation and energy services sectors;
(2) reduced prices resulting in improved economic development for the State
as a whole; (3) increased consumer choice of supplier and service company;
(4) a system operator that treats all participants fairly and ensures
reliable service; (5) a provider of last resort for all consumers and the
continuation of a means to fund necessary public policy programs; (6) ample
and accurate information for consumers to use in making informed decisions;
and (7) the availability of information that permits adequate oversight of
the market to ensure its fair operation." Id. at 24-25.  In its May 20, 1996
order, the Commission directed Consolidated Edison Company of New York, Inc.
("Con Edison" or "the Company") and four other electric utilities to each
file a rate/restructuring plan consistent with the Commission's policy and
vision for increased competition.  Id. at 74-75; see also id. at 92.

            The Commission stated that these utility plans "should address, at a
minimum,"  matters including "(1) the structure of the utility both in the short
and long term,  . . . a  description  of how that  structure  complies  with our
vision and, in cases where  divestiture  is not proposed,  effective  mechanisms
that adequately address resulting market power concerns;  (2) a schedule for the
introduction  of retail access to all of the utility's  customers,  and a set of
unbundled tariffs that is consistent with the retail access program;  (3) a rate
plan to be effective for a significant  portion of the  transition" and numerous
other issues relating to strandable costs, load pockets,  energy services, and a
system benefits charge. Id. at 75-76, 90.

            In addition,  the  Commission  directed the utilities to collaborate
with the  Department  of Public  Service Staff  ("Staff")  and other  interested
parties to "accomplish  technical  studies" on subjects  including load pockets,
market   prices,   energy   services   companies  and  reporting   requirements.
Collaborative  efforts were also  directed on public  educational  forums and on
"necessary  FERC filings," which have centered on development of the Independent
System Operator and Power Exchange. Id. at 63-64.

      c.    Con Edison's October 1, 1996 Filing


            On October 1, 1996,  Con Edison filed a  rate/restructuring  plan in
response to the May 20, 1996 order (the "October 1, 1996 plan").  The October 1,
1996 plan proposed a

                                   2



transition to a competitive  electric  market,  including a
plan  for  retail   competition,   a  multi-year  rate  plan,  and  a  corporate
reorganization into a holding company structure.

      2.    Negotiations Among The Parties


            The  Commission  established  Case 96-E-0897 to examine Con Edison's
plan, and the Hon. Judith A. Lee was appointed as presiding  Administrative  Law
Judge.  Nearly 70 parties  intervened and about 40 actively  participated in the
proceeding.  By Order  Establishing  Procedures and Schedule  (issued October 9,
1996 as a one-Commissioner order and confirmed by the full Commission on October
24, 1996) ("the  October 9 order"),  the  Commission  established a schedule for
this proceeding. Stating that "a negotiated outcome is preferable to a litigated
outcome," the Commission  stated that  "discussions and  negotiations  among the
parties  are  strongly  encouraged"  and  established  a  "90-day  [negotiating]
period." Id., p. 3. To facilitate negotiations, the Commission's October 9 order
waived certain of its settlement guidelines (Id.; Case 90-M-0255, Settlement and
Stipulation Agreements, Opinion No. 92-2, issued March 24, 1992).

            Over the period of  October  15 to  December  20,  1996,  Con Edison
conducted  a series of twelve  "technical"  meetings  with the  parties  to this
proceeding at which the Company provided  detailed  presentations on its October
1, 1996 plan,  provided  supporting  data, and answered  parties'  questions and
listened to their  observations  and  concerns.  Also during  this  period,  the
parties  conducted  extensive  discovery  of Con  Edison.  Following  notice  of
impending settlement negotiations filed with the Secretary of the Commission and
sent  to all  parties,  Con  Edison  and the  parties,  including  Staff,  began
settlement  negotiations  on November 20, 1996 to  determine  whether they could
reach  accord  on a  negotiated  settlement  of  the  issues  presented  by  the
Commission's  vision for the electric industry and Con Edison's plan.  All-party
negotiation  conferences  were conducted on November 20, 22, 26,  December 6 and
11, 1996, and February 25, 1997, and numerous  other  conferences  among various
parties were conducted as well.

            On November 4 and 26, and  December 16,  1996,  Judge Lee  conducted
procedural  conferences  at which  the  parties,  inter  alia,  reported  on the
progress of settlement negotiations.  At these conferences,  the Judge monitored
the progress of the parties to assure  compliance with the scheduling  mileposts
of  the   Commission's   October  9  order.  The  Secretary  of  the  Commission
subsequently  issued notice of various  extensions of the negotiating  period to
facilitate settlement  negotiations.  In her December 20, 1996 Notice, Judge Lee
stated  that it was  the  "Commission's  explicit  preference  for a  negotiated
resolution  of this  proceeding  instead of a litigated  outcome"  and urged the
parties "to continue to make good faith efforts to reach a settlement, if at all
possible." Case 96-E-0897, Procedural Ruling, December 20, 1996, pp. 2-3.

            On January 16, 1997, the Company and Staff informed the parties that
they had made significant progress in resolving the issues to this case and that
they were seeking to prepare a detailed settlement proposal.  On March 13, 1997,
an  "Agreement  and  Settlement"  dated  March 12,  1997  ("the  March 12,  1997
settlement  agreement")  was  submitted  to the  Commission  and  served  on all
parties.  By orders issued March 27, 1997 and April 9, 1997,  the Commission set
procedures  for  consideration  of the  settlement.  Four days of hearings  were
conducted  to review

                                   3



the March 12,  1997  settlement  agreement.  A  Recommended
Decision  was issued  June 20,  1997,  and,  as a result of the  recommendations
contained  therein,  the parties attempted to negotiate changes to the March 12,
1997 settlement agreement and all-parties'  settlement  conferences were held on
July 11, July 17 and July 30, 1997;  however,  no changes were made prior to the
Commission's  scheduled  August 20,  1997  consideration  of the March 12,  1997
settlement  agreement.  At its August 20, 1997 session, the Commission requested
Staff  to  seek  to  negotiate  certain  modifications  to the  March  12,  1997
settlement,  with any such  modifications  to be filed by August 29,  1997,  for
consideration by the Commission at its September 10, 1997 session.  Accordingly,
a further  all-parties'  meeting  was held on August  26. The  undersigned  have
agreed to the terms set forth in this settlement agreement.


            The  issues  involved  in this  proceeding  are  complex,  and their
resolution is likely to have long-term impacts on the New York City metropolitan
area,  including impacts on the cost of electric service, on the way electricity
is  provided  in  Con  Edison's  service  area  and on  Con  Edison's  business.
Nevertheless,  after thorough investigation and discussion,  the parties to this
settlement  have agreed to resolve  these complex and vital issues by settlement
rather than litigation.  The signatories believe that this settlement gives fair
consideration  to the interests of Con Edison's  customers,  investors and other
stakeholders and will facilitate implementation of the Commission's vision for a
competitive electric industry as stated in its May 20, 1996 order.

II.   RATE PLAN

      Objectives and Time Period Covered


 1.   The  Commission's May 20, 1996 order envisioned that a "rate plan"
      be  established  "to  be  effective  for  a  significant  portion  of  the
      transition."  May 20,  1996 order,  p. 76. The parties  have agreed to the
      elements  of such a "rate  plan." The rate plan is designed  with  several
      objectives, including the following: to provide ratepayers with meaningful
      rate  reductions  during the transition to competition in order to enhance
      the economic  vitality of the service area; to establish  reasonable  rate
      and revenue levels over an extended period to facilitate the transition to
      competition;  to provide Con Edison with  opportunities to earn reasonable
      rates of return on shareholder  investment required for the development of
      the  electric  energy  infrastructure  in New York  City  and  Westchester
      County; to resolve difficult rate and rate-related issues arising from the
      transition,  including the rate treatment of  "strandable"  costs;  and to
      provide  the  Company  with the  ability to  maintain  the  integrity  and
      reliability of the electricity  supply and delivery systems in its service
      territory.

2.    The rate plan covers the five-year period ending March 31,
      2002.  The first year of the plan ("RY1") is the twelve months ending
      March 31, 1998.  The second rate year ("RY2") is the twelve months
      ending March 31, 1999.  The third rate year ("RY3") is the twelve
      months ending March 31, 2000.  The fourth rate year ("RY4") is the
      twelve months ending March 31, 2001.  The fifth rate year ("RY5") is
      the twelve months ending March 31, 2002.  The rate plan (Section II.
      11, 15, 16) also establishes certain principles to be considered in
      establishing revenue requirements in the period following RY5.

                                        4



3.    This rate plan covers Con Edison's rates and charges for
      retail electric sales and for electric delivery services.  As currently
      effective, Con Edison's rates and charges for electric service are
      contained in Con Edison's Schedule for Electricity Service PSC No. 9
      Electricity (this rate schedule and successors thereto are referred to
      herein as "PSC No. 9" or the "PSC No. 9 rate schedule"); in the PASNY
      No. 4 (FERC No. 96) Delivery Service Rate Schedule Implementing and
      Part of the Service Agreement between the Power Authority of the State
      of New York (PASNY) and the Consolidated Edison Company of New York,
      Inc. (the Company), dated March 10, 1989, for the delivery by the
      Company of Power and Associated Energy to Authority Public Customers
      (this rate schedule and successors thereto are referred to herein as
      "PASNY No. 4" or the "PASNY No. 4 rate schedule"); and in the Economic
      Development Delivery Service No. 2 (FERC Nos. 92 and 96) Economic
      Development Delivery Service Rate Schedule Implementing and Part of:
      (1) the "Service Agreement for the Delivery of Power and Energy"
      between the Power Authority of the State of New York ("PASNY") and the
      Consolidated Edison Company of New York, Inc. ("the Company"), dated
      March 10, 1989, for the Delivery by the Company of Power and Associated
      Energy to Authority Economic Development Customers; (2) the "Agreement
      for the Delivery of Power and Energy from the James A. FitzPatrick
      Power Project" between the County of Westchester, acting through the
      Westchester Public Utility Service Agency and the Company, made April
      24, 1987; and (3) the "Agreement between the City of New York and
      Consolidated Edison Company of New York, Inc. for the Delivery of Power
      and Energy from the James A. FitzPatrick Nuclear Power Project" between
      the City of  New York, acting through the New York Public Utility
      Service and the Company, made October 23, 1987 (this rate schedule and
      successors thereto are referred to herein as "EDDS" or the "EDDS rate
      schedule").  An additional tariff covering retail access will be
      established pursuant to Section III of this Agreement.

      Rate and Revenue Levels


4.    The rate plan: (i) reduces PSC No. 9 rates and, therefore,
      the revenues that Con Edison will receive over the five-year period
      ending March 31, 2002 compared to the level it would receive had the
      PSC No. 9 schedule in effect as of the date of this rate settlement
      remained in effect; (ii) implements rate design changes to the PSC No.
      9 rate schedule in order to implement rate design  provisions of the
      Case 94-E-0334 settlement agreement and to facilitate the transition to
      competition; and (iii) provides a framework for the transition to
      competition.  This transition framework addresses mitigation and
      recovery of stranded costs, allocation of certain cost reductions and
      benefits that many expect to flow from the transition to competition,
      encourages the future infrastructure investments essential to support
      continued electric reliability, makes limited provision for increased
      costs associated with unanticipated developments possible during the
      transition, and provides incentives to maintain service quality and
      reliability during the transition.

5.    Rates  of all service  classes in the PSC No. 9 rate  schedule
      will be  reduced  under the rate plan.  The  allocation  of these  revenue
      benefits  to the rate years  covered by the rate plan and to the  affected
      customers are set forth in the table below:

                                       5



                        Revenue Reductions (incl. grt)
                                 ($millions)
P.S.C. No. 9           RY1                               Cumulative Revenue
Customer Group         (6 mos.)RY2   RY3   RY4    RY5  Reduction by end of RY5

    SC 4  Rate II and
   9 - Rate II
      Revenue           9.4    38.6  60.2  84.2   102.9     295.3
reductions
      Est. % avg. bill  2%     4.1%  6.4%  9%     11%
      reduction
    All other1
      revenue
 reductions             43.4   84.0  143.7  213.9  274.0    759.0
      Fixed reductions
      Est. % avg. bill  2.1%   2.1%  3.5%0  5.2%   6.6%
      reduction
      
     Potentia             -     -    86.2   14.9   143.7    344.8
     additional
      reductions        2.1%   2.1%  5.5%   7.9%   10%
     Est. % fixed &
     potential
     reductions
    
    industrial
    employment          4.3    8.6    8.8    8.9    8.9      39.5
    growth program
    per Section II.22

Total revenue          57.1  131.2  298.9  421.9  529.5  $1,438.6
reductions -
fixed and potential


1
  "All  other"  customer  classes  in  PSC  No.  9 rate  schedule  are  Service
Classification  ("SC") No. 1 (residential and religious),  2 (general-small),  3
(back-up   service),   4  -  Rates  I  and  III   (commercial   and  industrial-
redistribution),  5 (electric  traction  systems),  6 (public and private street
lighting),  7  (residential  and  religious  - heating),  8  (multiple  dwelling
redistribution),  9  -  Rates  I  and  III  (general-large),  10  (supplementary
service),  12  (multiple   dwelling-space   heating)  and  13  (bulk  power-high
tension-housing developments).


                                        6



      As per Section  II.13,  the above  revenue  reductions  to the "all other"
      customer  group include $86.2 million in RY 3, $114.9  million in RY 4 and
      $143.7 million in RY 5 if the Company,  in  implementing  the  divestiture
      program  prescribed  in Section IV,  achieves the net gains on the sale of
      fossil  generation  supported by the witness for the City of New York. The
      parties estimate that additional rate reductions in the indicated  amounts
      would be achieved if the sales of plants yield these estimated  prices and
      30  percent  of the  Company's  in-City  generation  were sold by RY 3, 40
      percent by RY 4 and 50 percent by RY 5, and the gains were  amortized over
      a five-year  period.  If net gains in these amounts are available to allow
      implementation of these further reductions,  then by RY 5 revenues for all
      PSC No. 9 customer  classes will have been reduced by at least 10 percent.
      Available  securitization-related  savings,  as per Section II.6,  and the
      amortization-schedule  adjustments,  as per  Section  II.13,  may  also be
      utilized as required to achieve the potential  reductions  for "all other"
      customers.

   6. The  rate and revenue  benefits  reflected in Section II.5 are
      subject to being increased during the transition.  Additional  savings can
      be derived from successful  implementation  of state programs  authorizing
      "securitization" of certain generation and purchased power costs, from the
      successful  implementation  of utility tax reform in New York and from the
      efficiency  benefits  of  a  competitive   electricity   market.   Pending
      securitization  legislation in New York would  authorize the Commission to
      issue rate orders guaranteeing the application of specific utility revenue
      streams to trusts or other financing vehicles  established for the purpose
      of financing (at lower cost) generation and generation-related  assets and
      liabilities  viewed  as  strandable  under  a fully  competitive  electric
      market.  Legislation to reform the method of utility taxation in the state
      from a revenue-based  method to an income-based method has also been under
      consideration  and would be consistent  with the need expressed in the May
      20,  1996 order (pp.  91-92) to "ease the high tax  burdens" in the state.
      Progress  has  recently  been made in  utility  tax  reform  and the gross
      receipts tax reductions  prescribed by Chapter 389 of the 1997 Laws of the
      State of New York,  which will be flowed  through to  customers  under the
      Statement  of  Percentage  Increase in Rates and Charges to the  Company's
      electric rate schedule, are reflected in the revenue benefits reflected in
      Section II.5. Under this settlement  agreement,  unless otherwise required
      by law,  the  financing  savings  resulting  from  securitization  will be
      applied to benefit  the PSC No. 9  customers;  if net gains on the sale of
      generation  plants  were not  available  in amounts  that would  bring the
      percentage revenue reductions to the "all other" group of customers to the
      same percentage reductions provided to the SC Nos. 4 Rate II and 9 Rate II
      customers under Section II.5, then such securitization savings would first
      be applied to equalize the percentage reductions to these groups.  Savings
      in excess of that level would be  allocated  to  customers  based on class
      revenue ratios.  Tax reform savings,  if achieved,  are, unless  otherwise
      required by law, anticipated to be applied to the benefit of the customers
      currently  bearing the tax expenses  under the Company's  rate  schedules.
      While it is difficult to predict the extent of the efficiency savings that
      will be produced by competition both during and after the transition,  the
      achieved efficiency benefits of competition should accrue to all.

                                    7

 


 7.  Other  than as provided in Sections  II. 11, 12, 25, 27 of
      this settlement agreement, the base rates established in the Company's PSC
      No.  9,  PASNY  No.  4, and EDDS rate  schedules  for RY1  through  RY5 in
      compliance with the Commission  order approving this settlement  agreement
      will neither be increased nor decreased  prior to April 1, 2002,  from the
      rate  levels to be set forth in the rate  schedules  following  Commission
      approval of this settlement agreement.  The Company's "base rates" are the
      demand,  energy and  customer  charges in the PSC No. 9, PASNY No. 4, EDDS
      and retail  access rate  schedules;  "base  rates" do not include the fuel
      adjustment (applicable to PSC No. 9), the Statement of Percentage Increase
      in Rates and Charges (covering  revenue and similar taxes),  the Statement
      of Case  96-E-0897  Adjustments  (Section  II.11  herein)  and the  system
      benefits  charge  (Section  II.26  herein).  The rate plan  precludes  the
      Company from increasing rates due to increased costs or lower sales levels
      prior to April 1, 2002,  except as provided in Sections II. 11, 12 of this
      settlement   agreement.   The  rate  plan  has  the  immediate  impact  of
      eliminating  the $87.1 million  electric rate increase filed on October 2,
      1996  to  implement  the  Case  94-E-0334   settlement   agreement.   This
      disposition  of the Case  94-E-0334  settlement  agreement  equates  to an
      additional estimated total five-year savings to customers of $436 million.
      The plan also requires the Company to absorb  expected  inflation  through
      March 31, 2002.

      Applicability of Case 94-E-0334 Settlement Agreement


8.    Con Edison's current electric rates are governed by the
      Case 94-E-0334 settlement agreement. The third year in the Case
      94-E-0334 settlement agreement is the twelve months ending March 31,
      1998, and the third rate year, therefore, covers the same twelve months
      as RY1 of the rate plan. As stated in Section II.7, the parties agree
      that, in light of the rate plan, the provisions of the Case 94-E-0334
      settlement agreement prescribing overall electric revenue levels for
      Con Edison for the twelve months ended March 31, 1998, will be
      superseded by this settlement agreement.  The other provisions of the
      Case 94-E-0334 settlement agreement (e.g., rate design, incentive
                                           ----
      mechanisms) will be implemented as prescribed in Section II.9 below and
      in Sections II. 19, 31, 32 of this settlement agreement.

9.    Implementation  of the principal  accounting and general  ratemaking
      provisions of the Case  94-E-0334  settlement  agreement in RY1 will be as
      follows:

       (i)   the revenue requirement increase for the third rate
            year (12 months ending March 31, 1998) (Case
            94-E-0334 settlement agreement, pp. 14-18) is agreed
            to be eliminated and all credits and debits recorded
            in order to implement the ratemaking provisions of
            the Case 94-E-0334 settlement agreement as of March
            31, 1997 will be reversed and the effects of such
            reversals reflected in income; the Company will
            provide to Staff journal entries implementing this
            prescribed accounting within 30 days following
            Commission approval of this settlement agreement.

                                   8         


       (ii)  the revenue per customer clause (Case 94-E-0334
            settlement agreement, p. 16 and Appendix C) will be
            terminated beginning with the month of April 1997.

       (iii)the  following  expenses  required to be  reconciled  (in full or in
            part) under the Case 94-E-0334  settlement  agreement will no longer
            be subject to reconciliation  beginning with the month of April 1997
            (except  insofar as  reconciliation  of them is implemented  for the
            system  benefits  charge per  Section  II. 26  herein):  demand-side
            management expenses,  independent power production capacity charges,
            Home Insulation and Energy  Conservation  Act expenses,  pension and
            other post-employment benefits ("pension/OPEBs")  expenses, research
            and  development  expenses,  renewables  expenses  and  property tax
            expenses  (Case  94-E-0334  settlement  agreement,  pp.  9-10,  17).
            Recovery  of  pensions/OPEBs  is subject  to  Section  II.10 of this
            settlement agreement; recovery of property tax expense is subject to
            Section II.11 of this settlement agreement.

       (iv) the following  provisions of the Case 94-E-0334 settlement agreement
            will not be effective  for RY1 of the rate plan or  thereafter:  the
            demand-side  management  incentive,  the customer service incentive,
            the   electric   service   reliability   incentive,   the   earnings
            calculations provision and the "miscellaneous  provisions" provision
            (Case  94-E-0334  settlement  agreement,  Sections  F, K, L, M and P
            [except  subsection  (iv)  thereof,  "nuclear  refueling  expense"],
            respectively).

       (v)   the following provisions of the Case 94-E-0334
            settlement agree-ment, as implemented in Section II.
            19, 31, 32 of this settlement agreement, will
            continue in effect in RY1:  the electric fuel
            adjust-ment, buy back rates and marginal energy costs
            provision, and the rate design and revenue allocation
            provision (Case 94-E-0334 settlement agreement,
            Sections G and H and Appendix D, respectively).


      Pensions/OPEBs and Exceptions to Base Rate Freeze


10.   The Commission's policy statement on accounting and
      ratemaking for pensions/OPEBs was issued in 1993 and scheduled for
      re-examination beginning in 1998.  Case 91-M-0890, Statement of Policy
      and Order Concerning the Accounting and Ratemaking Treatment for
      Pensions and Postretirement Benefits other than Pensions, issued
      September 7, 1993, p. 5.  The parties have considered the application
      of the policy statement to Con Edison in view of the rate plan.  The
      parties agree that, subject to approval of the settlement agreement by
      the Commission, effective April 1, 1997, the policy statement will no
      longer apply to Con Edison's electric, gas and steam rates and to its
      accounting policies, and the Company may determine to implement the
      "corridor"

                                   9


      approach for pensions/OPEBs in accordance with Statement of
      Financial Accounting Standards Nos. 87 and 106.  Con Edison agrees that
      during the term of the rate plan, it will fund its pensions/OPEBs
      expense to the maximum extent possible on a tax-effective basis.  Con
      Edison also intends to manage its pension/OPEB expenses in a manner
      designed to produce equivalent levels of expense, subject to the
      implementation of the "corridor," after the rate plan period as if it
      had still been subject to the Commission's "true-up" policy.  The
      Company's Annual Report to the Commission will contain information
      regarding pension/OPEB funding and expense levels that will enable
      Staff to verify that the Company's expense and funding levels are
      consistent with the foregoing objectives.

11.   The Company's PSC No. 9, PASNY No. 4, EDDS and retail
      access base electric rates are subject to adjustment prior to March 31,
      2002 for the following:

          (i)   If any law, rule, regulation, order, or other
               requirement or interpretation (or any repeal or
               amendment of an existing rule, regulation, order
               or other requirement) of a state, local or federal
               government body (including a requirement or
               interpretation resulting in Con Edison's refunding
               its tax-exempt debt and including income or other
               state, local and federal tax and state, local and
               federal fees and levies but excluding local
               property tax), results in a change in Con Edison's
               annual utility costs, compared to the levels in
               the year ending March 31, 1997,  in excess of $7.5
               million in any year, Con Edison will defer on its
               books of account the total effect of all such
               annual cost changes in excess of $7.5 million,
               with any such deferrals to be reflected in rates
               as set forth in this paragraph.

          (ii) Con  Edison's  local  property  taxes are  estimated to be $525.9
               million in RY1,  $540.1  million in RY2,  $554.6  million in RY3,
               $569.6 million in RY4, and $585.0 million in RY5. These rate-year
               estimates will be adjusted for the purposes of this  subparagraph
               solely  to  reflect   reductions  in  property   taxes   actually
               experienced due to the retirement, sale or transfer of generating
               units.  Con Edison  will  defer on its books of account  the full
               amount of its actual property taxes above these estimated  levels
               (as  adjusted  as per the  preceding  sentence),  with  any  such
               deferrals  to  be  reflected  in  rates  as  set  forth  in  this
               paragraph.  The  foregoing  excludes  the effects of property tax
               refunds.  Eighty-six percent of any property-tax  refund received
               by the Company in the RY1 through RY5 period will be deferred for
               the  benefit of  customers;  the  remaining  14  percent  will be
               retained by the Company.

                                        10



          (iii)Con  Edison  will defer on its books of  account  and  reflect in
               rates as prescribed by this paragraph the following environmental
               costs: (i) site  investigation and remediation  ("SIR") costs for
               electric  operations in excess of $5 million  annually (SIR costs
               are the costs Con Edison incurs to investigate, remediate, or pay
               damages   (including   natural  resource  damages  but  excluding
               personal injury damages) with respect to industrial and hazardous
               waste or  contamination,  spills,  discharges  and  emissions for
               which  Con  Edison  is  responsible);   and  (ii)   environmental
               compliance,  prevention  and  improvement  costs  (excluding  SIR
               costs) in excess of $10  million  in annual  revenue  requirement
               (i.e.,  expenses plus carrying  charges on capital  additions not
               reflected in the Company's  1997-2001  capital  forecast)  (these
               costs are the costs of complying  with  legislative,  regulatory,
               judicial or other government rules or policies, including consent
               decrees,  related to the environment,  and the costs of proactive
               environmental  initiatives not required by law, undertaken either
               by the Company alone or in conjunction with others to improve the
               environment).  Any costs deferred under this subparagraph will be
               net of recoveries of these costs under insurance policies or from
               third parties. Amounts deferred hereunder will not be included as
               a cost of divestiture (Section IV.2 herein)

          (iv) If in any rate year  covered by the rate plan,  the GDP  Implicit
               Price  Deflator  as  measured  by Blue Chip  Economic  Indicators
               increases  by an amount  greater  than four  percent,  Con Edison
               will, in such rate year,  defer on its books of account an amount
               equal  to  the  product  of  the  actual  experienced  percentage
               increase above 4 percent times the escalation  base in effect for
               that rate year,  with such  deferred  amount to be  reflected  in
               rates as set forth in this paragraph.  The escalation base in RY1
               will be $1,050  million;  the escalation  base in RY2 through RY5
               will  be the  escalation  base  in RY1  increased  by the  actual
               percentage  increase in the GDP  Implicit  Price  Deflator in the
               succeeding  rate year or rate years  except  that the  escalation
               base will be reduced  to reflect  reductions  in  operations  and
               maintenance  production  expenses due to the retirement,  sale or
               transfer  of  generating  units.  Expenses  deferred  under  this
               subparagraph will be deferred in each succeeding year through RY5
               but such  succeeding  deferrals will be netted against the amount
               by which  escalation in a succeeding or preceding rate year falls
               below four percent  multiplied  by the  escalation  base for that
               year. If the GDP Implicit Price  Deflator is no longer  published
               or is  re-constituted  so as to  make  it  unusable,  a

                                        11



               suitable  alternative means of inflation  measurement will be
               determined by the Commission.

          (v)   Deferrals of extraordinary expenses, including
               extraordinary operating and maintenance or capital
               costs, not covered by subparagraphs (i) through
               (iv) above, will be on petition to the Commission
               and subject to such materiality and other
               standards as may then apply as per PSC Case No.
               94-M-0667, In the Matter of Developing Guidelines
               for Use in Deferral Accounting in Ratemaking
               Matters for All Regulated Utilities or other
               Commission determination.

      Amounts deferred on Con Edison's books of account under this paragraph and
      Section II.22 and VI.2 herein, whether they are credits or debits, will be
      reflected in rates through rate  adjustments  to be implemented in RY3 and
      RY5  of the  rate  plan.  Deferred  debits  or  credits  remaining  on the
      Company's  books after RY5 will be  reflected in rates set after March 31,
      2002.  Interest  on  deferred  debits and  credits  will be applied at the
      Commission-determined   unadjusted   customer   deposit  rate.   Any  rate
      adjustment  effective under this paragraph will be implemented pursuant to
      the "Statement of Case 96-E-0897  Adjustments"  to be effective  under the
      Company's rate schedules pursuant to this settlement  agreement  beginning
      in RY3.  The  Statement  and  changes  thereto  will  be  filed  with  the
      Commission and annexed to the Company's rate schedules. The Statement will
      set forth any adjustments to become  applicable  under this paragraph on a
      cents per kWhr  basis for  energy-only  service  classifications  and on a
      cents per kWhr and kW basis  for  demand-billed  service  classifications.
      Such rate adjustments  will be based on each class' relative  contribution
      to total pure base electric revenues; generation related costs will not be
      allocated to the PASNY No. 9 and EDDS tariffs.

12.   If a circumstance occurs which, in the judgment of the
      Commission, so threatens the Company's economic viability or ability to
      maintain safe and adequate service as to warrant an exception to this
      undertaking, Con Edison shall be permitted to file for an increase in
      base electricity rates at any time under such circumstances.  Con
      Edison may seek a general rate increase should its forecast return on
      common equity fall below 8 percent (pro-formed to a common equity
      capitalization of 52 percent).

      The parties recognize that the Commission reserves the authority to act on
      the  level  of  Con  Edison's  base  electricity  rates  pursuant  to  the
      provisions of the Public Service Law should it determine that  intervening
      circumstances  have  such a  substantial  impact  upon  the  range  of Con
      Edison's earnings levels or equity costs envisioned by the agreement as to
      render  the  Company's  electric  rates  unjust  or  unreasonable  for the
      provision of safe and adequate service.

                                        12



      Disposition of Strandable Costs


13.   Strandable costs are "those costs incurred by utilities
      that may become unrecoverable during the transition from regulation to
      a competitive market for electricity."  May 20, 1996 order, p. 46.  Con
      Edison's October 1, 1996 plan estimated its strandable electric
      generation costs to range from $4.7 billion to $6.2 billion, with about
      60 percent of such costs attributable to costs of required power
      purchase contracts between Con Edison and non-utility generators
      ("NUGs").  The parties have not agreed to any estimate of strandable
      costs but as part of the rate plan have agreed on the rate treatment to
      be utilized for such costs.

      Con Edison's  October 1, 1996 plan maintained that to date the Company had
      mitigated the ratepayer  impacts of strandable costs  attributable to NUGs
      by $2.2 billion and its other generation costs by additional,  substantial
      amounts.  The parties have agreed to the following  steps toward  reducing
      generation costs under the rate plan:

            (i)   In developing the unbundled tariffs prescribed by Section
                  II.20, the revenue reductions set forth in Section II.5
                  herein, exclusive of gross receipts taxes, will be
                  allocated to the generation component of the applicable PSC
                  No. 9 rates.  These reductions reflect the mitigation of
                  generation-related costs borne by ratepayers in the RY1
                  through RY5 period while additional mitigation of
                  strandable costs is carried out as prescribed in the
                  subparagraphs below.

            (ii)  During RY1 through RY5, Con Edison will continue to
                  depreciate its generation plant at the rates prescribed by
                  the Case 94-E-0334 settlement agreement.  Con Edison
                  commits, in furtherance of the rate plan, to mitigate
                  strandable costs of its fossil generating units through the
                  application of credits (reductions) to its generation plant
                  balances during the period RY1 through RY5 in a total
                  amount of $75 million above the depreciation accruals
                  authorized by the Case 94-E-0334 settlement agreement.
                  These credits will be recorded as depreciation expense for
                  the Company's steam-electric generating stations (i.e.,
                  Waterside and 74th Street).  Con Edison will record this
                  increased  depreciation expense in RY 3 and RY4.   Con
                  Edison will notify Staff of the plant as to which these
                  depreciation expense accruals are to be made under this
                  subparagraph 30 days prior to the application of such
                  accruals.
     
       (iii)      Mitigation of strandable costs will also be addressed  through
                  the  application of 25 percent of the Company's  common equity
                  earnings  in excess of 12.9  percent  (calculated  per Section
                  III.18  herein)  against   generation-related  plant  balances
                  during the period prescribed in Section II.18.

            (iv)  NUG contract cost mitigation efforts will continue in the
                  RY1 through RY5 period and thereafter as per Section II.14
                  herein.  As an additional incentive

                                        13



                  to mitigate NUG costs during the RY1 through RY5 period, the
                  Company will, subject to Section II.14.(i)(c), retain (a) the
                  full reductions in fixed NUG costs during the five-year
                  period, and (b) thirty percent of reductions in variable NUG
                  costs for a period of eighteen months, resulting from the
                  renegotiation, termination, "buyout" or "buydown" of NUG
                  contracts, exclusive of the financing-related savings
                  resulting from securitization.  The Company will petition
                  the  Commission to defer costs of contract terminations,
                  "buyout" or "buydown" for recovery pursuant to the
                  parameters set forth in Section II.15(ii) herein.  After
                  RY5, the net benefits of any NUG contract renegotiation,
                  termination, "buyout" or "buydown" will be included in the
                  calculation of mitigated amounts as prescribed by Section
                  II.14(i)(a) and, in addition, allocated for ratemaking
                  purposes as follows:  25 percent will be applied to credit
                  (reduce) generation plant balances; 75 percent will be
                  applied directly to rates in a manner to be determined by
                  the Commission.


            (v)   The Company commits to mitigate the strandable costs of its
                  IP2 unit through the application of credits (reductions) to
                  its nuclear generation plant balances by $35 million over
                  the rate plan period above the depreciation accruals
                  authorized by the Case 94-E-0334 settlement agreement.  Con
                  Edison will notify Staff of the depreciation accruals made
                  under this subparagraph 30 days prior to the application of
                  each such accrual.

            (vi)  Section IV of this agreement requires Con Edison to develop
                  and submit a plan for the divestiture of electric
                  generating plant and prescribes a minimum divestiture
                  commitment by Con Edison.  The Company will seek to
                  mitigate strandable costs by developing a divestiture plan
                  that yields the maximum sales or transfer price reasonably
                  achievable under such plan. After-tax gains or losses
                  resulting from the divestiture of generation during the
                  rate plan (or the transfer to an affiliate), inclusive of
                  divestiture costs per Section IV of this agreement, will be
                  deferred on the Company's books of account.  As indicated
                  in Section II.5, net gains from the sale of fossil
                  generation, if realized, will be used to reduce rates of
                  the "all other" customer groups, by up to $86.2 million in
                  RY 3, $114.9 million in RY4 and $143.7 million in RY5.  Any
                  net gains from the sale of fossil generation (including
                  offset against any net losses from such sales), will be
                  amortized on the Company's books and reflected in rates
                  over a five-year period unless the Commission prescribes a
                  different amortization period in order to meet these rate
                  reduction assumptions.  Interest at the
                  Commission-determined customer deposit rate will be accrued
                  commencing with the start of such amortization.  The
                  parties understand that rate reductions consistent with the
                  levels of net plant sale gains identified in this
                  subparagraph and in Section II.5 will not be implemented
                  unless net gains in the amount required to cover the
                  reductions have been realized, and these reductions are
                  therefore conditioned on such gains being actually

                                        14


                  available to cover the rate reductions.The objective of
                  achieving the indicated net plant gains will be factored
                  into the implementation of the divestiture program,
                  balanced with other relevant factors.  If a five-year
                  amortization of net gains would produce rate  decreases in
                  excess of these indicated targeted amounts, any excess will
                  be deferred for disposition by the Commission.

                  Following RY5 (March 31, 2002),  Con Edison will reconcile the
                  remaining book cost of plant to the "market values" defined by
                  divestiture  (including  deferred  gains  or  losses)  and the
                  balance  thereof  (positive or negative)  will be reflected in
                  the post-rate plan period rates  consistent with Section II.15
                  below.

14.   Consistent with the Commission's  order in the COB case, it
      is the  objective  of the  parties  to allow the  Company  a  reasonable
      opportunity  to recover the  above-market  costs of NUG contracts  after
      RY5,  while at the same  time  putting  recovery  of a  portion  of such
      stranded  NUG costs at some  reasonable  degree of risk.  Such  recovery
      would be  contingent  upon the  Company's  success in  mitigating  these
      stranded  costs or, to the  extent  stranded  costs are not  reduced  or
      eliminated   through   mitigation,   upon  the   implementation  of  the
      provisions  of this  settlement  agreement  intended  to  carry  out the
      transition to a competitive electricity market.

      Accordingly,  the  Company  would be at risk for the  disallowance  of the
      lesser of (i) 10 percent of the actual or then estimated (on a net present
      value basis)  above-market costs in each rate year after RY5 of all of the
      Company's  now existing NUG  contracts,  and (ii) a maximum  total of $300
      million (net present  value at the end of RY5),  subject to the  following
      two provisions:

         (i)  The Company will have the following  opportunities to mitigate its
              stranded  costs and thereby  reduce or eliminate the  disallowance
              risk.

              a. if NUG  contract  costs  are  mitigated  at any time  after the
                 beginning of RY1 (e.g., through successful renegotiation of NUG
                 contracts  concluded  after, but not prior to, the beginning of
                 RY1),  the total  reduction  in NUG costs after RY5 (other than
                 the 30  percent  of  mitigated  variable  NUG  costs  that  may
                 continue to be retained  by the Company  after RY5  pursuant to
                 Section  13.iv)  and 100  percent  of  reductions  in NUG costs
                 subject to flow  through to  ratepayers  during RY1 through RY5
                 resulting from such  mitigation  will offset the amount at risk
                 for disallowance; provided, however, that if the stranded costs
                 under a NUG contract are mitigated not for reasons  directly or
                 indirectly related to the Company's efforts (including contract
                 enforcement and administration), but for totally unforeseen and
                 unnatural  reasons (i.e.,  the  destruction  of a plant),  such
                 stranded  costs would be  considered  fully  mitigated  but the
                 resulting  savings  would not  offset the  remaining  amount at
                 risk.  All the  Company's  NUG  contracts  would  be  potential
                 sources of mitigation and NUG costs will be treated as a total,
                 so that  mitigation  of an amount  greater  than 10  percent of
                 above-

                                             15



                 market  costs in one contract  would be credited  against
                 other  stranded NUG costs in  determining  the reduction in the
                 Company's allowance risk.

              b. to the extent payments under NUG contracts are securitized, the
                 financing-related  savings are  expected to flow to  ratepayers
                 and would not offset any amounts at risk for  disallowance.  If
                 as part of securitization  the Company  negotiates a buydown of
                 the  contract  or the NUG  contract  is  terminated  through  a
                 buy-out, all above-market  contract costs, even if securitized,
                 would continue to be considered stranded costs for the purposes
                 of determining the Company's 10 percent  disallowance risk, and
                 any  reductions in total  expected  payments under the contract
                 negotiated  by the Company would offset any amounts at risk for
                 disallowance.

              c. this settlement  agreement (Section II.13.iv) provides that the
                 Company will retain the benefit of all  mitigation in fixed NUG
                 costs  achieved  during  RY1  through  RY5  and 30  percent  of
                 mitigation  in variable NUG costs  achieved  during RY1 through
                 RY5 for a period of 18 months. The Company will have the option
                 to defer  any and all  such  savings,  in  order to apply  them
                 towards  disallowed NUG costs;  provided,  however,  that if it
                 later  develops  that the  Company  is able to  achieve  the 10
                 percent  mitigation  target  without  applying  those  deferred
                 savings  toward  mitigation,  it may then  credit the  deferred
                 savings to income.

              d. the   settlement   agreement   provides  for   mitigation   and
                 divestiture  of the  Company's  fossil  generating  units.  Ten
                 percent of the proceeds of divestiture  (sale to third parties)
                 of such  generation  will be applied as an offset to the amount
                 of NUG costs at risk under this paragraph.

              e. the Company would have the option of absorbing  any  ratemaking
                 disallowance after RY5 in a lump-sum amount, with the amount of
                 such  absorption  (only  insofar as it relates to estimation of
                 stranded  costs  remaining)  to be subject to the  Commission's
                 approval.  The Company would  thereafter be permitted to retain
                 all savings  resulting from later mitigation  efforts up to the
                 lump sum amount absorbed by the Company.

               (ii) For any  amounts  of  stranded  costs  at risk  that are not
              mitigated or eliminated  through the mitigation  efforts described
              in the previous subparagraph (i), the Company will nevertheless be
              permitted a reasonable  opportunity to recover such amounts if the
              Company  makes good faith  efforts in  implementing  provisions of
              this agreement  leading to  development of a competitive  electric
              market  in the  service  area.  The  parties  recognize  that  the
              development  of a  competitive  electric  market  will depend to a
              large extent on developments  outside the Company's  control,  and
              the Commission's  assessment of the Company's efforts will reflect
              this fact.  The Commission  would not disallow an opportunity  for
              recovery  provided  that  the  Company's  efforts  were  otherwise
              sufficient.  The Commission will consider the Company's actions in
              the  following

                                             16



              broad areas:  divestiture,  retail  access,  price
              levels  and NUG  mitigation.  Each of these  broad  areas  contain
              efforts  that  the  Commission  will  consider  in  assessing  the
              Company's success. For divestiture, the Company's development of a
              comprehensive  divestiture  plan,  the pace and  magnitude  of the
              divestiture process,  the successful  development of a competitive
              electric  market,  and the  Company's  actions to  facilitate  the
              development of the ISO, will all be considered. For retail access,
              the Company's  implementation  of retail access in relation to the
              targets set for retail  access,  including  timing  regarding  the
              scope  and  participation  in  retail  access,  and the  Company's
              interactions  with energy  service  companies and marketers in the
              program  will be  considered  as well as the  extent  to which the
              Company facilitates the substantial construction of new generation
              capacity.  The  Company's  success in  implementing  the affiliate
              relationship rules of this agreement, without substantial verified
              (i.e.,  substantiated)  complaints of non-compliance  will also be
              considered.   Concerning  NUG  mitigation,   in  addition  to  the
              quantifiable  mitigation  addressed in the preceding  subparagraph
              (i),  the  Company's   participation  in  available   programs  to
              securitize   above-market   payments  will  also  be   considered.
              Regarding  price levels,  the level of base electric  rates in the
              post-RY5  period  will  be  considered;  this  consideration  will
              reflect  experienced  inflation  since RY1 and the trend in prices
              charged by  similarly-situated  utilities.  These  activities  are
              illustrative  of the steps to be taken towards  development of the
              market, and it is not the parties' expectation that the actions or
              lack thereof taken as to any single action or category  would mean
              that full allowance or disallowance  would result; the intent will
              be to  reasonably  assess  the  Company's  actions  leading to the
              transition on a generalized or overall basis.

15.   The parties recognize the extensive litigation already
      conducted and related policy differences over the recovery of
      strandable costs.  In light of the numerous factors and trade-offs
      reflected in this agreement, and subject to the limitation prescribed
      by Section II.14 herein, the parties agree that, subject to approval of
      this settlement agreement by the Commission, Con Edison will be given a
      reasonable opportunity to recover stranded and strandable costs
      remaining at March 31, 2002, including a reasonable return on
      investments.  Parameters under which recovery will be carried out
      including, where applicable, the time period during which this
      reasonable opportunity is to be afforded, are as follows:

       (i)  charges  for all  customers  served  under the PSC No. 9 and  retail
            access tariffs (and for PASNY No. 4 and EDDS customers to the extent
            set forth in Section  II.31  herein) will  reflect a  non-bypassable
            charge   for   the   continued    collection   of   generation   and
            generation-related  costs as set forth in Sections  II.29 and III.7,
            11 herein.

      (ii)  the recovery period of NUG termination, "buy-out" or "buy-down"
            costs, if securitized, will be determined by the Commission at
            the time of securitization, but such recovery is expected to
            match the life of the securitized bonds.  The

                                        17



            recovery period of non-securitized NUG termination, "buy-out" or a
            "buy-down" costs, if any, will also be determined by the Commission,
            but  not exceed the life of the specific contract.   The recovery
            period of purchases made under NUG contracts will be the life of
            the contract.

      (iii) for  IP2,  in the  absence  of  securitization,  the  unit's  costs,
            including  above-market costs, and  decommissioning  expense for IP2
            and the retired  Indian Point No. 1 unit,  will be recovered  over a
            period no longer than the end of the unit's license term in the year
            2013.  Reconciliation of estimated and actual  decommissioning costs
            may be reflected in rates after 2013.

     (iv)    for fossil generation,  in the absence of securitization,  stranded
             costs  remaining  after RY5 will be recovered  over a period not to
             exceed the 10-year period ending March 31, 2012.

      (v)    recovery of Con Edison's other stranded costs will be over a period
             to be determined by the Commission.

      (vi)  the Company will petition the Appellate Division of the
            Supreme Court for permission to withdraw its December 24, 1996
            appeal in Energy Ass'n of N.Y.S. v. Public Service Commission,
                      -----------------------   -------------------------
            Albany County Index No. 5830-96, with prejudice, following
            final Commission approval of this agreement (i.e., when any
                                                         ----
            appeals from such approval are exhausted or the time to appeal
            has expired).  Until this petition is granted, the Company
            will discontinue its appeal to the extent it is able to do so
            without forfeiting the right to appeal.

      Comprehensive Nature of Settlement Agreement


16. The  foregoing reflects the parties' efforts to resolve complex
revenue  requirement  and  rate  level  issues  in  this  proceeding.   In  this
proceeding,  the issues involved difficult  questions arising from stranded cost
recovery as well as issues arising from the corporate restructuring under review
in this  proceeding,  including the issue of the need for and  measurement of an
imputation of "royalties." In developing the rate plan, the parties  intended to
develop a comprehensive plan that accounts for both typical  revenue-requirement
issues such as expected productivity achievement as well as for claims regarding
stranded cost  recoverability  and the payment of "royalties."  The rate plan is
intended as a permanent and  comprehensive  resolution of the Company's  revenue
requirement  in RY1 through  RY5, of the  principles  under which  stranded  and
strandable  costs will be  recovered  after RY5  (pursuant  to Section  II.13-15
herein),  and of claims that the  Company  should  record as revenues  royalties
collected or imputed from its parent, affiliates or subsidiaries both before and
after RY5 beyond any amounts specifically required by this settlement agreement.
The plan resolves  these issues on a basis that will allow the Company to remain
under the Statement of Financial Accounting Standards No. 71 requiring regulated
companies to follow cost-based ratemaking.

                                   18

      Reporting


17. The  Company  will make  available  to Staff,  for its review,
unbundled  financial  statements in the fourth quarter of 1997. The Company will
also report to the  Commission  Staff,  no later than 90 days after the close of
each rate year (RY1  through  RY5),  the  utility  common  equity  earnings  and
supporting computations for the preceding rate year.

      Calculation and Disposition of Certain Earnings

18. The  Company will calculate its rate of return on common equity
capital  following  RY1 through  RY5.  The  Company  will  allocate  the revenue
equivalent  of its  earnings  in  excess  of 12.9  percent  in any rate  year as
follows:  50 percent  will be  retained  by the  investors;  25 percent  will be
applied to the  benefit of  utility  customers  through  rate  reductions  or as
otherwise  determined by the  Commission;  and 25 percent will be applied to the
Company's  generation plant, as depreciation  expense, to reduce plant balances.
The earnings for any rate year will be calculated on a per books basis excluding
the effects of incentives prescribed by Section II.11(ii), 13(iv) and 32 herein.
In calculating  earned return to determine if sharing is to be implemented,  the
Company  will  include  amounts by which its  earnings  fell below 11.9  percent
(excluding the effects of incentives) in any earlier rate year (RY1 through RY4)
of this  settlement  agreement.  The Company will not be subject to the earnings
sharing  prescribed by this paragraph  beginning with the first rate year (i) in
which the Company has divested (sold to third parties) 50 percent or more of the
in-City fossil plants (measured in megawatt-rated  capacity) owned by Con Edison
as of the  date  of  this  settlement  agreement  (net of  later  re-ratings  or
retirements)  or (ii) in which 15 percent or more of the service  area peak load
(excluding  load served by NYPA as of the date of this agreement) is supplied by
other than Con Edison.


Rate Design and Revenue Allocation

19.   Case 94-E-0334 Rate Design Changes


      The following rate design changes to the PSC No. 9 rates prescribed by the
Case 94-E-0334  settlement  agreement will be implemented  beginning on April 1,
1997 (or the date the  Company's  tariffs  implementing  RY1 of this  settlement
agreement become effective, if later):

      (i)   The Case 94-E-0334 settlement agreement (Appendix D, p. 7),
            prescribes that the customer charge in PSC No. 9 for SC Nos. 1
            (residential and religious), 2 (small -general) and 7
            (residential and religious-heating) will be gradually increased
            over a seven-year period. The annual increase of $0.57 per month
            is to take effect each April 1 through RY5, with the increase in
            revenues due to the customer-charge increase deducted from the
            energy charge revenue for the affected service classification.
            This Case 94-E-0334 settlement provision will continue in effect
            under the rate plan.

      (ii)  The Case 94-E-0334 settlement agreement (Appendix D, pp. 6-7)
            prescribes that the energy charges in PSC No. 9 for SC No. 4-Rate
            II (commercial and industrial-redistribution), 8-Rate II
            (multiple dwellings-redistribution), 9-Rate II (general-

                                             19        



            large), 12-Rate II, (multiple dwelling space heating) and 13 (bulk
            power-high tension-housing developments) will be reduced on April
            1, 1997 and on April 1, 1998 (if rates were changed at that time
            pursuant to the Case 94-E-0334 settlement agreement).  The
            reduction in the energy charge would equal 25 percent of the
            difference between the level of marginal energy costs adopted in
            Case 94-E-0334 and the level of the energy charge for the
            affected classes in effect at the time of the Case 94-E-0334
            settlement agreement.  The reduction in revenues associated with
            this change would be offset in full by adjusting the generation,
            transmission and distribution charges in the affected
            classifications.  This Case 94-E-0334 settlement provision will
            be implemented under the rate plan by implementing the scheduled
            reduction in energy charges effective April 1, 1997 and April 1,
            1998, offsetting the associated revenue reduction in full by
            increases to the transmission and distribution charges in the
            affected classification.


20.   Unbundled Tariffs


      Con Edison's  October 1, 1996 plan included sample  unbundled  tariffs for
two of its  PSC No.  9  service  classifications  (SC No.  1 -  residential  and
religious and SC No. 9 -  general-large).  The sample tariffs  disaggregate  the
major  cost  components  of  Con  Edison's  electric  system  (i.e.,  generation
capacity, energy, transmission and distribution) to provide improved information
about the cost  structure  on which the rates are  based.  The  sample PSC No. 9
tariffs  would not permit  customers  to  purchase  individual  elements  of the
Company's major cost components. The Company agrees to continue with the process
of  reformatting  its PSC No. 9 rate  schedule  to reflect  the  October 1, 1996
approach to  "unbundling" or  "disaggregating"  major cost components to provide
improved information to consumers and, on Commission approval of this settlement
agreement, will file such unbundled rates for PSC No. 9 rate schedule by January
15, 1998 for all classes to become effective April 1, 1998:

          (i) The unbundled PSC No. 9 rate components will be based on the "1994
            Electric  Embedded  Cost of  Service  Study"  ("1994  embedded  cost
            study") that the Company  provided to the parties in this proceeding
            and  will  include   generation,   transmission   and   distribution
            components,  and per Section II.26 of this settlement  agreement,  a
            system   benefits   component.   The   unbundled   tariffs  will  be
            revenue-neutral on a class-by-class basis.

          (ii) The  unbundling  process  begun in this  settlement  agreement is
            expected  ultimately  to lead to  customers  having  the  ability to
            choose  from  among the  unbundled  cost  elements  set forth in the
            tariffs. The Commission will not be precluded from implementing such
            service unbundling following approval of this settlement  agreement.
            It is the  intention  of the  parties  that any such  unbundling  be
            consistent  with the principle that the purchasers of such unbundled
            services not be subsidized by the Company or its other customers and
            that  stranded  costs  resulting  from such  unbundling be allocated
            consistent with this no-subsidy principle.

                                        20


21.   Residential Time-of-Use Rates



      There currently  exists a mandatory TOU  (time-of-use)  rate for large-use
residential customers (SC Nos. 1 and 7). The parties agree that the provision of
TOU service will be voluntary  beginning in October 1997 and, in anticipation of
this change, the mandatory TOU customers have been informed that, subject to the
Commission's   approval  of  this  settlement   provision,   commencing  on  the
anniversary date they first received mandatory TOU service,  they will be billed
on the conventional  rate or, if the customer so requests,  on the voluntary TOU
rate. The Company will recover the resulting  revenue  shortfalls either through
rate adjustment when shortfalls are experienced or through deferred  accounting,
but the  amounts  to be  recovered  will be  reduced  by the  amount of the late
payment charge revenue recovered per Appendix A, Section 2.v herein.


22.   Industrial Employment Growth


      The  Company  will make  provision  in SC No. 4 -Rate II  (commercial  and
industrial - redistribution)  and SC No. 9 - Rate II (general - large) providing
"industrial   employment  growth"  credits,   to  industrial   customers  served
thereunder.  The term  "industrial  customers" to determine  eligibility for the
credits  will  include  any  mandatory  SC No.  4 - Rate II or SC No.  9 Rate II
account,  other  than  governmental  customers,  where 75 percent or more of the
account's electric usage is used directly for manufacturing,  i.e., the assembly
of goods to create a new product,  the  processing,  fabrication or packaging of
goods, including biotechnology products, electronic products and recycling; and,
research and development by customers  having greater than 2,000 workers engaged
in  research  and  development  in  the  Con  Edison  service  area.  Industrial
employment  growth  credits  will not be  available  to  retail  establishments,
restaurants,   hotels,  hospitals,   schools,  cultural,   religious  or  public
institutions  or customers  engaged in provision of services  such as financial,
insurance,  real estate,  legal or similar  services.  Customers  taking service
under Rider I (Area Development Rate), Rider J (Business  Incentive Rate), Rider
L (Economic  Development  Zones) or Rider O (Curtailable  Electric Service) will
not be eligible for industrial employment growth credits.  Customers will not be
eligible for industrial  employment growth credits until written application for
such credits is made by the customer and accepted by the Company. The industrial
employment growth credits will, for each customer served thereunder,  constitute
the   equivalent  of  a  twenty-five   percent   reduction,   exclusive  of  any
separately-stated  system benefits charge  implemented per Section II.26 herein,
from the applicable rates and charges under Rate II of SC Nos. 4 and 9 in effect
as of the date of this settlement agreement.  The Company will provide notice of
the availability of this rate to all customers currently served under Rate II of
SC 4 and 9.

      The annual revenue  reductions  reflected in Section II.5 herein for large
industrial  customers reflect certain  assumptions about the numbers of existing
PSC No. 9 customers  eligible for this program.  If the actual revenue shortfall
for this  program  (i.e.,  the  difference  in  revenues  calculated  under  the
applicable rates and charges under Rate II of SC Nos. 4 or 9 in effect as of the
date of this settlement agreement and under the applicable industrial employment
growth

                                   21



  credits)  in any rate year (RY 1 through  RY5)  varies  from the revenue
reduction  level  attributable  to this  program per Section  II.5  herein,  the
variation  will be deferred  and  reflected in the  Statement of Case  96-E-0897
Adjustments per Section II.11 herein.  In calculating  revenue  variations under
this subparagraph,  the Company will exclude revenue variations due to increases
in load after a customer  commences  service  under  this  program,  and it will
exclude the entire load of customers commencing  manufacturing operations in the
service territory after the date of this settlement agreement.


23.   Low Income Rate Program


      In its Opinion and Order Approving  Settlement in Case 95-E-0964  (Opinion
No. 96-6, dated March 27, 1996), the Commission approved a settlement  agreement
establishing  a low-income  rate program.  The program  included a targeted rate
component  under which the customer  charge of certain SC Nos. 1 and 7 customers
would  remain  fixed at $5.00 per month  through  March 31, 1999 (id. at 2). The
parties  agree to continue the rate  component of the  low-income  settlement in
effect through RY5, following the same revenue-neutrality  provisions applicable
to the low-income  settlement  approved in Opinion No. 96-6, and to continue the
energy efficiency component of the program through October 1999.

24.   RY1 Through RY5 Tariffs Implementing This Agreement


             Following  approval  of this  agreement,  the  Company  will make a
compliance  filing to cover the rate changes  required by this agreement for the
period  commencing   October  1997.  Except  where  this  settlement   agreement
prescribes specific filing requirements or schedules, all other tariff revisions
will  be  filed  in  accordance  with  generally  applicable  Commission  filing
requirements, and reasonably in advance to allow reasonable Commission review.


25.   Rate Design Flexibility


      During the term of the agreement,  the Company will have the right to seek
to  change  rates in a  revenue-neutral  manner as set  forth  herein.  All rate
changes will be filed with the  Commission and be subject to its approval and be
consistent with the terms of the settlement  agreement.  The changes that may be
proposed pursuant to this provision are as follows:
     -   Reallocation of revenues among customer groups based on changes in the
         cost of service not known or  foreseen  at the time of this  settlement
         agreement
     -   Additions, deletions or other changes to rate blocks or seasonal
         differentials
     -   Segmentation of service classes according to consumption levels,
         load factors, and end-uses
     -   Reallocation of revenues within a class between demand, energy and
         customer charges, as applicable
     -   De minimis rate changes.

                                        22



            Where the  Company is to propose  more than one rate  change to take
effect at  approximately  the same time,  it will,  to the  extent  practicable,
combine such proposals in a single filing with the Commission. Nothing herein is
intended to preclude the Commission  from  initiating the rate change  proposals
covered by this paragraph.  Nor is the Company precluded from proposing flexible
rate  programs  pursuant  to the  Commission's  Opinion  and  Order  Authorizing
Flexible  Rates,  Opinion No. 94-15,  issued July 11, 1994, and the May 20, 1996
order.


26.   System Benefits Charge Program


      The Commission's May 20, 1996 order (p. 90) stated that "[c]osts  required
to be spent on necessary  environmental  and other public  policy  programs that
would not  otherwise  be  recovered in a  competitive  market will  generally be
recovered  by  a  non-bypassable   system  benefits  charge."  The  expenditures
reflected in the SBC are for research and development (R&D),  energy efficiency,
environmental protection,  and low income programs that are required or approved
by the  Commission  to be funded by the SBC. In this  settlement  agreement  and
subject to prospective  modification by the Commission  following  resolution of
the generic system benefits charge  proceeding  (Case  94-E-0952,  et al., Order
Modifying  Procedure,  issued February 6, 1997),  expenditure  levels for system
benefits charge programs will initially be covered in base rates,  but they will
be  non-bypassable  in any event.  Appendix B shows the costs of the programs in
base  rates.  Staff  and the  Company  support  the  spending  levels  for these
activities set forth in Appendix B through  October 1999  (approximating  1 mill
per kwhr). Unless the Commission otherwise directs, system benefits charge funds
collected by Con Edison will be  administered by Con Edison and will be spent on
system benefits charge measures in Con Edison's  service area. The parties agree
that any state-wide  fund should not pre-empt  program  funding for  commitments
made prior to the fund's being established.

    R&D:                R&D  programs   that  Con  Edison  is  required  by  the
                        Commission to conduct (excluding NYSERDA  contributions)
                        or that would  likely not be funded by the  Company in a
                        competitive environment will be recovered in the SBC.

   Energy efficiency:   The Company's  expenditures for demand side
                        management   ("DSM")  as  shown  in  Appendix  B  are  a
                        reasonable   level  through  October  1999.  New  energy
                        efficiency  programs  that the  Company is  required  by
                        order of the  Commission  to  conduct  in  excess of the
                        expenditure levels shown in Appendix B will be recovered
                        as a surcharge in the SBC.

      Low income:       The costs of any new, existing  or expanded low income
                        programs, including low-income energy efficiency
                        programs, approved or directed by the Commission will
                        be recovered in the system benefits charge.

                                             23



    Environmental
    Protection:         The costs of environmental protection programs,as deemed
                        necessary by the Commission, that are not likely to be
                        carried out in a competitive market, including programs
                        designed to mitigate environmental impacts of electric
                        industry restructuring.

      Mechanism:        Costs of programs ordered by the Commission in excess
                        of the amounts shown in Appendix B will be recovered
                        through a non-bypassable SBC surcharge.  The SBC
                        formula will be set forth in all rate schedules (PSC
                        No. 9, PASNY No. 4, EDDS and retail access).  The
                        Company may unbundle the current SBC expenditures
                        from base rates in a revenue-neutral manner in its
                        January 15, 1998 filing pursuant to Section II.20
                        herein.  The charge will not be subject to the rate
                        increase limitation established in Section II.7 of
                        this settlement agreement and will be set to cover
                        costs when spending levels are re-set.

                        The  Company's  expenditures  for  R&D  and  for  energy
                        efficiency,  other than those  included in the SBC, will
                        be determined  by the Company in its internal  budgeting
                        process,  and  beginning  with the calendar year 1998, a
                        demand side management plan will no longer be filed with
                        the Commission.  Con Edison will be authorized to pursue
                        both   efficient   sales  growth  and  sales   reduction
                        initiatives   utilizing   customer-focused   and   other
                        incentives.   The  NYPA  (PASNY  No.  4  and  EDDS)  SBC
                        component will exclude generation-related costs.

                                         24




27.   Miscellaneous Rate Provisions


      Con  Edison's  October  1, 1996 plan  contained  rate  proposals  that the
Company  maintained  were  needed  in  order to  facilitate  the  transition  to
competition.   Rate   changes  to  implement  a  minimum   monthly   charge  for
demand-billed customers will be implemented effective April 1, 1998, as provided
in Appendix A and rate changes to reflect the unbundling of certain charges will
be implemented for Con Edison  effective as prescribed in Appendix A hereto.  In
addition,  the Company's  October 2, 1996 filing to implement the third-stage of
the Case 94-E-0334  settlement  agreement contained proposals to institute a new
real time  pricing  program;  to modify  eligibility  rules in the  provision of
service under Rider J (Business  Incentive  Rate);  and to clarify the PSC No. 9
tariff in respect to demand meter installation  procedures and the correction of
a  cross-reference  in the tariff.  These Case  94-E-0334 rate proposals will be
implemented  effective as prescribed in Appendix A hereto.  The parties agree to
support  in  principle  the Con Edison  modified  high-tension  proposal  and DC
service  proposals,  both  contained  in Con  Edison's  October 1, 1996 plan and
described  in Appendix C hereto,  when filed  after the date of this  settlement
agreement.

      The Company will explore the  development of a hedging  program to be made
available  to   full-service   customers   interested   in  a  full  or  partial
non-adjustable  fixed rate for  electric  service.  The Company  will report the
results  of its  review and submit  any  proposals  resulting  therefrom  to the
Commission by November 15, 1997.

28.   Economic Development Rate Programs


      The parties agree that electric rates can be useful in promoting  economic
development,  and they have  reflected  this principle in the allocation of rate
reductions  in the rate plan.  Con Edison's  tariffs in effect as of the date of
this  settlement   agreement   provide   economic-development   rate  reductions
principally  pursuant  to  two  location-specific   programs,  Rider  I  -  Area
Development  ("ADR") and Rider L Rate  Available  Under New York State  Economic
Development  Zones Act  ("EDZ") and one  service-area  wide  program,  Rider J -
Business  Incentive Rate ("BIR").  The parties have agreed in the context of the
rate  plan  to  institute  a  phase-out  of the  application  of  the  Company's
location-specific rate programs (Riders I and L), and, accordingly, applications
under those programs will not be accepted after March 31, 1997. The Company will
continue  to  consider,  and will  implement  on a  revenue-neutral  basis,  new
economic  development  programs developed during the rate plan. The ADR, EDZ and
BIR rate programs will be adjusted to provide  customers  approximately the same
level of bill  reductions  provided  under  these  riders as of the date of this
agreement using a combination of the RY1 through RY5 bill reductions provided to
all   similarly-situated   business   customers   under   this   agreement   and
rider-specific  bill reductions  (except as prescribed in the Commission's March
27, 1997 order in this proceeding (p. 7)).

                                       25



29.   Retail Access Tariff and Retail Access Regulation


      The  Company  will  prepare  and file  retail  access  tariffs in order to
implement  the retail  access  program set forth in Section III herein,  and the
provisions  of Section III will be considered to be part of this "rate plan." At
the outset,  the retail  access  tariffs will include the same number of service
classifications,  with the same applicability rules for each class, adapted to a
retail access program,  as set forth in PSC No. 9 for the Company's  retail sale
of  electricity,  but Staff and the  Company  will  confer on ways to reduce the
number of service  classifications and rate programs applicable under the retail
access tariffs.  Pending such effort, the retail access tariffs will be prepared
following  the same  methods  and format  utilized in the sample  retail  access
tariffs  included  in  Appendix 9 to the  Company's  October  1, 1996 plan.  The
following  charges in retail access  tariffs will equal the charges set forth in
the corresponding PSC No. 9 tariff:  customer charge,  distribution  charge, and
transmission  charge.  As set forth in Section III, the  transportation/delivery
component of the retail  access charge will be set to collect the portion of the
generation  demand and energy charges set forth in the  corresponding  PSC No. 9
tariff that are not avoided by the  provision of power and energy via the retail
access tariffs. Therefore, the  transportation/delivery  component of the retail
access tariff will include the  generation  and energy charges in effect for the
corresponding  PSC No.  9  service  classification,  subject  to  adjustment  as
prescribed in Section III herein.

      The Company's  retail access tariff will be filed with the  Commission and
cover all  components  of the retail  access  tariff  described  herein.  If the
Federal  Energy   Regulatory   Commission   ("FERC")  should  require  that  the
transmission  or other  component of retail access service be provided under the
Company's "open access" tariff under FERC Order 888 or another FERC tariff,  the
Company and Staff will  cooperate in the  development  of retail access  tariffs
that carry out the commitments of this settlement agreement. Adjustments will be
made in the rates remaining  subject to the Commission's  jurisdiction to offset
any differences  (positive or negative) in rate levels for retail access service
that  are  set by  FERC  compared  to the  rates  provided  by  this  settlement
agreement.

      Any generator  supplying  power on an  interstate  radial that it paid for
directly  and  for  which  it  continues  to  directly  or  indirectly  pay  the
maintenance will not be deemed to be taking transmission  service for the use of
that line,  regardless  of the line's  ownership.  Nor will use of such a radial
line incur any charges of any type for transmission service (e.g.,  transmission
service charges).

                                   26



30.   Regulatory Reform, Customer Operations
      Procedures, and Classification of Facilities


            (i)   Legislative action for the prospective repeal of the
                  mandatory purchase requirements of the Public Utility
                  Regulatory Policies Act of 1978 ("PURPA") (16 USCss.824a-3)
                  and Public Service Law Section 66-c (McKinney) is expected
                  as the transition to competition in the electric utility
                  industry is implemented.  Implementation of these
                  requirements is a matter of Commission judgment.  Case
                  93-E-0912, Order Denying Petitions For Rehearing, issued
                  December 27, 1994, pp. 2-4.  Therefore, pending repeal of
                  these requirements, and subject to Commission approval of
                  this settlement agreement, Con Edison will be permitted to
                  condition payments under mandated contracts requiring fixed
                  payments for a period longer than one year upon recovery of
                  such payments in rates.

            (ii)  Con Edison  will not be  responsible  for the  performance  of
                  energy  service  companies  ("ESCOs").  Con Edison's ESCO will
                  have the same duties (licensing  requirements and load serving
                  entity ["LSE"] duties) as other ESCOs.

            (iii) To facilitate  the Company's  operations  under the rate plan,
                  provisions  of Part 11, Part 13, Part 140,  and Part 273 of 16
                  N.Y.C.R.R.  and the  requirements  for a plain  language  bill
                  format adopted in Case 28080, Order Requiring Gas and Electric
                  Utilities To File Revised Billing Formats (Oct. 31, 1985), are
                  waived to the extent that any such provisions are inconsistent
                  with the Company's ability to:

                   a. institute non-discriminatory procedures which require
                      an applicant to provide reasonable proof of the
                      applicant's identity as a condition of service;
                   b. modify its bill content and format in response to
                      industry restructuring; provided, however,  the
                      Company's bills will contain the following:
                      - an explanation of how bills may be paid
                      - total charges due
                      - due date
                      - unit price of energy consumed or other appropriate
                         itemization of charges (including sales taxes and
                         other informative tax itemization)
                      - complete name and address of customer
                      - unique account number or customer number assigned
                         to the customer
                      - meter readings
                      - period of time associated with each product or service
                      - name of entity rendering bill

                                             27


                      - local or toll-free telephone number customers may
                         call with inquiries

                   c.  include non-tariffed items in a bill; provided,
                      however, that customer payments are credited first to
                      tariffed items and service cannot be terminated for
                      failure to pay non-tariffed items.

            (iv)  Con Edison will be permitted to disclose residential and
                  non-residential customers' current payment status
                  information to other service providers to the extent such
                  information is limited to: whether or not a deposit could
                  be requested from the customers by Con Edison due to
                  delinquency, as defined in 16 NYCRRss.11.12(d)(2) or in 16
                  NYCRRss.13.1(b)(13), or for any reason provided in 16 NYCRR
                  ss.13.7(a)(1); whether or not a customer could be denied
                  service by Con Edison due to unpaid bills on an existing or
                  prior account; or, whether a customer's service could be
                  terminated by Con Edison, provided that:

                     -   such  information  is  to be  used  by  other  service
                         providers only for the purposes of determining  whether
                         unregulated  energy  services  will be  provided to the
                         customer, whether a deposit will be collected from such
                         customer,   or  for  other  purposes  approved  by  the
                         Commission;
                         
                    -    ownership of the data remains with Con Edison; and

                    -    such information request is made by a service
                         provider in response  to a bona fide  request  from the
                         customer to the service  provider for electric  service
                         or with other customer consent.

            Changes  to  Parts  11 and 13 of the  Commission's  regulations  are
            expected  to be made.  If  changes  are not made,  the  Company  may
            petition for further waiver of such rules.

      (v)   The Company  will be permitted  to accept  credit card  payments for
            utility service,  provided,  however,  that any costs imposed on Con
            Edison  associated with the receipt of payment by credit card are to
            be considered among the general costs of doing business and will not
            be a separate  additional charge to the customers whose payments are
            made by credit card.

      (vi)  In its May 20, 1996 order (p. 73), the Commission expected
            "filings by each utility" to it and subsequently to FERC "to
            distinguish and classify transmission and distribution
            facilities."  Con Edison's 138 kV feeders, which radially supply
            the area substations, are currently classified as transmission
            facilities in the Company's records.  However, these area
            substations supply only local distribution load within the
            Company's service area.  Therefore, these feeders, along with
            ancillary equipment, will be reclassified as distribution
            facilities following approval thereof by the Commission
            consistent with Commission Opinion No. 97-12 in Case 97-E-0251

                                        28


            (July 24, 1997), and the FERC.  Staff currently supports the
            Company's position and planned application to FERC.

31.   NYPA


      (i)   Revenue Deficiency Under the 1994 Cost-of-Service Study

            Con Edison's 1994 embedded cost study  indicates  that the rates and
            charges  applicable  to the  PASNY  No. 4 rate  schedule  should  be
            increased  by $22  million  annually  in order to bring the  revenue
            contribution  provided by this service to the overall average return
            (consistent with the tolerance band) for the Con Edison system.  The
            third year of the Case 94-E-0334  settlement  agreement  (App. D, p.
            3),  provides for a $9 million  annual  increase in NYPA's  revenues
            from  delivery  service  to take  effect  beginning  April 1,  1997.
            Implementation  of the Case  94-E0334  increase,  would  reduce  the
            indicated  revenue  deficiency  to $13  million  annually.  The Case
            94-E-0334  increase  will  not be  implemented  hereunder.  The  $13
            million deficiency is addressed in the Memorandum of Agreement on 25
            Cycle Service attached hereto as Appendix.

      (ii)  ISO And Stranded Cost Recovery


            Con  Edison's  provision  of  delivery  service  to NYPA  under  Con
            Edison's  PASNY  No. 4 and  EDDS  rate  schedules  is  likely  to be
            affected  by  the  transition  to  competition,   specifically,  the
            formation  and  operation  of an ISO may  result  in  NYPA  becoming
            subject to locational capacity requirements.  The cost impacts of an
            ISO locational  requirement on NYPA service are, however,  difficult
            to predict at this point in the  transition.  The parties agree that
            when the operation of the ISO begins to impact the service  provided
            under the  PASNY  No. 4 and EDDS  schedules,  the  Commission  could
            authorize  the  collection  of NYPA's ISO  locational  capacity cost
            increases  through a transition charge included in Con Edison's fuel
            adjustment  in  amounts  the  Commission  determines  to be just and
            reasonable.  Con Edison will petition the  Commission to make such a
            determination at such time as NYPA becomes subject to ISO locational
            requirements  and requests Con Edison to apply to the Commission for
            such a determination.

            The rates and  charges  reflected  in the PASNY No. 4 rate  schedule
            will  not  include  transportation/delivery  (i.e.,  stranded  cost)
            charge  component  during the rate plan except  that the  Commission
            will  consider  the  institution  of such a component  to the extent
            PASNY  No. 4 loads  increase  in  excess  of the  loads set forth in
            Appendix E. A principal factor in such Commission consideration will
            be the  extent to which the load  served by NYPA  under  PASNY No. 4
            includes  loads that have  transferred  from the PSC No. 9 or retail
            access   schedules  to  PASNY  No.  4  after   October  1,  1996.  A
            transportation/delivery  component  will not  apply to

                                        29



            EDDS  service except that such a component will apply to aggregate
            allocations to EDDS customers in excess of 174 MW.

      (iii) Con Edison  agrees not to  challenge,  either  before NYPA or in the
            courts, the allocation of economic  development power recommended by
            the New York State Economic Development Power Allocation Board dated
            December 17, 1996 (agenda item No. 2) or future  extensions  of such
            allocation, including novations.

32.   Fuel Adjustment Clause


      The incentive  electric fuel  adjustment  prescribed by the Case 94-E-0334
settlement  agreement  will  continue to operate in RY1 through  RY5,  except as
limited below in paragraph vi:

      (i)   the 30-70 Company-customer sharing ratio for variations from
            targets will be retained.

      (ii)  the Company's  overall cap (i.e.,  the maximum  reward or penalty in
            any rate  year,  including  the  effect  of IP2  generation  and its
            replacement)  will continue to be $35.0 million.  The Indian Point 2
            sub-cap  (i.e.,  the maximum  reward or penalty in any rate year for
            the  target  for  the  IP2  capacity   factor  and  its  replacement
            generation) will continue to be $10 million.

       (iii)for each rate year through  RY5,  the  capacity  factor for IP2 will
            continue to be set at an annual  period level of 73.5  percent.  The
            setting of an annual equivalent  capacity factor between  refuelings
            will be in accordance with the Case 94-E-0334 settlement  agreement,
            p.  25.  By April 1,  1997,  the  Company  will  provide  to Staff a
            forecast of the IP2 outage schedule through RY5.

       (iv) the fuel  targets  for RY1 will be based on the PROMOD data base set
            forth in Appendix  F. The parties  will  continue  to  cooperate  in
            exploring  alternate  methods  for  establishing   performance-based
            incentives,  including  market-price-based  indexing  when a visible
            energy market is sufficiently developed.

       (v)  the monthly fuel targets will  continue to be  calculated  using the
            monthly adjustments set forth in Appendix F.

       (vi) the  monthly  fuel  adjustment  will be  credited  with  the  actual
            reliability-related   and  other  unavoidable  energy  costs  to  be
            recovered    from    retail    access    customers    through    the
            transportation/delivery  service  charges,  as  provided in Sections
            III.8.(i) and  III.11.(i).  In addition,  the following cost factors
            will be fixed in base  rates at their  actual  annualized  1996 cost
            levels  and  will be  eliminated  from the  calculation  of the fuel
            adjustment and the reward/penalty provisions:

            -       oil storage and handling charges
            -       fixed gas transportation charges (i.e., local
                    transportation facilities use charges)

            Furthermore,  commencing  April 1, 1997 (or the date of the  tariffs
            filed to implement RY1 in compliance with this settlement  agreement
            following

                                        30



            Commission approval,  if later), the Company will allocate
            to base rates the costs, fixed as of the date of this agreement,  of
            diversity  power  (capacity  and  transmission  fixed  charges) from
            Hydro-Quebec  purchased through NYPA, and of the capacity  purchased
            from NYPA's  Indian Point 3 and Poletti  stations,  and the costs of
            the 2.6 cents/kWh fixed "adder"  applicable to 6,600 GWH pursuant to
            the energy purchase agreement with Sithe Energies, Inc. In addition,
            the Company will  recover  through the fuel  adjustment  clause (not
            subject to the  reward/penalty  provisions)  payments  for energy to
            Sithe  (excluding the 2.6 cents/kWh  adder) that would be due absent
            the  discount  to the  buy-back  tariff rate  specified  by contract
            beginning in the sixth year of the contract term (i.e.,  payments at
            the full buy-back tariff rate). The parties will consider continuing
            such recovery  after RY5. The base cost of fuel will be  established
            at 2.2 cents/kilowatthour.

      (vii) the  incentive  applicable  to  contract  renegotiations  with  NUGs
            (including terminations,  buyouts or buydowns) set forth in Sections
            II.13(iv) will be implemented in a manner to carry out its incentive
            objective  irrespective  of any  monthly  adjustments  for such NUGs
            under the preceding paragraph (v). E.g., if the Company successfully
            negotiates  improved  contract  terms  with a NUG  which  lower  the
            Company's  energy  costs,  the  incentive set forth in Section II.13
            (iv) would be implemented  by permitting the Company to collect,  in
            addition to actual energy costs,  thirty  percent of the energy cost
            reductions  through the fuel  adjustment  clause (not subject to the
            reward/penalty provision) for a period of eighteen months.

      (viii)when the ISO assumes  control of energy  dispatch in the state,  the
            parties  will  cooperate  in  revising  the  framework  of the  fuel
            adjustment  and  its  incentive  mechanism  as may be  necessary  to
            reflect the spot market  purchase price and other  applicable  costs
            resulting   from   the    establishment   of   the   ISO/PE   (e.g.,
            transmission-related  costs).  Con  Edison  will  submit a  proposed
            revised  framework  within 180 days after the point at which the ISO
            assumes control of energy dispatch in the state.

        (ix)The Company will  amortize  over RY1 the deferred fuel and purchased
            power costs  resulting from the transfers to base rates specified in
            paragraph (vi) above.  At the end of RY1, the Company will reconcile
            the actual costs and the amounts collected, with appropriate credits
            or charges for  overcollections or  undercollections  at the time of
            this reconciliation.



33.   Customer Service and Electric Service Reliability Incentives


To address the  importance of a  satisfactory  level of service to its customers
over the  term of this  agreement,  a  customer  service  and  electric  service
reliability  incentive program will be implemented.  This mechanism is set forth
in Appendix G herein.

                                       31



34.   SC No. 11 Buy-Back Energy Rates

      (i)   The SC No. 11 Buy-Back  energy rates  applicable to RY1 were adopted
            by the  Commission  in Case  96-E-0798,  Order  Adopting  Settlement
            Agreement, June 24, 1997.

      (ii)  The SC No. 11 Buy-Back energy rates for  transmission-level  sellers
            applicable  to RY2 will be as set forth in  Appendix  K herein.  The
            Company  will file revised  tariff  leaves  reflecting  these energy
            rates by February 1, 1998.

      (iii) The parties agree that, after the ISO is fully  operational,  the SC
            No. 11 Buy-Back energy rates may, if consistent with PURPA, be based
            on  appropriate  market data to be  available  from the ISO. To that
            end, the parties agree to convene technical  conferences  during the
            month of November  1998 to discuss the method for setting the SC No.
            11 Buy-Back  energy rates for RY3. The rates  applicable to RY 2 set
            forth in the preceding  sub-paragraph  (ii) will not be revised as a
            result of such conferences.  Among the issues to be addressed during
            these  conferences  are  the  point  in  time  at  which  the ISO is
            sufficiently  developed,  both  in  terms  of  commercial  operation
            experience and volume of energy and related products  processed,  to
            yield  data that may  appropriately  be used to  determine  the SC11
            Buy-Back  energy rates and the specific  market data  available from
            the ISO which should be so used.  If the parties are unable to reach
            a consensus  by November  30,  1998,  the parties  will  request the
            assignment of a settlement judge, and no party will oppose a request
            to the settlement judge for evidentiary  hearings followed by briefs
            and a  recommended  decision if such request is made by half or more
            of the parties.

      (iv)  In the event that the SC No. 11 Buy-Back energy rates for RY3, or
            a part thereof, are to be administratively set (e.g., because of
            the unavailability of appropriate ISO market data), and the
            parties are unable to reach a consensus on such revised rates for
            RY3 by November 30, 1998, then the Company will file proposed
            rates for RY3 with the Commission by no later than December 30,
            1998, which shall be subject to formal discovery and public
            comment under SAPA.  The Company's filing will also propose a
            procedure for setting rates for RY4.

      (v)   Nothing in the settlement agreement is intended to affect the
            determination of the SC No. 11 Buy-Back capacity rates for RY1
            and beyond.




III.  RETAIL ACCESS PROGRAM

Objectives and Phase-in Target Dates


1. A capacity and energy retail access program for up to 500 MW will
begin no later than nine months following Commission approval of this settlement
agreement  (i.e., by June 1, 1998,  assuming  approval is obtained no later than
September 30, 1997).

                                        32



       (i)   This schedule is contingent upon approval, within one hundred
            and twenty days of the settlement approval order, of the retail
            access implementation plan prescribed by the settlement agreement
            and the retail access tariffs (to be filed with the Commission
            and FERC, as applicable) governing this program substantially as
            submitted.  Con Edison will file the plan and tariffs, including
            operating and enrollment procedures governing this program for at
            least the initial twelve months, within thirty days following the
            issuance of the settlement approval order.  The schedule will be
            subject to reasonable change if significant revisions to the plan
            or tariffs are required or if approval of the plan and tariffs
            are otherwise delayed.

        (ii)  A total of up to 300 MW will be made available to up to
             approximately 100 customers who have real time metering (i. e.,
             large TOU customers).

        (iii)A  total  of  up  to  200  MW  will  be  made  available  to  up to
             approximately  160 groups of  non-TOU  customers  from all  service
             classifications,   totaling  about  60,000  customers   subject  to
             aggregation  rules,  to test the use of load shapes instead of real
             time metering. A group is a number of customers in a single service
             classification  with  homogenous load  characteristics  served by a
             single LSE. Low income aggregation in multi-family  buildings (five
             or more units) in low-income  neighborhoods  and  low-income  small
             home residential aggregation will be targeted. The Company's retail
             access  implementation plan will include proposals for a program to
             encourage participation in this initial phase by small (SC 1, 2 and
             7) non-TOU  customers.  The programs to be considered will include,
             among others,  a temporary,  non-recurring  increase to the backout
             credit as well as a payment to  encourage  the  enrollment  of such
             customers during the initial phase. The total one-time  incremental
             cost of the  program  will be  approximately,  but not  exceed,  $5
             million.  Any  portion of the $5 million  not used for the  program
             will be  deferred  for credit to the "all  other"  customer  groups
             defined in Section II.5 herein.

        (iv) The number of non-TOU customers in each service classification will
             be set to bring the minimum group size to approximately 1 MW.

        (v)  Hourly energy usage for customers in the aggregated  groups will be
             derived from the monthly  energy usage  through the use of customer
             load shapes to be  determined  by Con Edison from its load research
             data subject to Staff review.

        (vi) The parties  recognize that  implementation of retail access within
             nine months of Commission approval of this settlement  agreement is
             contingent  upon  the  timely  establishment  of  the  aggregation,
             eligibility  and  other  rules  applicable  to retail  access.  The
             parties will fully cooperate in this development. Within 30 days of
             approval of this settlement  agreement,  the Company will file with
             the  Commission,  with a copy to all  parties,  a plan and proposed
             retail  access  tariffs  outlining  the manner in which the Company
             will carry out this  initial  phase  (first  twelve  months) of the
             retail access plan.  Following the  Company's  filing,  the parties
             will  collaborate  in  reviewing  the filed plan and in  developing
             procedures 

                                            33


             for  its  periodic   evaluation.   Otherwise   eligible
             utilities and their  affiliates  may  participate  along with other
             LSEs in the retail access program except that, if Con Edison or its
             affiliates  are  restricted  from  participating  in retail  access
             programs being conducted by utilities,  participation by such other
             utilities  and their  affiliates  in Con Edison's  programs will be
             similarly restricted.


2. The  retail  access  program  will be expanded by 1,000 MW, to a
total of 1,500 MW,  within 10  months  of the date on which the  initial  500 MW
program begins. To the extent feasible,  the Company will begin to phase in this
program expansion  beginning six months after the initial 500 MW program begins.
Assuming  resolution of administrative and operational  problems that are likely
to  be  encountered  in  implementing   the  first  500  MW  of  retail  access,
participation  will  be  encouraged  from  all  customer  classes,   subject  to
aggregation and eligibility requirements and other applicable rules.

3.  Within  12 months after the beginning of the second phase of the
retail access program, (i.e., the 1,000 MW program expansion) and within each 12
months  thereafter,  retail  access will be  expanded  by 1,000 MW or more.  The
Company  would target the phase-in of retail  access to make it available to all
customers  by  the  earlier  of 18  months  after  a  fully  operational  ISO is
implemented,  or year-end 2001. For purposes of this agreement,  the ISO will be
considered  to be  "fully  operational"  when  energy  is being  provided  via a
competitive wholesale market facilitated by the ISO and upon commencement of the
first period  during which  capacity is being  provided  pursuant to a statewide
(i.e.,  including  the Con Edison  service  area)  capacity  auction or capacity
rules,  or it has been  determined  that  there is to be no  separate  statewide
capacity program.

4.  The  parties  recognize that even with widespread  discussion of
retail  access,  there has been little actual  experience  with retail access to
date,  particularly  on a large  scale,  and that  industry  experience  to date
indicates  that  approximately  one-half  the  customers  eligible  for  similar
programs would choose to participate in such programs in the initial period that
retail  access  is made  available.  The  parties  also  recognize  the need for
customer input and a gradual and orderly  phase-in of retail access to allow for
the proper resolution of unexpected,  but inevitable,  operational  difficulties
and  customer-related  issues.  Accordingly,  the parties  acknowledge  that the
retail access  objectives  and phase-in dates  specified  herein are targets and
that flexibility to change the program  schedule  indicated herein as issues and
obstacles  are  addressed  more slowly (or more  rapidly)  than  anticipated  is
essential. The schedule, therefore, will (with appropriate Commission oversight)
be subject to adjustment (e.g., via queuing,  phasing, or similar procedures) to
address these developments.

5. The parties also acknowledge that the transition to a competitive
market,  which is desirable,  needs to address the Company's  statutory  service
obligation.  Specifically, the parties acknowledge the Company's concern that it
may be acting in a manner  inconsistent  with its statutory  duty to serve if it
were to make irrevocable  commitments toward a competitive capacity market, such
as  divesting   generation  or  shutting  down  generating   stations,   without
recognizing  that Con  Edison's  ability  to carry  out its  service  obligation
reliably may be threatened by such commitments.  Con Edison will not be required
to make irrevocable  commitments  that are inconsistent  with its obligations at
the time.

                                   34


Retail Access Prior to A Fully Operational ISO

It is the intent of the parties that the rates charged to LSEs for energy and/or
capacity   and   the   rates   charged   to   retail   access    customers   for
transportation/delivery  service would not result in  subsidization of such LSEs
and retail  access  customers by the Company or its full service  customers  and
that stranded costs  resulting from retail access be allocated  consistent  with
this no-subsidy principle.  Subject to this principle, the method of determining
the capacity charges to LSEs and the related Generation Capacity Adjustments set
forth below will be  re-evaluated  prior to the second year of the retail access
program.

6. Energy:  LSEs, including Con Edison's ESCO, providing service to
retail access customers will have the option of purchasing  energy directly from
suppliers through bilateral arrangements (subject to operational  requirements),
or from Con Edison at  FERC-filed  energy  tariff  rates.  These  tariff  rates,
expressed on a cents/kWh basis, will be set at the applicable SC No. 11 Buy-Back
energy rates or will reflect the Company's hourly incremental costs, and will be
applicable to energy  purchases by LSEs as set forth below. Any LSEs desiring to
purchase  energy from Con Edison at the SC No. 11 Buy-Back  energy rates will be
required  to  contract   with  the  Company  for  the   purchase  of  all  or  a
pre-determined  fixed  portion  of the  LSE's  load  within  thirty  days of the
Commission's order setting the applicable SC No. 11 Buy-Back energy rate, but in
no event  later  than the  commencement  of the  12-month  period for which such
energy  rates are fixed.  The  contracting  LSE will be required to purchase the
pre-determined  fixed percentage of its energy  requirement  during all hours of
the year. All other energy purchases by LSEs from the Company,  including energy
above contracted-for percentage levels (e.g., during import curtailments),  will
be  priced  at  the  Company's  hourly  incremental  costs  (differentiated,  as
necessary, to reflect in-City generation costs). As to bilateral arrangements:

 -    Deliveries will be scheduled  through the NYPP and/or Con Edison and must
      be curtailable for reasons such as in-City generation requirements for the
      purpose of  reliability.  LSEs will be required  to  purchase  energy from
      in-City sources to replace curtailed deliveries.
 -    LSEs will be  required  to provide  Con Edison  with any  necessary  data
      needed to evaluate this program.
 -    LSEs will be  responsible  for  delivery to Con Edison's  franchise  area
      border.
 -    LSEs will be responsible  for delivery of sufficient  energy to cover all
      losses  in  delivery  to  customers'  premises,  with  such  loss  factors
      reflected in applicable tariffs.
 -    Con Edison  will  verify  LSEs'  deliveries  and will  provide  balancing
      services for LSEs at a charge to be filed with FERC.
 -    LSEs serving  in-City  load should have no greater  rights (or access) to
      the available transmission capacity for energy imports into NYC than their
      pro-rata share of such  available  capacity if the location based marginal
      cost  transmission  congestion  contract  approach proposed by NYPP is not
      approved by FERC in time for its implementation herein.

7. Capacity: LSEs, including Con Edison's ESCO, providing service to
retail access  customers,  will have the option of purchasing  capacity from Con
Edison at FERC-filed capacity tariff rates, expressed on a $/kW-year basis. Such
tariff  rates  will  not,  at least  for RY1,  exceed  the PSC No. 9  generation
component  charge and will be  established  annually  based on an auction to be

                                   35


conducted  by the  Company  for the sale of  installed  capacity  in  excess  of
capacity  required  for its full  service  customers  and its  in-City  capacity
requirements.  LSEs  will  also be able  to  provide  capacity  from  any  other
available source subject to the following:

 -    LSEs will be required to contract  for  capacity  equal to 118 percent of
      the coincident peak load to be supplied.
 -    Until June 1, 1999,  LSEs will be required to contract for capacity  from
      in-City  sources equal to no less than 70 percent of the in-City peak load
      to be  supplied  by such LSEs.  During  such time,  to the extent that the
      in-City  capacity  obtained by LSEs is less than 80 percent of the in-City
      peak load to be supplied by such LSEs,  Con Edison will maintain  existing
      in-City generating  capacity to cover such difference.  Thereafter,  until
      the ISO  establishes  locational  generation  capacity  requirement  rules
      applicable  to New York  City,  LSEs  will be  required  to  contract  for
      capacity from in-City sources equal to 80 percent of the in-City peak load
      to be supplied,  unless the Commission orders otherwise.  The Company will
      not be required to contract for or construct in-City  generation  capacity
      to meet LSEs' in-City capacity requirements.
  -   Capacity  obtained  from sources other than Con Edison will be subject to
      the same  reliability  requirements  to which Con Edison's  resources  are
      subject,  such  as  NYPP  rules  for  capacity   reliability/availability,
      including  installed capacity criteria,  and  disqualification of capacity
      obtained from  generators that have committed the same capacity to another
      entity.
 -    Con Edison will prepare and file with the  Commission a proposed  program
      to  allow  customer-owned   emergency  generation  facilities  to  address
      applicable  locational  generation  requirements.   The  program  will  be
      designed to cover not greater  than 100 MW of  emergency  generation  when
      initially effective inclusive of any load participation by NYPA customers.

8. Delivery  Service: The  transportation/delivery  service rate for
all  retail  access  customers  will be equal to the  full  service  rate in the
applicable PSC No. 9 tariff (e.g., large commercial retail access customers will
be  subject  to the rates  and  charges  in the PSC No. 9 tariff  rate for large
commercial  customers),  subject to the adjustments to the energy and generation
capacity  components of the full service rate described  below. The transmission
and  distribution  component and customer charge component of the PSC No. 9 rate
will not be impacted.

(i)   Energy Adjustment:  Subject to any program to encourage participation
      in the initial phase of the retail access program by small customers
      adopted pursuant to Section III.1.(iii), the applicable PSC No. 9
      energy component charge (on a cents/kWh basis, after adjustment to
      reflect total actual energy costs net of revenues received from sales
      of energy to LSEs) will be credited on a monthly basis for all retail
      access customers by an amount equal to the lesser of the SC No. 11
      Buy-Back energy rate (including appropriate loss factors) or such
      applicable PSC No. 9 energy component charge.  The remaining portion of
      the energy component charge included in the transportation/ delivery
      service rate (e.g., reliability-related and other unavoidable energy
      costs) would be subject to adjustment for actual costs as required.  To
      the extent the energy tariff approved by FERC provides for the recovery
      of less than the full energy costs incurred by the Company, including
      the

                                   36


      reliability-related and other unavoidable energy costs, such
      shortfall shall be recovered from all retail access customers through
      the transportation/delivery service rate.

(ii)  Generation Capacity Adjustment:  The applicable PSC No. 9 generation
      capacity component charge (on a $/kW year basis) will be credited on an
      annual basis for all retail access customers by an amount equal to the
      ratio of: (1) the actual revenues to be received by Con Edison in such
      year from sales of capacity made available at auction, if any,
      including capacity sales to LSEs serving Con Edison delivery customers,
      plus estimated identifiable capacity-related savings, if any, resulting
      to the Company directly from the purchase of capacity by LSEs from
      third parties (excluding savings associated with contract terminations
      and reductions in capacity purchases from Hydro Quebec and
      I.P.3/Poletti), divided by (2) the total amount of capacity made
      available for sale at auction to LSEs; provided, however, that the
      total credit cannot exceed the then-current-applicable PSC No. 9
      generation capacity component charge.  To the extent the capacity
      tariff rate approved by FERC is less than the filed tariff rate, any
      resulting revenue shortfalls shall be recovered from all retail access
      customers through the transportation/delivery service rate.


Retail Access After A Fully Operational ISO


       9.   Energy:  Same options and  requirements  as prior to a
fully operational ISO (as described above, paragraph 6), except that:

     -   LSEs will also have the option of purchasing energy directly through a
         Power Exchange.
     -   ISO  will  schedule  energy  deliveries   obtained  through  bilateral
         arrangements.
     -   ISO will provide for any in-City requirements for energy.
     -   ISO will provide  verification  of LSEs'  deliveries  and  balancing
         services.

10.  Capacity:  Same options and  requirements  as prior to a fully
operational ISO (as described  above,  paragraph 7), except that ISO reliability
rules will govern. The parties will actively support the expeditious adoption of
in-City  capacity  requirements  by the ISO. In the event that the ISO  requires
that LSEs  contract for in-City  capacity in excess of 70 percent of the in-City
peak load to be supplied prior to June 1, 1999, LSEs will be required to provide
no more than 70 percent of such  in-City  peak load until June 1, 1999,  and Con
Edison will maintain  sufficient existing in-City generation capacity to provide
the additional in-City capacity required by the ISO.

11.  Delivery  Service:  Same starting  point for  determining  the
transportation/delivery  service  rate as prior to a fully  operational  ISO (as
described above, paragraph 8), except that:

         (i)The Company would bid its energy into the ISO/Power  Exchange ("PE")
            at a price which would be expected to reflect the  avoidable  (i.e.,
            marginal and other  "running")  energy costs,  at a minimum (or at a
            higher price,  up to the expected  market clearing price for energy,
            consistent  with the  market  structure  that

                                   37


         develops).  Under the Energy Adjustment, the applicable PSC No. 9
         energy component charge (after  adjustment to reflect total  actual
         energy costs net of revenues  received  from the  sales  of  energy
         to  LSEs) would be credited for all retail  access  customers by an
         amount equal to the lesser of the market price of energy and such 
         applicable PSC No.9 energy  component charge. Any remaining portion
         of the energy component charge included in the transportation/delivery
         service rate (i.e., unavoidable energy costs not reflected in the
         market value of energy) would be subject to adjustment  for actual
         costs as required.

         (ii) To the extent practical and prudent,  the Company would bid all of
            its  capacity  into the ISO/PE at a price which would be expected to
            reflect  the "to go" (or  avoidable)  costs  (or at a higher  price,
            provided  that such  price  does not exceed  total  embedded  costs,
            including unrecovered energy costs, until market power concerns have
            been addressed).  Under the Generation Capacity Adjustment,  subject
            to necessary  adjustments  based upon the  operation of the ISO, the
            applicable PSC No. 9 generation  capacity  component charge would be
            credited for all retail access customers by the lesser of the market
            value of capacity and such applicable PSC No. 9 generation  capacity
            component charge.

         (iii)  A  system-wide  delivery  rate  will  apply  until  the  ISO  is
            operational and thereafter until the Commission  determines based on
            consideration  of all relevant  factors that a separate  rate should
            apply to Westchester County.

         (iv) In bidding its  fossil-fueled  capacity and energy into the ISO/PE
            at a price which would be expected to reflect, at least, the "to go"
            or avoidable costs, the Company will consider all costs avoidable as
            a result of a generating  unit being  backed  down,  taken off line,
            placed on cold  standby or retired,  and will include in its bid all
            "to go" costs that are  appropriately  considered  avoidable for the
            action that it plans to take if the unit is not  successful  in that
            auction.  The Company will have the  discretion to choose the action
            appropriate for each unit it bids into the ISO/PE. The categories of
            avoidable costs to be evaluated  include fuel and other variable and
            fixed  costs  such as  equipment  and  supplies,  labor and  outside
            services,  allocated  administrative  and general (A&G) expenses and
            property  taxes.  As a general rule,  being backed down would entail
            the lowest level of avoidable costs, followed by, in ascending order
            of  avoidable  costs,  being taken off line and being placed on cold
            standby, and lastly, by retirement.

         (v)Until Con Edison sells or transfers all of its fossil  units,  Staff
            will review the  appropriateness of Con Edison's energy and capacity
            bids  associated with any remaining units to ensure that all "to go"
            costs are properly bid. To facilitate such review,  the Company will
            submit  to  Staff,  by  June  1,  1998,   detailed   procedures  for
            identifying  and allocating all direct and indirect costs related to
            generation,  along with  criteria  for  including  such costs in the
            Company's bids consistent with the actions that the Company plans to
            take if its bids were  unsuccessful.  The Company's  submission will
            also include  appropriate  procedures  for bidding  generation  from
            Indian Point No. 2 at applicable "to go" costs. These procedures and
            criteria  will  form the  baseline  analysis  that  will  guide  Con
            Edison's  bidding  actions  and  facilitate  Staff's  review  of the
            appropriateness  of  those  actions.  Based

                                        38


            upon  an  audit  of the
            procedures and criteria proposed by Con Edison and by an independent
            analysis of the costs of generation, both direct and indirect, Staff
            will  ascertain and verify,  by September 1, 1998, the propriety and
            reasonableness  of the  baseline  analysis  proposed by the Company,
            including  the actions  that the  Company  plans to take if its bids
            were  unsuccessful.  No later than  thirty  days after each  bidding
            period,  Con  Edison  will  provide  Staff with the bids that it has
            submitted to the ISO/PE.  Competitive  bid data are considered to be
            commercially  valuable  and,  assuming  the data  qualify  for trade
            secret  protection  under then-  applicable  Commission  rules,  the
            Company's  bid data  would be  subject  to trade  secret  and  other
            confidentiality  protections  against  disclosure to any party other
            than Staff.  For capacity bids,  these  submissions  will be made no
            less than  every six  months  and no more  often  than once a month,
            depending  on the period  covered by the capacity  auctions.  Energy
            bids will be submitted  no more often than once a month,  Staff will
            review  the  bids  for  conformity  to the  bidding  procedures  and
            criteria  submitted  by the Company.  In addition,  Staff will audit
            once a year the details of Con Edison's bids,  using the appropriate
            baseline  analysis,  to  determine  if the "to go"  costs  are being
            appropriately  included in the bid for each  plant.  At such time as
            the Company seeks rate recovery of generation  costs, the Commission
            may disallow recovery of costs related to imprudent bidding actions.




Disposition of Petitions

      In light of the retail  access plan set forth  herein,  the retail  access
pilot petitions referred to this proceeding in the Commission's Order Concerning
Retail  Access  Proposals  in Case  94-E-0385  (issued  February  25,  1997) are
incorporated solely to the extent consistent with this settlement  agreement and
denied  in all other  respects.  The  petitioners  will not be  foreclosed  from
participating  in the retail access  program set forth herein for which they are
otherwise eligible.

IV.   DIVESTITURE

      Consistent with the objective of developing a fully  competitive  electric
market,  the  Company  commits  to divest  at least 50  percent  of its  in-City
electric generating  fossil-fueled MW capacity (i.e., the in-city fossil plants,
either in service or on reserve  shutdown  owned by Con Edison as of the date of
this settlement agreement, net of re-ratings or retirements that occur after the
date of this settlement  agreement) by year-end 2002. The Company will develop a
plan with the  objective  of divesting  and  transferring  all plants,  with the
exception of Indian Point No. 2 and its associated gas turbines,  to unregulated
entities,  including third parties and  affiliates,  by year-end 2002. This plan
will be designed with the objective of developing a fully  competitive  electric
market and maximizing the sales proceeds of divestiture.

      1.    Requirements for Divestiture


      The parties agree that the divestiture  program  outlined herein will be a
major step toward the


                                   39



development of a competitive,  deregulated  electricity market. The Company
will, therefore, implement its divestiture commitment. The only exceptions would
be (i) if the Commission  found that the level of divestiture  should be delayed
or reduced  (for  example,  to address  factors such as the need to maximize the
sales price or avoid a "fire sale" of assets, to address unforeseen legislative,
regulatory,  economic, business or other developments, or a force majeure, or to
address the electric system  integrity) or (ii) pending issuance of a finding by
the  Commission,  upon  petition by the Company to which parties will be offered
opportunity  to  comment,  that such  divestiture  commitment  by the Company is
consistent with the Company's then-existing obligation to serve the load related
to  customers  whose  loads  (and  associated   locational  and  reserve  margin
requirements)  exceed the Company's remaining  generation and that the extent of
the  Commission's   then-existing   regulation  of  electricity  prices  is  not
inconsistent  with the objective of  maximizing  the sales price of assets to be
divested.

      2.     Divestiture Parameters and Methodology


      The  divestiture  of plants to third parties and the transfer of plants to
the Company's unregulated  subsidiary will be carried out through a process that
will result in fair and reasonable  treatment of all parties,  including Company
investors and customers. This process will be fully developed in the divestiture
plan.

       Per Section II.13.vi,  after tax gains or losses will reflect the netting
out of divestiture costs (which have been deferred by the Company for recovery),
i.e.,  the  costs  of  developing  and  implementing  the  plan,  including  the
incremental financial, environmental,  transaction and employee costs associated
with the plan,  and the  divestiture  carried out to implement the plan, and any
tax implications thereof. Employee costs will cover  divestiture-related  costs,
if any,  associated  with plant and  direct-support  employees.  The use of cash
proceeds  from the sale of any plants will be at the  discretion  of the Company
subject to the provisions of Section V.8 (iii) of this settlement agreement. Any
after-tax  gains or losses made on the transfer or sale of divested  assets will
be reflected in the determination of stranded costs to be collected after RY5 as
prescribed in Section II.13-15 of this settlement agreement.

       The  divestiture  plan will identify the units to be divested  consistent
with the objective of developing a  competitive  electric  market in the service
area without the need for continuing regulation.  This includes the objective of
addressing  market  power  issues in the in-city area  including  the  "sub-load
pockets."  Resolution  of market  power  issues  should not  include  mitigation
measures such as price  controls,  revenue caps or other means which could limit
the revenues of the future owner of the generating  unit. The  divestiture  plan
submitted  by the  Company  will also  identify  how plants  and units  would be
packaged for sale or transfer; what restrictions, if any, would be placed on the
capacity that any one generating  company could  purchase;  the procedures to be
followed in the sale or transfer of generating  assets; key dates and milestones
to achieve the schedule of  divestiture;  and which  properties Con Edison would
make  available  for  sale  for  the  purpose  of  constructing  new  generating
facilities by third  parties.  If the  disposition  of generating  assets is not
proposed to be carried  out  through a  competitive  auction  process,  then the
Company's plan will justify the use of an alternative  process. The schedule for
divestiture  would provide for the Company to initiate the  divestiture  process
with  respect  to at least 30  percent  of the  in-City  fossil-fueled  electric
generation  within ninety days after the Commission's  approval of a divestiture
plan is obtained  and, if justified in the  Company's  plan in order

                                        40



to maximize the sales proceeds of  divestiture,  not later than ninety days
after the ISO in-City  capacity  requirement  rules become  effective.  Con
Edison's  affiliates,  consistent with the objective of achieving  workable
competition,  will be  included  among  the  potential  transferees  in the
Company's  divestiture  plan, and Con Edison's  affiliate  would be able to
participate  along  with  other  unregulated  sellers  in  the  competitive
electric market.  As a market  participant in the in-City load pocket,  the
unregulated  affiliate  will  be  allowed  to  own  generation  in  amounts
comparable to other unregulated unaffiliated market participants and not be
restricted by virtue of its utility affiliation.  The plan will also ensure
that the process  for,  and the terms and  conditions  of, the  transfer of
plant to Con Edison's  affiliate  would be  satisfactory to a neutral third
party (the Commission or another party).


      3.    Divestiture Plan Procedures

        The Company will submit its  divestiture  plan to the Commission  within
six months of the Commission  order  approving this  settlement  agreement.  The
Company will keep Staff and the parties  informed  about the  development of the
plan and submit to Staff for its  comment a draft scope of work for the plan and
the Company will brief Staff on the progress of the plan during its development.
These steps are intended to be informal and informational with minimum intrusion
on the plan's  development.  No rights of formal discovery or similar procedural
requirements  are intended to be provided  although  the Company will  cooperate
with  reasonable  inquiries  during the plan's  development  and  participate in
collaborative  efforts  requested by Staff.  The Company will submit the plan to
the Commission following its completion, and interested parties will be given an
opportunity  to file  comments on the  submitted  plan within  sixty days of its
submission.   If  the  Company   requests  an  exception  from  its  divestiture
commitment,  the  Commission  will  rule on the  request  expeditiously.  If the
Commission  otherwise  comments on the plan or recommends that to address market
power or other concerns the plan should be modified,  the Commission will either
initiate a proceeding to consider such  comments or  recommendations  or request
Con Edison to respond to such  comments or  recommendations.  The  parties  will
propose to the  Commission  a schedule for such a  proceeding  or response  that
would allow for a Commission order on the plan by year-end 1998. Thereafter, the
Commission  will approve the plan or modify it in a manner  consistent  with the
terms and conditions  prescribed by this Section IV. The parties expect that the
Commission's  order on the plan will also identify the plants that should not be
divested due to the need for continued  regulation  of such plants.  The Company
will not challenge the  Commission's  authority to implement this  subparagraph,
including any Commission  implementation that modifies the plan submitted by the
Company in a manner  consistent  with the overall  parameters of this Section IV
provided  such  modifications  may be  challenged  on the grounds  that they are
arbitrary,   capricious,  and  an  abuse  of  discretion  or  not  supported  by
substantial  evidence.  Nothing in this subparagraph  precludes the Company from
petitioning the Commission  separately at any time for authorization to transfer
generation or other plant pursuant to Section 70 of the Public Service Law.


      4.    Post-Rate Plan Period


      Any residual  unrecovered  costs for fossil  generation  will be recovered
through  charges  established as prescribed in Section II.15 of this  settlement
agreement.

                                        41


V.    CORPORATE STRUCTURE

1.    Formation of Holding Company


      (i)   The Company is permitted to reorganize into a holding company
            form through the mechanism of a binding share exchange, after
            which Con Edison (referred to in this Section as "the RegCo")
            will be a subsidiary of the Holding Company ("the HoldCo").*   In
            addition to Commission and shareholder approval, the approval of
            the Federal Energy Regulatory Commission ("FERC") and the consent
            of the Nuclear Regulatory Commission ("NRC") will be required to
            form the holding company structure.

      (ii)  Upon the formation of the HoldCo, Con Edison's existing
            unregulated subsidiaries, Promark Energy, Inc. (established
            pursuant to the Commission's order dated May 13, 1993 in Case
            92-G-0841, as amended by order dated January 7, 1994 in Case
            92-G-0841, order dated October 12, 1994 in Case 93-G-0996, and
            order dated November 16, 1994 in Case 94-G-0294) (the "ESCO"),
            and Gramercy Development, Inc., (established pursuant to the
            Commission's order dated July 12, 1996 in Case 95-M-0418), will
            be transferred to and become direct or indirect subsidiaries of
            the HoldCo.

      (iii) The HoldCo may form other subsidiaries from time to time,  including
            an Energy Supply  Company.  To the extent that the RegCo's  existing
            fossil-fueled  generating  stations are retained  within the holding
            company  structure,  they will be transferred  during the transition
            period  from the RegCo to the Energy  Supply  Company in  accordance
            with the RegCo's  divestiture  plan,  where they will compete in the
            unregulated   generation   market.   NUG  contracts   that  are  not
            securitized would remain with the RegCo.

      (iv)  An  initial  organization  chart  is  attached  as  Appendix  H. The
            subsidiaries  other than the RegCo are referred to  collectively  as
            "the  unregulated  subsidiaries"  or "unregulated  affiliates."  The
            HoldCo  may  also  establish  one or  more  intermediate  subsidiary
            holding  companies to hold its Con Edison common stock and the stock
            of its other  subsidiaries,  provided the Commission's  rights under
            this settlement agreement are not impaired by such action.

2.    Functional Unbundling

      (i)   Within the RegCo, the operations of its generating system, including
            fuel and power  purchases,  will be functionally  unbundled from its
            transmission   and   distribution   systems  in  a  "business  unit"
            structure.


* In the other  Sections of this  settlement  agreement,  "Con  Edison" and "the
Company"  refer to the  corporation  existing  as of the date of the  settlement
agreement and, where the settlement agreement applies to periods after formation
of Holdco, to the RegCo.

                                        42



      (ii)  Common services (including administrative, accounting, legal,
            purchasing, etc.) will continue to be provided within the RegCo
            to all of the RegCo business units.

      (iii) The business unit  structure  contemplates  realignment  of existing
            organizations  along  functional  lines.  The  latest  step  in  the
            realignment  was  effective  on  December  1,  1996.  The  wholesale
            electricity  purchasing  function for franchise  area  customers was
            aligned with the purchase of fuel for fossil  generation  within the
            generation  organization.  The  transmission  pricing  and  planning
            functions  were  aligned  within  the   transmission   organization,
            increasing  the  separation  of  the  generation  and   transmission
            functions.  Future changes include  realignment of the  transmission
            organization  with the distribution  organization  within the RegCo.
            Also the maintenance and construction organization will be realigned
            to  provide   functional   separation   between   transmission   and
            generation.


3.    The RegCo

      (i)   At the inception of the holding  company  structure,  the RegCo will
            continue  to own  all  generation,  transmission,  electric  and gas
            distribution and steam systems.

      (ii)  To the extent the RegCo continues to own generation assets or NUG
            contracts, it would be permitted to make wholesale electric
            energy sales outside its service territory, retail and wholesale
            electric energy sales within its service territory, and retail
            electric energy sales outside its service territory until the
            RegCo has an unregulated affiliate with all necessary approvals
            to make retail sales outside the RegCo's service territory.  The
            RegCo will be permitted to provide service for the remaining
            terms of any contracts for retail sales outside the service
            territory in effect on the date the RegCo's authority to make
            additional sales otherwise terminates or assign its rights and
            obligations, under one or more of such contracts to its
            affiliates if permitted by the contract(s).

      (iii) The RegCo may also  continue  to  provide  certain  services,  i.e.,
            advisory  services and maintenance and repair shop services provided
            by the  Van  Nest  maintenance  facility  (until  transferred  to an
            unregulated  subsidiary),   both  within  and  outside  the  service
            territory.  After RY5,  Van Nest,  if still owned by RegCo,  may not
            provide any service that the RegCo will stop  providing  pursuant to
            Section V.3(iv).

      (iv)  Through RY5, to the extent that the RegCo continues to have sales
            customers, the RegCo would be permitted to provide the full range
            of energy products and services to those sales customers,
            including "behind the meter" products and services, except for
            any behind the meter service that the Commission determines
            generically that the utilities should not provide, in which case
            the RegCo would terminate any such existing service(s) by the
            later of the date provided in the generic order or three (3)
            years from the effective date of the order approving this
            settlement.  RegCo may, however, elect to provide only basic
            commodity service and advise customers to seek energy-related
            services from competitive energy

                                        43


     service  companies  that offer such products and  services.  After RY5, the
     RegCo will, unless otherwise authorized by the Commission,  not provide any
     separately offered and separately priced  behind-the-meter  gas or electric
     services that are available from unregulated  providers,  except: (a) those
     services  that were part of its  historical  bundled  service and (b) those
     reasonably  necessary  to provide  transmission  and  distribution  service
     (e.g.,  services  necessary  to ensure the safety and  adequacy of service;
     incidental environmental work).

4.    Affiliate Relations - In General

      (i)   The RegCo and the HoldCo's  other  subsidiaries  will be operated as
            separate entities.  No unregulated  affiliate will be located in the
            same building as the RegCo beyond 180 days after its formation.  The
            RegCo and the HoldCo may occupy the same building.

      (ii)  Any transfer of assets or the provision of goods or services,  other
            than  tariffed  services and corporate  services  (such as corporate
            governance,  administrative,  legal and accounting services), by the
            RegCo to an unregulated  subsidiary or an unregulated  subsidiary to
            the RegCo,  will be pursuant to written contracts that will be filed
            with the PSC.

      (iii) Cost  allocation  guidelines  are  attached  as  Appendix  I.  These
            guidelines  will be amended and/or  supplemented,  if necessary,  to
            reflect  affiliate  transactions  not  contemplated  by the  initial
            guidelines  set forth in Appendix I. The Company  will file with the
            Director of the Office of Accounting  and Finance of the  Department
            of Public Service all  amendments and  supplements to the guidelines
            thirty days prior to making such change(s).

5.    Transfer of Assets

      (i)   Transfers  of  assets  from  the  RegCo to an  affiliate  or from an
            affiliate to the RegCo will not require  prior  Commission  approval
            except for the transfer of generating stations and other assets from
            the RegCo whose transfer requires Commission approval under PSL Sec.
            70.

      (ii)  For all assets other than generating stations (whose value will
            be determined in the section 70 proceeding),  transfers of assets
            from the RegCo to an affiliate shall be at the higher of net book
            value or fair market value and transfers of assets from an
            affiliate to the RegCo shall be on a basis not to exceed fair
            market value except that the RegCo may, as part of its
            reorganization, transfer to the HoldCo (at no charge) title to
            office furniture, equipment and other assets having an aggregate
            net book value not to exceed $5 million.

      (iii) Fair market value shall be determined  in  accordance  with the cost
            allocation  guidelines  (Appendix  I).  For  example,  the RegCo may
            transfer to an affiliate any computer software system that the RegCo
            is  authorized  to transfer,  without  data,

                                        44



            at a price at which the RegCo would sell such software to an 
            unaffiliated third party.

      (iv)  In general,  the transfer of  generating  assets will be  consistent
            with the divestiture plan.


6.    Personnel

      (i)   The RegCo and the unregulated subsidiaries will have separate
            operating employees.

      (ii)  Non-administrative  operating  officers  of the  RegCo  will  not be
            operating officers of any of the unregulated subsidiaries.

      (iii) Officers of the HoldCo may be officers of the RegCo.

      (iv)  Employees may be transferred between the RegCo and an unregulated
            subsidiary upon mutual agreement.  Transferred employees may not
            be reemployed by the RegCo for a minimum of 18 months from the
            transfer date.  Employees returning to the RegCo may not be
            transferred to an unregulated subsidiary for a minimum of  18
            months from the date of return.  The forgoing limitations will
            not apply to employees covered by a collective bargaining
            agreement.

      (v)   For employees transferred from the RegCo to an unregulated
            subsidiary, the unregulated subsidiary shall compensate the RegCo
            with an amount equal to 25 percent of the employee's prior year's
            annual salary on a one-time basis, except that there shall be no
            compensation (i) for employees transferred to an unregulated
            subsidiary not later than six months from the date the HoldCo
            becomes the parent of the RegCo or the unregulated subsidiary to
            which the employee is transferred is formed, whichever is later;
            (ii) for the transfer of employees covered by a collective
            bargaining agreement; or (iii) where the employee's transfer is
            attributable to the transfer or reduction of a RegCo function or
            major asset (e.g., a generating station).                         

      (vi)  The  foregoing  provisions  in no way  restrict any  affiliate  from
            loaning employees to RegCo to respond to an emergency that threatens
            the safety or reliability of service to consumers.

      (vii) The  compensation  of  RegCo  employees  may  not  be  tied  to  the
            performance  of  any  of  the  unregulated  subsidiaries,  provided,
            however,  that  stock of the  HoldCo  may be used as an  element  of
            compensation  and the  compensation of common officers of the HoldCo
            and RegCo may be based upon the operations of the HoldCo and RegCo.

                                        46


      (viii)      The employees of HoldCo, RegCo and the unregulated
            subsidiaries may participate in common pension and benefit plans.


       7.   Provision of Services and Goods

      (i)   The  RegCo  may  provide  corporate   services  (such  as  corporate
            governance, administrative, legal and accounting) for the HoldCo and
            the HoldCo's  unregulated  subsidiaries  may purchase  such services
            from the RegCo.  The  services  would be provided on a  fully-loaded
            cost basis.

      (ii)  The RegCo may provide other services to an unregulated affiliate,
            except that the RegCo may not use any of its marketing or sales
            employees to provide services to an unregulated affiliate for
            business within the RegCo's service territory.  The unregulated
            affiliate shall compensate the RegCo for the services of
            employees performing such services at the higher of the
            employees' fully-loaded cost plus 10 percent or the price that
            the RegCo charged a third party for such employees' services.

      (iii) The  unregulated  affiliates may provide  services to the HoldCo and
            the RegCo.  Any  management,  construction,  engineering  or similar
            contract between the RegCo and an affiliate and any contract for the
            purchase by the RegCo from an  affiliate  of electric  energy or gas
            shall be  governed  by PSL ss.110,  subject to any  applicable  FERC
            requirements.  All other goods and services  will be provided to the
            RegCo at a price that shall not be greater  than fair market  value,
            determined  in  accordance  with  the  cost  allocation   guidelines
            (Appendix I).

      (iv)  The RegCo, the HoldCo, and the unregulated affiliates may be covered
            by common  property/casualty  and other business insurance policies.
            The costs of such policies shall be allocated  among the RegCo,  the
            HoldCo and the unregulated affiliates in an equitable manner.


8.    Maintaining Financial Integrity

      (i)   The debt of RegCo  would be raised  directly  by the RegCo and would
            not be derived from the HoldCo.

      (ii)  Without the prior  permission of the Commission,  the RegCo will not
            (i) make loans to the HoldCo or any of the unregulated subsidiaries,
            (ii)  guarantee the  obligations  of either the HoldCo or any of the
            unregulated  subsidiaries;  (iii)  pledge its assets as security for
            the indebtedness of the HoldCo or any affiliate.

      (iii) The RegCo  will not pay out more than 100% of income  available  for
            dividends  calculated on a two-year rolling average basis.  Excluded
            from the  calculation  of "income  available for  dividends" for the
            purposes  of this  provision  will be  non-cash  charges  to  income
            resulting  from  accounting  changes or charges to income  resulting
            from significant  unanticipated  events.  The foregoing  restriction
            will also

                                        46



            not apply to dividends necessary to transfer to the HoldCo
            revenues from major transactions,  such as asset sales,  divestiture
            or  securitization  or to  dividends  reducing  the  RegCo's  equity
            capital ratio to a level  appropriate to the RegCo's  business risk.
            Senior  management  personnel  of the RegCo will discuss with senior
            Commission Staff personnel, on a confidential basis, the possibility
            of the  payment  of a  dividend  that  would  exceed  the  foregoing
            restriction  at least 10 business  days before  declaration  of such
            dividend.

      (iv)  The RegCo will be  required to certify  annually  to the  Commission
            that the RegCo has  retained or otherwise  has access to  sufficient
            capital to maintain and upgrade its plant, works and system in order
            to continue the provision of safe and reliable service.

      (v)   Senior  management  personnel  of the RegCo and the HoldCo will meet
            annually with senior  Commission  Staff  personnel to discuss,  on a
            confidential  basis,  the  RegCo's  and  the  HoldCo's   activities,
            including   plans  related  to  capital   attraction  and  financial
            performance.


9.    Standards of Competitive Conduct


      The following  standards of  competitive  conduct shall govern the RegCo's
relationship with any energy supply and energy service affiliates:


      (i)   There are no restrictions on affiliates using the same name,
            trade names, trademarks, service name, service mark or a
            derivative of a name, of the HoldCo or the RegCo, or in
            identifying itself as being affiliated with the HoldCo or the
            RegCo.  However, the RegCo will not provide sales leads for
            customers in its service territory to any affiliate, including
            the ESCO, and will refrain from giving any appearance that the
            RegCo speaks on behalf of an affiliate or that an affiliate
            speaks on behalf of the RegCo.  If a customer requests
            information about securing any service or product offered within
            the service territory by an affiliate, the RegCo may provide a
            list of all companies known to RegCo operating in the service
            territory who provide the service or product, which may include
            an affiliate, but the RegCo will not promote its affiliate.

      (ii)  The RegCo will not  represent to any  customer,  supplier,  or third
            party that an advantage may accrue to such  customer,  supplier,  or
            third party in the use of the  RegCo's  services as a result of that
            customer,  supplier or third party dealing with any affiliate.  This
            standard   does  not  prohibit  two  or  more  of  the   unregulated
            subsidiaries from lawfully packaging their services.

      (iii) All  similarly   situated   customers,   including  energy  services
            companies  and  customers  of  energy  service  companies,   whether
            affiliated or unaffiliated,  will pay the same rates for the RegCo's
            utility  services and the RegCo shall apply any tariff

                                        47



            provision in the same manner if there is  discretion  in the
            application  of the provision.

      (iv)  Transactions  subject to FERC's  jurisdiction  will be  governed  by
            FERC's orders or standards as applicable.

      (v)   Release of proprietary customer information relating to customers
            within the RegCo's service territory shall be subject to prior
            authorization by the customer and subject to the customer's
            direction regarding the person(s) to whom the information may be
            released.  If a customer authorizes the release of information to
            a RegCo affiliate and one or more of the affiliate's competitors,
            the RegCo shall make that information available to the affiliate
            and such competitors on an equal basis.

      (vi)  The  RegCo  will not  disclose  to its  affiliate  any  customer  or
            marketer  information  relative  to its  service  territory  that it
            receives from a marketer,  customer or potential customer,  which is
            not available from sources other than the RegCo, unless it discloses
            such information to its affiliate's competitors contemporaneously on
            an equal basis to the extent practicable.

      (vii) If any  competitor or customer of the RegCo  believes that the RegCo
            has violated the standards of conduct established in this section of
            the agreement,  such  competitor or customer may file a complaint in
            writing with the RegCo.  The RegCo will respond to the  complaint in
            writing  within  twenty  (20)  business  days  after  receipt of the
            complaint.  Within  fifteen (15)  business  days after the filing of
            such response,  the RegCo and the complaining  party will meet in an
            attempt  to  resolve  the  matter  informally.  If the RegCo and the
            complaining party are not able to resolve the matter informally, the
            matter will be referred promptly to the Commission for disposition.

      (viii)The Commission may impose on the RegCo  remedial  action  (including
            redress or penalties,  as applicable) for the RegCo's  violations of
            the standards of competitive  conduct.  If the Commission finds that
            the RegCo has engaged in a consistent pattern of material violations
            of the standards of  competitive  conduct  during the course of this
            Agreement,  it  shall  provide  the  RegCo  notice  of a  reasonable
            opportunity  to remedy  such  conduct.  If the RegCo fails to remedy
            such conduct within a reasonable period after receiving such notice,
            the Commission  may take remedial  action with respect to the HoldCo
            to prevent  the RegCo from  further  violating  the  standard(s)  at
            issue.  Such  remedial  action may include  directing  the HoldCo to
            divest the unregulated subsidiary,  or some portion of the assets of
            the  unregulated  subsidiary,  that is the  subject  of the  RegCo's
            consistent pattern of material  violations but exclude directing the
            HoldCo  to  divest  the  RegCo  or  imposing  a  service   territory
            restriction on the unregulated subsidiary. If the HoldCo is directed
            to divest an unregulated subsidiary, it may not thereafter,  without
            prior Commission  approval, use a new or existing subsidiary of the

                                        48


            HoldCo to conduct  within its service  territory  the same  business
            activities as the divested subsidiary (e.g.,  energy services).  The
            RegCo and the Holdco may exercise any or all of their administrative
            and judicial  rights to seek a reversal or  modification of remedial
            actions ordered by the Commission and may seek to obtain any and all
            legal and/or equitable relief from such remedial actions,  including
            but not limited to injunctive  relief. Con Edison will not challenge
            the Commission's authority to implement this subparagraph.

10.   Access to Books and Records and Reports

      (i)   Staff  will  have  access,  on  reasonable  notice  and  subject  to
            appropriate resolution of confidentiality and privilege concerns, to
            the books and records of the HoldCo and the HoldCo's  majority-owned
            subsidiaries.

            Staff  will  have  access,  on  reasonable  notice  and  subject  to
            appropriate resolution of confidentiality and privilege concerns, to
            the books and records of all other HoldCo subsidiaries to the extent
            necessary to audit and monitor any transactions  which have occurred
            between  the RegCo and such  subsidiaries,  to the extent the HoldCo
            has access to such books and records.

      (ii)  The RegCo will  supplement  the  information  that the  Commission's
            regulations  require  it  to  report  annually  with  the  following
            information:  Transfers  of  assets to and from an  affiliate,  cost
            allocations  relative to affiliate  transactions,  identification of
            RegCo  employees  transferred  to an  affiliate,  and a  listing  of
            affiliate employees participating in common benefit plans.

      (iii) The  HoldCo  will  provide  a  list  on a  quarterly  basis  to  the
            Commission  of all filings  made with the  Securities  and  Exchange
            Commission by the HoldCo and any subsidiary of the HoldCo, including
            the RegCo.

      (iv)  A senior officer of the HoldCo and the RegCo will each designate
            a company employee, as well as an alternate to act in the absence
            of such designee, to act as liaison between the HoldCo, the RegCo
            and Staff ("Company Liaisons").  The Company Liaisons will be
            responsible for ensuring adherence to the established procedures
            and production of information for Staff, and will be authorized
            to provide Staff access to any requested information to be
            provided in accordance with this Agreement.

      (v)   Access to books and records  shall be subject to claims of privilege
            and confidentiality concerns as set forth in Appendix J hereto.

11.   Independent Auditor

      (i)   The Commission may, during the term of this agreement,  require that
            an  independent  auditor  review the  compliance of the HoldCo,  the
            RegCo  and the  unregulated  subsidiaries  with  the  terms  of this
            agreement.   The  identity  of  the

                                   49


            independent   auditor  will  be
            determined  by the  Commission.  The cost of such  audit and  review
            shall be reasonable under the circumstances and shall be recorded by
            RegCo as a deferred debit and be recoverable from ratepayers.

       12.  Royalty

      (i)   The rate plan covers all royalties that otherwise  would be credited
            to RegCo's customers, at any time, including after the expiration of
            the agreement.

13.   Miscellaneous

      (i)   If Con Edison has not received shareholder or other regulatory
            approvals necessary to form HoldCo prior to issuance of the order
            approving the settlement, Con Edison is permitted to use up to 5%
            of its consolidated capital to fund unregulated subsidiaries that
            currently exist or that it may form and the relationships among
            and restrictions on affiliates shall be governed by this
            settlement agreement.  Accordingly, upon the date of the
            Commission's order approving this settlement, the existing
            limitations on the services that ProMark may provide are
            eliminated.  ProMark, which will likely become the ESCO, will be
            permitted to offer all the retail and wholesale energy services
            and related services and products, both within and outside Con
            Edison's service territory, that other unregulated energy service
            companies are permitted to offer.  Affiliate transactions between
            Con Edison and its subsidiaries, including the transfer of assets
            and employees and provision of goods and services, shall be
            governed in accordance with the terms of this agreement. Con
            Edison may, in its sole discretion, continue to seek the
            necessary approvals to reorganize into a holding company
            structure.

      (ii)  Upon the date of the  Commission's  order  approving this settlement
            agreement,  Con Edison's  relationships with its existing and future
            affiliates  will  be  governed   prospectively  by  this  settlement
            agreement.  Accordingly,  the following  Commission  orders will not
            apply to Con Edison:

               - Order  Approving  Use Of Up To $50  Million  To  Invest In
                 Unregulated Subsidiaries, issued July 12, 1996, in Case No.
                 95-M-0418;
               - Order Approving Use Of Utility Revenue To Establish A Gas
                 Marketing Subsidiary, issued May 13, 1993, and Order Denying
                 Petition For Reconsideration, issued January 7, 1994, in Case
                 No. 92-G-0841; and
              -  order  approving  use up to an  additional  $26,000,000  of
                 utility  revenue to invest in Con Edison  Gas  Marketing, Inc.,
                 filed in 92-G-0841, issued November 16, 1994, in
                 Case No. 94-G-0294.

            Similarly,   Section  1.A.v  of  the  June  7,  1994  Agreement  and
            Settlement  Concerning Gas Rates of Consolidated Edison of New York,
            Inc.  in Case  93-G-0996  and  Section  L.7 of the  October 24, 1996
            Settlement  Agreement in Case  96-G-0548,  which address royalty and
            other affiliate issues, will have no prospective
            effect.

                                        50


      (iii) The standards of conduct set forth in this  Agreement  will apply in
            lieu of any existing generic standards of conduct (e.g., the interim
            gas  standards  established  in Case  93-G-0932)  and in lieu of any
            future  generic  standards of conduct  established by the Commission
            through RY5 and will continue to apply after RY5 given the Company's
            need  for  stability  in  rules  governing  the  HoldCo   structure.
            Thereafter,  before  the  Commission  makes  any  changes  to  these
            standards,  it will consider the Company's  specific  circumstances,
            including its performance under the existing standards.


VI.   RESTRUCTURING-RELATED ACTIONS


 1.   Con Edison has an issue of Cumulative Preference Stock 6% Convertible
      Series B.  At December 31, 1996, 46,305 shares remained outstanding.
      Each share of stock is convertible at the option of the holder into 13
      shares of common stock and is also redeemable by the Company at a
      redemption price of $100.  Following the formation of HoldCo, all of
      Con Edison's common stock will be held by HoldCo.  Con Edison's
      preferred stock will remain outstanding stock of Con Edison.  To avoid
      having an issue of preferred stock that would be convertible into a
      minority common stock interest of Con Edison, Con Edison is authorized,
      subject to Commission approval of this settlement agreement, to call
      for redemption the remaining shares of the 6% Convertible Series B
      Cumulative Preference Stock.

 2.   The transition to competition envisioned by the Commission's May 20,
      1996 order and this settlement agreement could have an impact on
      Company employees other than as a result of divestiture measures
      addressed in Section IV of this settlement agreement.  To address this
      prospect, incremental retraining costs and severance payment,
      outplacement and related costs, if any, incurred in the RY1 through RY5
      period and not covered in Section IV will be deferred and reflected in
      the Statement of Case 96-E-0897 Adjustments per Section II.11 herein.
      The cost of any pension modification intended to promote early
      retirement will be amortized to pension expense over a period
      approximating the remaining service period for the Company's employees,
      and unamortized costs will be reflected in rates after RY5.  The
      programs covered by this subparagraph will be subject to review to
      assure that they are related to the transition to competition and
      reasonable compared to the cost and scope of similar programs
      implemented by other companies.

      The parties  recognize  that the  Company  and Local 1-2 Utility  Workers'
      Union  of  America,  AFL-CIO,  are  subject  to  a  collective  bargaining
      agreement  effective  through  June 24, 2000,  which  includes a provision
      entitled  "Successor  Clause and Notice,"  but nothing in this  settlement
      adds to,  subtracts  from or  otherwise  modifies  any  rights,  duties or
      obligations set forth in said collective bargaining agreement.

 3.   Nothing  in  this  settlement   agreement  is  intended  to  preclude  the
      Commission, at the time it exercises its authority over such actions under
      Sections  70  and  108 of the  Public  Service  Law,  from  allocating  to
      ratepayers  appropriate  savings  resulting from a merger that takes place
      between  Con Edison and  another  electric or gas utility or a purchase of
      another gas

                                   51


      or electric  utility by Con Edison or a purchase of Con Edison
      by any other utility.



VII.  CUSTOMER EDUCATION PROGRAM

      Con Edison will continue to develop and  implement  programs and materials
that will aid its  customers  in  understanding  the changes in the  electricity
market that are coming and the nature of the services that  customers can expect
to receive  from the  Company  in the  future.  Con  Edison's  overall  goals in
conducting these programs are to enable customers, particularly small customers,
to make informed choices about utility service while  understanding their rights
and  responsibilities  as a utility  customer and to get customer input into the
design of the  retail  access  program.  For retail  access and energy  services
choices  in the  competitive  energy  market,  the  Company's  efforts  would be
complemented by those of the  participating  providers of competitive  services,
who  can be  expected  to  provide  prospective  retail  access  customers  with
information  about the energy  choices  becoming  available  to  consumers.  The
program will also attempt to reach out to customers  eligible for the industrial
employment growth program.

      Con Edison will seek to achieve its goals  through  outreach and education
activities.  The outreach and  education  program will utilize the core outreach
and  education  tools  currently  in use:  communication  through  the  Customer
Handbook provided to new residential  customers;  customer information packages;
"Customer  News,"  which is  mailed  four or five  times  each year to all three
million  customers;   and  in-person  presentations  to  groups,  including  the
Company's  Advisory Councils,  social services  providers' groups, and different
segments of the Company's  customer base. The Company will  supplement this core
program with a message on the Company's  voice response unit telephone  service,
which will be  available  to more than  600,000  callers who contact the Company
each month.

      The Company  will  provide  annually to Staff on September 30 of each year
beginning 1998 a summary of its customer education efforts. This submission will
include an assessment of the progress made by these efforts.


VIII. MISCELLANEOUS

      1.    Provisions Not Separable:  Effect of Commission Modifications


      The parties have  negotiated and accepted this agreement in toto with each
provision in consideration  for, in support of, and dependent on the others.  If
the  Commission  does  not  approve  this  agreement  in its  entirety,  without
modification,  any  signatory may withdraw its  acceptance of this  agreement by
serving  written  notice on the other  parties,  and shall be free to pursue its
position in this proceeding without prejudice.

      If the Commission  approves this settlement  agreement or modifies it in a
manner  acceptable  to the  parties,  the parties  intend  that this  settlement
thereafter  be  implemented  in  accordance   with  its  terms.  If  a  material
modification  is  thereafter  authorized or required by the

                              52



Commission that is  unacceptable to any party to this settlement  agreement
adversely  affected by such  modification,  then,  in addition to any other
remedies a party may have,  such party may withdraw  from the agreement and
will not be bound thereafter to its provisions.

      2.    Provisions Not Precedent


      The terms and provisions of this agreement apply solely to and are binding
only in the context of the purposes and results of this  agreement.  None of the
terms and provisions of this agreement and none of the positions taken herein by
any party may be  referred  to,  cited or relied  upon by any other party in any
fashion as precedent in any other proceeding before this Commission or any other
regulatory  agency or  before  any court of law  except  in  furtherance  of the
purposes and results of this agreement.

                                     Staff of the Department
                                          of Public Service

                                    RICHARD KING

                                    Consolidated Edison Company
                                          of New York, Inc.

                                    JOHN D. MCMAHON




                              53