UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549

                                    FORM 10-Q

(Mark One)

|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended....................................March 31, 2006

                                       OR

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from.......................to.........................

Commission      Registrant, State of Incorporation            IRS Employer
File Number     Address and Telephone Number                  Identification No.
-----------     ----------------------------                  ------------------

0-30512         CH Energy Group, Inc.
                (Incorporated in New York)
                284 South Avenue
                Poughkeepsie, New York 12601-4879
                (845) 452-2000                                14-1804460

1-3268          Central Hudson Gas & Electric Corporation
                (Incorporated in New York)
                284 South Avenue
                Poughkeepsie, New York 12601-4879
                (845) 452-2000                                14-0555980

      Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.

      Yes |X| No |_|

      Indicate by check mark whether CH Energy Group, Inc. is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of
the Exchange Act. (Check One):

Large Accelerated Filer |X|   Accelerated Filer |_|   Non-Accelerated Filer |_|

<PAGE>

      Indicate by check mark whether Central Hudson Gas & Electric Corporation
is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of "accelerated filer and large accelerated filer" in Rule 12b-2
of the Exchange Act (Check One):

Large Accelerated Filer |_|    Accelerated Filer |_|   Non-Accelerated Filer |X|

      Indicate by check mark whether CH Energy Group, Inc. is a shell company
(as defined in Rule 12b-2 of the Exchange Act):

      Yes |_|   No |X|

      Indicate by check mark whether Central Hudson Gas & Electric Corporation
is a shell company (as defined in Rule 12b-2 of the Exchange Act):

      Yes |_|   No |X|

      As of the close of business on May 1, 2006, (i) CH Energy Group, Inc. had
outstanding 15,762,000 shares of Common Stock ($0.10 per share par value) and
(ii) all of the outstanding 16,862,087 shares of Common Stock ($5 per share par
value) of Central Hudson Gas & Electric Corporation were held by CH Energy
Group, Inc.

      CENTRAL HUDSON GAS & ELECTRIC CORPORATION MEETS THE CONDITIONS SET FORTH
IN GENERAL INSTRUCTIONS (H)(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING
THIS FORM WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTIONS
(H)(2)(a), (b) AND (c).

<PAGE>

                 FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2006

                                      INDEX

      PART I - FINANCIAL INFORMATION                                        PAGE
                                                                            ----

Item 1 - Consolidated Financial Statements (Unaudited)

          CH ENERGY GROUP, INC.
          Consolidated Statement of Income -                                  1
           Three Months Ended March 31, 2006, and 2005

          Consolidated Statement of Comprehensive Income -                    2
           Three Months Ended March 31, 2006, and 2005

          Consolidated Balance Sheet - March 31, 2006,                        3
           December 31, 2005, and March 31, 2005

          Consolidated Statement of Cash Flows -                              5
           Three Months Ended March 31, 2006, and 2005

          CENTRAL HUDSON GAS & ELECTRIC CORPORATION
          Consolidated Statement of Income -                                  6
           Three Months Ended March 31, 2006, and 2005

          Consolidated Statement of Comprehensive Income -                    7
           Three Months Ended March 31, 2006, and 2005

          Consolidated Balance Sheet - March 31, 2006,                        8
           December 31, 2005, and March 31, 2005

          Consolidated Statement of Cash Flows -                             10
           Three Months Ended March 31, 2006, and 2005

          Notes to Consolidated Financial Statements (Unaudited)             11

<PAGE>

                                      INDEX

         PART I - FINANCIAL INFORMATION                                     PAGE
                                                                            ----

Item 2 - Management's Discussion and Analysis of                             35
            Financial Condition and Results of Operations

Item 3 - Quantitative and Qualitative Disclosures                            50
            about Market Risk

Item 4 - Controls and Procedures                                             50

         PART II - OTHER INFORMATION

Item 1 - Legal Proceedings                                                   51

Item 1A - Risk Factors                                                       52

Item 4 - Submission of Matters to a Vote of Security Holders                 53

Item 6 - Exhibits                                                            55

Signatures                                                                   56

Exhibit Index                                                                57

Certifications                                                               58

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

Filing Format

      This Quarterly Report on Form 10-Q is a combined quarterly report being
filed by two different registrants: CH Energy Group, Inc. ("Energy Group") and
Central Hudson Gas & Electric Corporation ("Central Hudson"), a wholly owned
subsidiary of Energy Group. Except where the content clearly indicates
otherwise, any reference in this report to Energy Group includes all
subsidiaries of Energy Group, including Central Hudson. Central Hudson makes no
representation as to the information contained in this report in relation to
Energy Group and its subsidiaries other than Central Hudson.

<PAGE>

                         PART I - FINANCIAL INFORMATION

                   Item I - Consolidated Financial Statements

                              CH ENERGY GROUP, INC.
                        CONSOLIDATED STATEMENT OF INCOME
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                   For the 3 Months Ended March 31,
                                                                                                      2006                   2005
                                                                                                   ---------              ---------
                                                                                                         (Thousands of Dollars)
<S>                                                                                                <C>                    <C>
Operating Revenues
  Electric ...........................................................................             $ 136,047              $ 126,658
  Natural gas ........................................................................                70,809                 63,430
  Competitive business subsidiaries ..................................................               110,375                 96,001
                                                                                                   ---------              ---------
      Total Operating Revenues .......................................................               317,231                286,089
                                                                                                   ---------              ---------

Operating Expenses
  Operation:
    Purchased electricity and fuel used in
       electric generation ...........................................................                85,840                 78,421
    Purchased natural gas ............................................................                51,727                 43,204
    Purchased petroleum ..............................................................                84,858                 71,395
    Other expenses of operation - regulated activities ...............................                28,495                 24,730
    Other expenses of operation - competitive business subsidiaries ..................                15,670                 14,524
  Depreciation and amortization ......................................................                 8,952                  9,086
  Taxes, other than income tax .......................................................                 7,604                  7,916
                                                                                                   ---------              ---------
      Total Operating Expense ........................................................               283,146                249,276
                                                                                                   ---------              ---------

Operating Income .....................................................................                34,085                 36,813
                                                                                                   ---------              ---------

Other Income and Deductions
  Interest on regulatory assets and investment income ................................                 2,561                  2,365
  Other - net ........................................................................                  (354)                  (522)
                                                                                                   ---------              ---------
      Total Other Income .............................................................                 2,207                  1,843
                                                                                                   ---------              ---------

Interest Charges
  Interest on long-term debt .........................................................                 3,953                  3,247
  Interest on regulatory liabilities and other interest ..............................                 1,038                  1,056
                                                                                                   ---------              ---------
      Total Interest Charges .........................................................                 4,991                  4,303
                                                                                                   ---------              ---------

Income before income taxes and preferred dividends of subsidiary .....................                31,301                 34,353

Income taxes .........................................................................                12,759                 13,772
                                                                                                   ---------              ---------

Income before preferred dividends of subsidiary ......................................                18,542                 20,581
Cumulative preferred stock dividends of subsidiary ...................................                   242                    242
                                                                                                   ---------              ---------

Net Income ...........................................................................                18,300                 20,339
Dividends Declared on Common Stock ...................................................                 8,511                  8,512
                                                                                                   ---------              ---------

Balance Retained in the Business .....................................................             $   9,789              $  11,827
                                                                                                   =========              =========

Common Stock:
    Average Shares Outstanding - Basic ...............................................                15,762                 15,762
                               - Diluted .............................................                15,777                 15,770

    Earnings Per Share - Basic .......................................................             $    1.16              $    1.29
                       - Diluted .....................................................             $    1.16              $    1.28

    Dividends Declared Per Share .....................................................             $    0.54              $    0.54
</TABLE>

                 See Notes to Consolidated Financial Statements


                                      -1-
<PAGE>

                              CH ENERGY GROUP, INC.
                 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                            For the 3 Months Ended March 31,
                                                                                                  2006             2005
                                                                                               ---------        ---------
                                                                                                  (Thousands of Dollars)
<S>                                                                                            <C>              <C>
Net Income ............................................................................        $  18,300        $  20,339

Other Comprehensive Income:

Net unrealized gains net of tax and net income realization:
      FAS 133 Designated Cash Flow Hedges - net of tax of $(7) and $(39) ..............               11               58
      Investments - net of tax of $(83) and $(115) ....................................              126              172
                                                                                               ---------        ---------

Other comprehensive income ............................................................              137              230
                                                                                               ---------        ---------

Comprehensive Income ..................................................................        $  18,437        $  20,569
                                                                                               =========        =========
</TABLE>

                 See Notes to Consolidated Financial Statements


                                      -2-
<PAGE>

                              CH ENERGY GROUP, INC.
                           CONSOLIDATED BALANCE SHEET
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                           March 31,         December 31,          March 31,
                                     ASSETS                                  2006                2005                2005
                                                                          ----------         ------------         ----------
                                                                                        (Thousands of Dollars)
<S>                                                                       <C>                 <C>                 <C>
Utility Plant
       Electric ...................................................       $  742,799          $  739,775          $  703,958
       Natural gas ................................................          227,360             226,859             215,414
       Common .....................................................          108,009             107,581             105,143
                                                                          ----------          ----------          ----------
                                                                           1,078,168           1,074,215           1,024,515

       Less:  Accumulated depreciation ............................          338,414             333,164             320,434
                                                                          ----------          ----------          ----------
                                                                             739,754             741,051             704,081

       Construction work in progress ..............................           45,929              38,460              47,279
                                                                          ----------          ----------          ----------
               Net Utility Plant ..................................          785,683             779,511             751,360
                                                                          ----------          ----------          ----------

Other Property and Plant - net ....................................           22,806              23,138              22,943
                                                                          ----------          ----------          ----------

Current Assets
       Cash and cash equivalents ..................................           38,908              49,410              61,234
       Short-term investments - available-for-sale securities .....           39,600              42,100              48,900
       Accounts receivable -
             net of allowance for doubtful accounts of
             $5.0 million, $4.6 million, and $5.9 million,
             respectively .........................................          105,312              97,462              94,035
       Accrued unbilled utility revenues ..........................            8,444               9,334               8,862
       Other receivables ..........................................            5,177               6,326               3,904
       Fuel and materials and supplies - at average cost ..........           29,376              28,350              14,938
       Regulatory assets ..........................................           20,156              30,764              11,572
       Prepaid income taxes .......................................               --               1,166                  --
       Fair value of derivative instruments .......................               61                  --                 502
       Special deposits and prepayments ...........................           23,134              23,184              18,687
       Accumulated deferred income tax ............................           14,147               8,836              13,762
                                                                          ----------          ----------          ----------
                Total Current Assets ..............................          284,315             296,932             276,396
                                                                          ----------          ----------          ----------

Deferred Charges and Other Assets
       Regulatory assets - pension plan ...........................          109,235              97,073              94,488
       Intangible asset - pension plan ............................           20,217              20,217              22,291
       Goodwill ...................................................           51,493              51,333              50,462
       Other intangible assets - net ..............................           27,810              28,368              28,107
       Regulatory assets ..........................................           58,254              52,353              40,268
       Unamortized debt expense ...................................            3,899               3,973               3,950
       Partnership interests ......................................           11,431               7,350               6,879
       Other ......................................................           20,993              19,258              13,676
                                                                          ----------          ----------          ----------
                Total Deferred Charges and Other Assets ...........          303,332             279,925             260,121
                                                                          ----------          ----------          ----------

                          Total Assets ............................       $1,396,136          $1,379,506          $1,310,820
                                                                          ==========          ==========          ==========
</TABLE>

                 See Notes to Consolidated Financial Statements


                                      -3-
<PAGE>

                              CH ENERGY GROUP, INC.
                           CONSOLIDATED BALANCE SHEET
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                     March 31,       December 31,        March 31,
                    CAPITALIZATION AND LIABILITIES                                      2006             2005               2005
                                                                                    -----------      ------------       -----------
                                                                                               (Thousands of Dollars)
<S>                                                                                 <C>               <C>               <C>
Capitalization
        Common Stock Equity:
             Common stock, 30,000,000 shares authorized:
               15,762,000 shares outstanding, 16,862,087 shares issued,
               $0.10 par value ...............................................      $     1,686       $     1,686       $     1,686
        Paid-in capital ......................................................          351,230           351,230           351,230
        Retained earnings ....................................................          207,806           198,017           199,600
        Treasury stock (1,100,087 shares) ....................................          (46,252)          (46,252)          (46,252)
        Accumulated comprehensive income (loss) ..............................             (383)             (520)             (413)
        Capital stock expense ................................................             (328)             (328)             (328)
                                                                                    -----------       -----------       -----------
                Total Common Stock Equity ....................................          513,759           503,833           505,523
                                                                                    -----------       -----------       -----------

        Cumulative Preferred Stock
             Not subject to mandatory redemption .............................           21,027            21,027            21,027

        Long-term debt .......................................................          310,886           343,886           319,883
                                                                                    -----------       -----------       -----------
                Total Capitalization .........................................          845,672           868,746           846,433
                                                                                    -----------       -----------       -----------

Current Liabilities
        Current maturities of long-term debt .................................           33,000                --                --
        Notes payable ........................................................           29,000            30,000            10,000
        Accounts payable .....................................................           41,900            54,926            37,982
        Accrued interest .....................................................            2,697             5,156             2,477
        Dividends payable ....................................................            8,754             8,754             8,754
        Accrued vacation and payroll .........................................            5,785             5,845             6,779
        Customer deposits ....................................................            7,125             7,101             6,586
        Regulatory liabilities ...............................................               61               373               404
        Fair value of derivative instruments .................................              137               335                --
        Accrued income taxes .................................................           11,325                --            15,545
        Deferred revenues ....................................................            7,321             9,717             5,538
        Other ................................................................           11,111            11,964             5,303
                                                                                    -----------       -----------       -----------
                Total Current Liabilities ....................................          158,216           134,171            99,368
                                                                                    -----------       -----------       -----------

Deferred Credits and Other Liabilities
        Regulatory liabilities ...............................................          155,514           156,808           152,838
        Operating reserves ...................................................            6,393             6,216             6,341
        Accrued environmental remediation costs ..............................           22,709            22,772            22,894
        Accrued other post-employment benefit costs ..........................           27,639            24,945            19,476
        Accrued pension costs ................................................           28,347            18,806            23,719
        Other ................................................................           13,507            13,258            13,932
                                                                                    -----------       -----------       -----------
                Total Deferred Credits and Other Liabilities .................          254,109           242,805           239,200
                                                                                    -----------       -----------       -----------

Accumulated Deferred Income Tax ..............................................          138,139           133,784           125,819
                                                                                    -----------       -----------       -----------

Commitments and Contingencies (Note 11)

                         Total Capitalization and Liabilities ................      $ 1,396,136       $ 1,379,506       $ 1,310,820
                                                                                    ===========       ===========       ===========
</TABLE>

                 See Notes to Consolidated Financial Statements


                                      -4-
<PAGE>

                              CH ENERGY GROUP, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                            For the 3 Months Ended
                                                                                                    March 31,
                                                                                           2006                2005
                                                                                        ----------          ----------
Operating Activities:                                                                       (Thousands of Dollars)
<S>                                                                                     <C>                 <C>
   Net Income ...................................................................       $   18,300          $   20,339

        Adjustments to reconcile net income to net
             cash provided by (used in) operating activities:
                 Depreciation and amortization ..................................            8,952               9,086
                 Deferred income taxes - net ....................................               99                 366
                 Provision for uncollectibles ...................................            1,673               1,163
                 Accrued/deferred pension costs .................................           (3,858)             (4,153)

             Changes in operating assets and liabilities - net:
                 Accounts receivable, unbilled revenues and other receivables ...           (7,484)            (29,047)
                 Fuel, materials and supplies ...................................           (1,026)              6,521
                 Special deposits and prepayments ...............................           (2,634)             (1,155)
                 Accounts payable ...............................................          (13,026)             (5,436)
                 Accrued taxes and interest .....................................            8,866              16,627
                 Deferred natural gas and electric costs ........................           10,734               5,210
                 Customer benefit fund ..........................................           (2,474)             (1,350)
                 Other - net ....................................................           (6,682)             (3,114)
                                                                                        ----------          ----------

        Net Cash Provided By Operating Activities ...............................           11,440              15,057
                                                                                        ----------          ----------

Investing Activities:

        Purchase of temporary investments .......................................          (10,200)             (8,750)
        Proceeds from sale of temporary investments .............................           12,700               8,550
        Additions to utility plant and other property and plant .................          (12,390)            (13,072)
        Issuance of notes receivable ............................................           (1,590)                 --
        Acquisitions made by competitive business subsidiaries ..................             (405)                 --
        Other - net .............................................................             (525)               (453)
                                                                                        ----------          ----------

        Net Cash Used in Investing Activities ...................................          (12,410)            (13,725)
                                                                                        ----------          ----------

Financing Activities:

        Redemption of preferred stock ...........................................               --                  (3)
        Net repayments of short-term debt .......................................           (1,000)             (2,000)
        Dividends paid on common stock ..........................................           (8,511)             (8,512)
        Debt issuance costs .....................................................              (21)                 --
                                                                                        ----------          ----------

        Net Cash Used in Financing Activities ...................................           (9,532)            (10,515)
                                                                                        ----------          ----------

Net Change in Cash and Cash Equivalents .........................................          (10,502)             (9,183)

Cash and Cash Equivalents - Beginning of Year ...................................           49,410              70,417
                                                                                        ----------          ----------

Cash and Cash Equivalents - End of Period .......................................       $   38,908          $   61,234
                                                                                        ==========          ==========

Supplemental Disclosure of Cash Flow Information

        Interest paid ...........................................................       $    7,621          $    6,202

        Federal and State income tax paid .......................................       $      138          $       94
</TABLE>

                 See Notes to Consolidated Financial Statements

                                      -5-
<PAGE>

                    CENTRAL HUDSON GAS & ELECTRIC CORPORATION
                        CONSOLIDATED STATEMENT OF INCOME
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                            For the 3 Months Ended March 31,
                                                                                  2006               2005
                                                                               ----------        ----------
                                                                                   (Thousands of Dollars)
<S>                                                                            <C>               <C>
Operating Revenues
  Electric .............................................................       $  136,047        $  126,658
  Natural gas ..........................................................           70,809            63,430
                                                                               ----------        ----------
      Total Operating Revenues .........................................          206,856           190,088
                                                                               ----------        ----------

Operating Expenses
  Operation:
    Purchased electricity and fuel used in electric generation .........           85,840            78,421
    Purchased natural gas ..............................................           51,727            43,204
    Other expenses of operation ........................................           28,495            24,730
  Depreciation and amortization ........................................            7,455             7,502
  Taxes, other than income tax .........................................            7,527             7,830
                                                                               ----------        ----------
      Total Operating Expenses..........................................          181,044           161,687
                                                                               ----------        ----------

Operating Income .......................................................           25,812            28,401
                                                                               ----------        ----------

Other Income and Deductions
  Interest on regulatory assets and other interest income ..............            1,929             1,881
  Other - net ..........................................................             (119)             (659)
                                                                               ----------        ----------
      Total Other Income ...............................................            1,810             1,222
                                                                               ----------        ----------

Interest Charges
  Interest on long-term debt ...........................................            3,953             3,247
  Interest on regulatory liabilities and other interest ................            1,038             1,056
                                                                               ----------        ----------
      Total Interest Charges ...........................................            4,991             4,303
                                                                               ----------        ----------

Income before income taxes .............................................           22,631            25,320

Income taxes ...........................................................            9,578            10,330
                                                                               ----------        ----------

Net Income .............................................................           13,053            14,990

Dividends Declared on Cumulative Preferred Stock .......................              242               242
                                                                               ----------        ----------

Income Available for Common Stock ......................................       $   12,811        $   14,748
                                                                               ==========        ==========
</TABLE>

                 See Notes to Consolidated Financial Statements


                                      -6-
<PAGE>

                    CENTRAL HUDSON GAS & ELECTRIC CORPORATION
                 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                    For the 3 Months Ended March 31,
                                                        2006              2005
                                                      -------            -------
                                                        (Thousands of Dollars)
<S>                                                   <C>                <C>
Net Income ...............................            $13,053            $14,990

Other Comprehensive Income ...............                 --                 --
                                                      -------            -------

Comprehensive Income .....................            $13,053            $14,990
                                                      =======            =======
</TABLE>

                 See Notes to Consolidated Financial Statements


                                      -7-
<PAGE>

                    CENTRAL HUDSON GAS & ELECTRIC CORPORATION
                           CONSOLIDATED BALANCE SHEET
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                     March 31,        December 31,         March 31,
                                  ASSETS                                               2006               2005                2005
                                                                                    ----------        ------------        ----------
                                                                                                (Thousands of Dollars)
<S>                                                                                 <C>                <C>                <C>
Utility Plant
       Electric ...........................................................         $  742,799         $  739,775         $  703,958
       Natural gas ........................................................            227,360            226,859            215,414
       Common .............................................................            108,009            107,581            105,143
                                                                                    ----------         ----------         ----------
                                                                                     1,078,168          1,074,215          1,024,515

       Less:  Accumulated depreciation ....................................            338,414            333,164            320,434
                                                                                    ----------         ----------         ----------
                                                                                       739,754            741,051            704,081

       Construction work in progress ......................................             45,929             38,460             47,279
                                                                                    ----------         ----------         ----------
               Net Utility Plant ..........................................            785,683            779,511            751,360
                                                                                    ----------         ----------         ----------

Other Property and Plant - net ............................................                723                723                962
                                                                                    ----------         ----------         ----------

Current Assets
       Cash and cash equivalents ..........................................              3,233              4,232              3,090
       Accounts receivable -
             net of allowance for doubtful accounts of $3.7 million,
             $3.4 million, and $4.7 million, respectively .................             65,239             61,055             58,199
       Accrued unbilled utility revenues ..................................              8,444              9,334              8,862
       Other receivables ..................................................              2,376              2,868                887
       Fuel and materials and supplies - at average cost ..................             23,278             23,411             10,794
       Regulatory assets ..................................................             20,156             30,764             11,572
       Fair value of derivative instruments ...............................                 61                 --                404
       Special deposits and prepayments ...................................             18,533             16,168             15,766
       Accumulated deferred income tax ....................................             13,217              7,997             12,932
                                                                                    ----------         ----------         ----------
                Total Current Assets ......................................            154,537            155,829            122,506
                                                                                    ----------         ----------         ----------

Deferred Charges and Other Assets
       Regulatory assets - pension plan ...................................            109,235             97,073             94,488
       Intangible asset - pension plan ....................................             20,217             20,217             22,291
       Regulatory assets ..................................................             58,254             52,353             40,268
       Unamortized debt expense ...........................................              3,899              3,973              3,950
       Other ..............................................................             12,080             11,653             10,507
                                                                                    ----------         ----------         ----------
                Total Deferred Charges and Other Assets ...................            203,685            185,269            171,504
                                                                                    ----------         ----------         ----------

                          Total Assets ....................................         $1,144,628         $1,121,332         $1,046,332
                                                                                    ==========         ==========         ==========
</TABLE>

                 See Notes to Consolidated Financial Statements


                                      -8-
<PAGE>

                    CENTRAL HUDSON GAS & ELECTRIC CORPORATION
                           CONSOLIDATED BALANCE SHEET
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                March 31,          December 31,           March 31,
                        CAPITALIZATION AND LIABILITIES                            2006                 2005                 2005
                                                                              -----------          ------------         -----------
                                                                                             (Thousands of Dollars)
<S>                                                                           <C>                  <C>                  <C>
Capitalization
        Common Stock Equity:
             Common stock, 30,000,000 shares authorized;
               16,862,087 shares issued ($5 par value) ..............         $    84,311          $    84,311          $    84,311
        Paid-in capital .............................................             174,980              174,980              174,980
        Retained earnings ...........................................              56,120               43,309               31,892
        Capital stock expense .......................................              (4,961)              (4,961)              (4,961)
                                                                              -----------          -----------          -----------
                Total Common Stock Equity ...........................             310,450              297,639              286,222
                                                                              -----------          -----------          -----------

        Cumulative Preferred Stock
             Not subject to mandatory redemption ....................              21,027               21,027               21,027

        Long-term Debt ..............................................             310,886              343,886              319,883
                                                                              -----------          -----------          -----------
                Total Capitalization ................................             642,363              662,552              627,132
                                                                              -----------          -----------          -----------

Current Liabilities
        Current maturities of long-term debt ........................              33,000                   --                   --
        Notes Payable ...............................................              29,000               30,000               10,000
        Accounts payable ............................................              31,209               40,884               29,226
        Accrued interest ............................................               2,697                5,156                2,477
        Dividends payable - preferred stock .........................                 242                  242                  242
        Accrued vacation and payroll ................................               4,632                4,566                5,315
        Customer deposits ...........................................               6,959                6,932                6,443
        Regulatory liabilities ......................................                  61                  373                  404
        Fair value of derivative instruments ........................                  --                  315                   --
        Accrued income taxes ........................................              10,306                  324               10,891
        Other .......................................................               5,704                6,895                3,856
                                                                              -----------          -----------          -----------
                Total Current Liabilities ...........................             123,810               95,687               68,854
                                                                              -----------          -----------          -----------

Deferred Credits and Other Liabilities
        Regulatory liabilities ......................................             155,514              156,808              152,838
        Operating reserves ..........................................               5,319                5,137                5,686
        Accrued environmental remediation costs .....................              19,500               19,500               19,500
        Accrued other post-employment benefit costs .................              27,639               24,945               19,476
        Accrued pension costs .......................................              28,347               18,806               23,719
        Other .......................................................              11,343               11,094                8,609
                                                                              -----------          -----------          -----------
                Total Deferred Credits and Other Liabilities ........             247,662              236,290              229,828
                                                                              -----------          -----------          -----------

Accumulated Deferred Income Tax .....................................             130,793              126,803              120,518
                                                                              -----------          -----------          -----------

Commitments and  Contingencies (Note 11)

                Total Capitalization and Liabilities ................         $ 1,144,628          $ 1,121,332          $ 1,046,332
                                                                              ===========          ===========          ===========
</TABLE>

                 See Notes to Consolidated Financial Statements


                                      -9-
<PAGE>

                    CENTRAL HUDSON GAS & ELECTRIC CORPORATION
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                              For the 3 Months Ended
                                                                                                     March 31,
                                                                                              2006               2005
                                                                                           ----------        ----------
Operating Activities:                                                                          (Thousands of Dollars)
<S>                                                                                        <C>               <C>
       Net Income ..................................................................       $   13,053        $   14,990

         Adjustments to reconcile net income to net
            cash provided by (used in) operating activities:
              Depreciation and amortization ........................................            7,455             7,502
              Deferred income taxes - net ..........................................             (174)              213
              Provision for uncollectibles .........................................            1,366               916
              Accrued/deferred pension costs .......................................           (3,858)           (4,153)

         Changes in operating assets and liabilities - net:
              Accounts receivable, unbilled revenues and other receivables .........           (4,168)          (19,982)
              Fuel, materials and supplies .........................................              133             6,413
              Special deposits and prepayments .....................................           (2,365)              215
              Accounts payable .....................................................           (9,675)           (3,725)
              Accrued taxes and interest ...........................................            7,523            13,112
              Deferred natural gas and electric costs ..............................           10,734             5,210
              Customer benefit fund ................................................           (2,474)           (1,350)
              Other - net ..........................................................           (5,117)             (859)
                                                                                           ----------        ----------

         Net Cash Provided by Operating Activities .................................           12,433            18,502
                                                                                           ----------        ----------

Investing Activities:

         Additions to plant ........................................................          (11,986)          (12,346)
         Other - net ...............................................................             (183)             (548)
                                                                                           ----------        ----------

         Net Cash Used in Investing Activities .....................................          (12,169)          (12,894)
                                                                                           ----------        ----------

Financing Activities:

         Redemption of preferred stock .............................................               --                (3)
         Net repayments of short-term debt .........................................           (1,000)           (2,000)
         Dividends paid on cumulative preferred stock ..............................             (242)             (242)
         Dividends paid to parent - Energy Group ...................................               --            (8,500)
         Debt issuance costs .......................................................              (21)               --
                                                                                           ----------        ----------

         Net Cash Used In Financing Activities .....................................           (1,263)          (10,745)
                                                                                           ----------        ----------

Net Change in Cash and Cash Equivalents ............................................             (999)           (5,137)

Cash and Cash Equivalents - Beginning of Year ......................................            4,232             8,227
                                                                                           ----------        ----------

Cash and Cash Equivalents - End of Period ..........................................       $    3,233        $    3,090
                                                                                           ==========        ==========

Supplemental Disclosure of Cash Flow Information

         Interest paid .............................................................       $    6,733        $    5,493

         Federal and State income tax paid .........................................       $       30                --
</TABLE>

                 See Notes to Consolidated Financial Statements


                                      -10-
<PAGE>

                              CH ENERGY GROUP, INC.
                    CENTRAL HUDSON GAS & ELECTRIC CORPORATION
             Notes to Consolidated Financial Statements (Unaudited)

NOTE 1 - GENERAL

Basis of Presentation

      This Quarterly Report on Form 10-Q is a combined report of CH Energy
Group, Inc. ("Energy Group") and its regulated electric and natural gas
subsidiary, Central Hudson Gas & Electric Corporation ("Central Hudson"). The
Notes to the Consolidated Financial Statements apply to both Energy Group and
Central Hudson. Energy Group's Consolidated Financial Statements include the
accounts of Energy Group and its wholly owned subsidiaries, which include
Central Hudson and Energy Group's non-utility subsidiary, Central Hudson
Enterprises Corporation ("CHEC" and, together with its subsidiaries, the
"competitive business subsidiaries"). CHEC subsidiary Griffith Energy Services,
Inc. ("Griffith") (and prior to its merger with Griffith as of December 31,
2005, SCASCO, Inc.) is referred to herein as the "fuel distribution business."

Unaudited Consolidated Financial Statements

      The accompanying Consolidated Financial Statements of Energy Group and
Central Hudson are unaudited but, in the opinion of Management, reflect
adjustments (which include normal recurring adjustments) necessary for a fair
statement of the results for the interim periods presented. These condensed,
unaudited, quarterly Consolidated Financial Statements do not contain the detail
or footnote disclosures concerning accounting policies and other matters which
would be included in annual Consolidated Financial Statements and, accordingly,
should be read in conjunction with the audited Consolidated Financial Statements
(including the Notes thereto) included in the combined Energy Group/Central
Hudson Annual Report on Form 10-K for the year ended December 31, 2005 (the
"Corporations' 10-K Annual Report").

      Energy Group's and Central Hudson's balance sheets as of March 31, 2005,
are not required to be included in this Quarterly Report on Form 10-Q; however,
these balance sheets are included for supplemental analysis purposes.

      Central Hudson's and Griffith's operations are seasonal in nature and
weather- sensitive and, as a result, financial results for interim periods are
not necessarily indicative of trends for a twelve-month period.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

      For purposes of the Consolidated Statement of Cash Flows, Energy Group and
Central Hudson consider temporary cash investments with a maturity, when
purchased, of three months or less to be cash equivalents.


                                      -11-
<PAGE>

Revision In the Classification of Certain Securities

      In connection with the preparation of this report and the classification
of Auction Rate Securities and Variable Rate Demand Notes, Energy Group
concludes that it is appropriate to classify these securities in the
consolidated balance sheets for Energy Group as short-term investments -
available-for-sale securities. Previously, these investments had been classified
as cash and cash equivalents. As a result of this revision in classification,
Energy Group has also made corresponding adjustments to its consolidated
statement of cash flows for all periods presented to reflect the gross purchases
and liquidation of these available-for-sale securities as investing activities
rather than as a component of cash and cash equivalents. This revision in
classification has no impact on previously reported total current assets, total
assets, working capital position, results of operations or financial covenants
and does not affect previously reported cash flows from operating or financing
activities. The consolidated financial statements of Central Hudson were not
affected by this revision in classification.

      The impact on net cash from investing activities for the three months
ended March 31, 2005, was a decrease of $0.2 million for activity relating to
these investments. The revision in classification for prior period consolidated
balance sheets resulted in a decrease to cash and cash equivalents and the
reporting of short-term investment balances of $42.1 million and $48.9 million
at December 31, 2005, and March 31, 2005, respectively.

Accounting for Derivative Instruments and Hedging Activities

Regulated Electric and Natural Gas Businesses

      Reference is made to the caption "Accounting for Derivative Instruments
and Hedging Activities" of Note 1 - "Summary of Significant Accounting Policies"
to the Consolidated Financial Statements of the Corporations' 10-K Annual
Report. At March 31, 2006, the total fair value of open Central Hudson
derivatives, which hedge electric and natural gas commodity purchases, was a net
unrealized gain of $61,000. This compares to a fair value at December 31, 2005,
of ($315,000), a net unrealized loss, and a fair value of $404,000 at March 31,
2005, a net unrealized gain. At March 31, 2006, Central Hudson had open
derivative contracts hedging approximately 4.9% of its projected electricity
requirements for the month of June 2006 and had no open contracts hedging its
natural gas requirements. Central Hudson recorded actual net losses of $4.2
million on such hedging activities for the quarter ended March 31, 2006, as
compared to a net loss of $720,000 for the same period in 2005.

      Realized gains and losses, in addition to unrealized gains and losses,
serve to either decrease or increase actual energy costs and are deferred for
return to or recovery from customers under Central Hudson's electric and natural
gas energy cost adjustment clauses as authorized by the New York State Public
Service Commission ("PSC") and in accordance with the provisions of Statement of
Financial Accounting Standard ("SFAS") No. 71, entitled Accounting for the
Effects of Certain Types of Regulation ("SFAS 71"). Central Hudson also entered
into weather derivative contracts for the three months of the heating seasons
ended March 31, 2006, and 2005, to hedge the effect of weather on sales of
electricity and natural gas. No settlement payments were required to or from
counter-parties during the three months ended March 31, 2006, and settlement
amounts recorded for this same period in 2005 were not material.

      On April 1, 2006, Central Hudson replaced its expiring interest rate cap
agreement with a new two-year agreement through April 1, 2008, with similar
terms as the expired agreement. As discussed in Note 1 - "Summary of Significant
Accounting Policies" of the Corporations' 10-K Annual Report, this rate cap
agreement hedges the variability in interest rates related to Central Hudson's
bonds issued by the New York State Energy Research Development Authority.
Central Hudson also has in place a true-up mechanism authorized by the PSC for
the deferral of differences between actual variable interest rates and costs
embedded in customer rates. The premium costs and any realized benefits from the
rate cap agreement also pass through this regulatory mechanism.

Fuel Distribution Business

      The fair value of Griffith's open derivative positions at March 31, 2006,
and 2005, and the fair value of derivative instruments at December 31, 2005,
were not material. Derivatives outstanding at March 31, 2006, included call and
put options designated as cash flow hedges for fuel oil purchases through May
2006. These options hedge approximately 2.7% of Griffith's total projected fuel
oil requirements for April and


                                      -12-
<PAGE>

May 2006. Actual net gains and losses recorded during each of the three months
ended March 31, 2006, and 2005, were also not material.

      In the first quarter of 2006, Griffith also entered into derivative
contracts to hedge a portion (714,000 gallons) of its fuel oil inventory. These
derivative instruments, comprised of calendar average New York Mercantile
Exchange ("NYMEX") swaps, were designated as a fair value hedge of inventory.
The fair value of these instruments at March 31, 2006, and the first quarter
impact to earnings was not material. These hedged gallons represent
approximately 2.8% of the fuel distribution business's total projected
requirements for the months of November and December 2006.

      Griffith also entered into weather derivative contracts for the three
months of the heating seasons ended March 31, 2006, and 2005. Settlement amounts
for the comparative quarters were not material.

Parental Guarantees

      Energy Group and certain of the competitive business subsidiaries have
issued guarantees in conjunction with certain commodity and derivative contracts
that provide financial or performance assurance to third-parties on behalf of a
subsidiary. The guarantees are entered into primarily to support or enhance the
creditworthiness otherwise attributed to a subsidiary on a stand-alone basis,
thereby facilitating the extension of sufficient credit to accomplish the
relevant subsidiary's intended commercial purposes. In addition, Energy Group
agreed to guarantee the post-closing obligations of former subsidiary Central
Hudson Energy Services, Inc. ("CH Services") under the agreement related to the
sale of former subsidiary CH Resources, Inc. ("CH Resources"), which guarantee
now applies to CHEC. Reference is made to Note 1 - "Summary of Significant
Accounting Policies" to the Consolidated Financial Statements of the
Corporations' 10-K Annual Report under the captions "Parental Guarantees" and
"Product Warranties" and to Note 11 - "Commitments and Contingencies" to the
Consolidated Financial Statements of the Corporations' 10-K Annual Report under
the caption "CHEC."

      The guarantees described above have been issued to counter-parties to
assure the payment, when due, of certain obligations incurred by Energy Group
subsidiaries in physical and financial transactions related to heating oil,
propane, other petroleum products, weather and commodity hedges, and certain
obligations related to the sale of CH Resources. At March 31, 2006, the
aggregate amount of subsidiary obligations (excluding obligations related to CH
Resources) covered by these guarantees was $7.6 million. Where liabilities exist
under the commodity-related contracts subject to these guarantees, these
liabilities are included in Energy Group's Consolidated Balance Sheet. Energy
Group's approximate aggregate potential liability for product warranties at
March 31, 2006, had not changed from that reported at December 31, 2005, which
was $101,000.


                                      -13-
<PAGE>

Goodwill and Other Intangible Assets

      Reference is made to Note 5 - "Goodwill and Other Intangible Assets" to
the Consolidated Financial Statements of the Corporations' 10-K Annual Report.

      Intangible assets include separate, identifiable, intangible assets such
as customer lists and covenants not to compete. Intangible assets with finite
lives are amortized over their useful lives. The estimated useful life for
customer lists is 15 years, which is believed to be appropriate in view of
average historical customer turnover. However, if customer turnover were to
substantially increase, a shorter amortization period would be used, resulting
in an increase in amortization expense. For example, if a ten-year amortization
period were used, annual amortization expense would increase by approximately
$1.4 million. The useful life of a covenant not to compete is based on the
expiration date of the covenant, generally between two and ten years. Intangible
assets with indefinite useful lives and goodwill are no longer amortized, but
instead are periodically reviewed for impairment. Goodwill balances are tested
annually and are retested between annual tests if an event should occur or
circumstances arise that would more likely than not reduce the fair value of a
reporting unit below its carrying amount.

      The components of amortizable intangible assets of Energy Group are
summarized as follows (thousands of dollars):

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                       March 31, 2006              December 31, 2005                 March 31, 2005
---------------------------------------------------------------------------------------------------------------------------
                                  Gross                         Gross                             Gross
                                Carrying     Accumulated       Carrying      Accumulated        Carrying     Accumulated
                                 Amount      Amortization       Amount       Amortization        Amount      Amortization
---------------------------------------------------------------------------------------------------------------------------
<S>                             <C>             <C>             <C>             <C>             <C>             <C>
Customer Lists                  $40,578         $13,429         $40,448         $12,754         $38,371         $10,811
---------------------------------------------------------------------------------------------------------------------------
Covenants Not to Compete          1,699           1,038           1,669             995           1,439             892
---------------------------------------------------------------------------------------------------------------------------
Total Amortizable
Intangibles                     $42,277         $14,467         $42,117         $13,749         $39,810         $11,703
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

      Amortization expense was $0.7 million for each of the three-month periods
ended March 31, 2006, and 2005. The estimated annual amortization expense for
each of the next five years, assuming no new acquisitions, is approximately $2.8
million.

      The carrying amount for goodwill not subject to amortization was $51.5
million as of March 31, 2006, $51.3 million as of December 31, 2005, and $50.5
million as of March 31, 2005.

Depreciation and Amortization

      Reference is made to the caption "Depreciation and Amortization" of Note 1
- "Summary of Significant Accounting Policies" to the Consolidated Financial
Statements of the Corporations' 10-K Annual Report. For financial statement
purposes, Central Hudson's depreciation provisions are computed on the
straight-line method using rates based on studies of the estimated useful lives
and estimated net salvage value of properties. The anticipated costs of removing
assets upon retirement are provided for


                                      -14-
<PAGE>

over the life of those assets as a component of depreciation expense. This
depreciation method is consistent with industry practice and the applicable
depreciation rates have been approved by the PSC.

      Financial Accounting Standards Board ("FASB") Statement of Financial
Accounting Standards ("SFAS") No. 143, entitled Accounting for Asset Retirement
Obligations ("SFAS 143"), precludes the recognition of expected future
retirement obligations as a component of depreciation expense or accumulated
depreciation. Central Hudson, however, is required to use depreciation methods
and rates approved by the PSC under regulatory accounting. In accordance with
SFAS 71, Central Hudson continues to accrue for the future cost of removal for
its rate-regulated natural gas and electric utility assets. In accordance with
SFAS 143, Central Hudson has classified $94.1 million, $92.2 million, and $89.6
million of net cost of removal as regulatory liabilities as of March 31, 2006,
December 31, 2005, and March 31, 2005, respectively.

      FASB Interpretation No. 47, entitled Accounting for Conditional Asset
Retirement Obligations ("FIN 47"), clarifies the term "conditional asset
retirement obligation" as used in SFAS 143 to refer to a legal obligation to
perform an asset retirement activity when the timing and/or method of settlement
are conditional on a future event that may or may not be in the control of the
entity. In accordance with FIN 47, Energy Group recorded depreciation expense on
the asset retirement obligations and accretion expense on the liabilities for
the three months ended March 31, 2006. These amounts were not material. For
further information regarding FIN 47, see the caption "Depreciation and
Amortization" of Note 1 - "Summary of Significant Accounting Policies" to the
Consolidated Financial Statements of the Corporations' 10-K Annual Report.

      For financial statement purposes, the fuel distribution business's
depreciation provisions are computed on the straight-line method using
depreciation rates based on the estimated useful lives of depreciable property
and equipment. Expenditures for major renewals and betterments, which extend the
useful lives of property and equipment, are capitalized. Expenditures for
maintenance and repairs are charged to expense when incurred. Retirements,
sales, and disposals of assets are recorded by removing the cost and accumulated
depreciation from the asset and accumulated depreciation accounts with any
resulting gain or loss reflected in earnings.

      Accumulated depreciation for the fuel distribution business was $15.3
million, $14.9 million, and $12.5 million as of March 31, 2006, December 31,
2005, and March 31, 2005, respectively.

      Amortization of intangibles (other than goodwill) is computed on the
straight-line method over an asset's expected useful life. See the caption
"Goodwill and Other Intangible Assets" of this Note 2 for further discussion.


                                      -15-
<PAGE>

Earnings Per Share

      In the calculation of earnings per share (basic and diluted) of Energy
Group's common stock ("Common Stock"), earnings for Energy Group are reduced by
the preferred stock dividends of Central Hudson. The average dilutive effect of
Energy Group's stock options and performance shares was 14,971 shares and 8,191
shares for the quarters ended March 31, 2006, and 2005, respectively. Certain
stock options are excluded from the calculation of diluted earnings per share
because the exercise prices of those options were greater than the average
market price per share of Common Stock for each of the periods presented. The
number of shares of Common Stock represented by the options excluded from the
above calculation was 35,700 shares and 36,900 shares for the three-month
periods ended March 31, 2006, and 2005, respectively. For additional information
regarding stock options and performance shares, see Note 8 - "Equity-Based
Compensation Incentive Plans."

Equity-Based Compensation

      Energy Group has an equity-based employee compensation plan that is
described in Note 8 - "Equity-Based Compensation Incentive Plans."

FIN 46R - Consolidation of Variable Interest Entities

      Reference is made to the subcaption "FIN 46 - Consolidation of Variable
Interest Entities" of Note 1 - "Summary of Significant Accounting Policies" to
the Consolidated Financial Statements of the Corporations' 10-K Annual Report.
Energy Group and its subsidiaries do not have any interests in special purpose
entities and are not affiliated with any variable interest entities that
currently require consolidation under the provisions of FIN 46R.

Reclassification

      Certain amounts in the 2005 Consolidated Financial Statements have been
reclassified to conform to the 2006 presentation.

NOTE 3 - REGULATORY MATTERS

      Reference is made to Note 2 - "Regulatory Matters" under caption "Rate
Proceedings - Electric and Natural Gas" to the Consolidated Financial Statements
of the Corporations' 10-K Annual Report.

      In April 2006, Central Hudson, PSC Staff, and other parties served on all
parties a negotiated Joint Proposal ("2006 Joint Proposal") to be considered by
the PSC in Central Hudson's current electric and natural gas rate proceeding.
The PSC may accept, reject, or modify the 2006 Joint Proposal. Under the terms
of the 2006 Joint Proposal, an increase to electric delivery revenues of $53.7
million over the three-year term is to be phased in with annual electric
delivery rate increases of approximately $17.9 million as of July 1, 2006, July
1, 2007, and July 1, 2008. A natural gas delivery revenue increase of $14.1
million is to be phased-in over two years with natural gas


                                      -16-
<PAGE>

delivery rate increases of $8 million as of July 1, 2006, and $6.1 million as of
July 1, 2007.

      The 2006 Joint Proposal recommends delivery rates based on a return on
equity of 9.6% with an earnings sharing threshold of 10.6%, above which Central
Hudson is to share earnings with customers. Rates are based on a capital
structure which includes 45% common equity, but the actual proportion of common
equity up to a limit of 47% may be used in determining the return on common
equity for the purpose of earnings sharing. Other provisions in the 2006 Joint
Proposal include the continued recovery of all purchased natural gas and
electric costs, capital expenditure targets to fund investments in its electric
and natural gas infrastructure, and expense allowances for the recovery of
operating costs including transmission and distribution right of way management,
pension and other post-employment benefits ("OPEB") expenses, manufactured gas
plant ("MGP") site remediation, and stray voltage testing. The 2006 Joint
Proposal also recommends a revised program to assist low-income customers in
paying their energy bills, as well as continued funding of programs to encourage
customers to explore new opportunities available through the competitive retail
supply markets.

      All of the provisions of the 2006 Joint Proposal are subject to final PSC
approval, which could occur at the earliest at its June 20, 2006, session. A
copy of the 2006 Joint Proposal is available on Energy Group's website at
www.CHEnergyGroup.com, until superceded by final PSC Order.

NOTE 4 - ACQUISITIONS, INVESTMENTS, AND DIVESTITURES

      Reference is made to Note 4 - "Acquisition, Investments, and Divestitures"
to the Consolidated Financial Statements of the Corporations' 10-K Annual
Report.

Acquisitions

      During the first quarter of 2006, Griffith acquired certain assets of one
fuel distribution company for a total of $390,000. The amount charged to
intangible assets (including goodwill) was $305,000, of which $145,000 was
charged to goodwill. The principal tangible assets acquired were vehicles.

      Subsequent to March 31, 2006, Griffith acquired certain assets of three
fuel distribution companies for a total of $1.2 million. The amount charged to
intangible assets (including goodwill) was $1.1 million, of which $502,000 was
charged to goodwill. The principal tangible assets acquired were vehicles,
petroleum products, and spare parts. All three acquisitions have earn-out
provisions, which may increase the purchase price if certain sales volumes are
attained.

Investments

      Reference is made to the subcaption "Investments" of Note 4 -
"Acquisitions, Investments, and Divestitures" to the Consolidated Financial
Statements of the Corporations' 10-K Annual Report.


                                      -17-
<PAGE>

      As of January 2006, Cornhusker Energy Lexington Holdings, LLC ("Cornhusker
Holdings") had begun operation of its fuel ethanol production facility, located
in Lexington, Nebraska. As of March 9, 2006, an additional $2.0 million of the
$8.0 million of subordinated notes issued by Cornhusker Holdings had been
acquired by CHEC, bringing the total acquired to-date to $5.0 million.

      As of March 10, 2006, CH-Community Wind Energy, LLC, a joint venture
between CHEC and Community Energy, Inc., has closed on its investment in the
Bear Creek and Jersey Atlantic wind farm projects, which are both commercially
operational. CH Community Wind Energy, LLC owns a 10% minority interest in these
projects.

      On April 12, 2006, CHEC purchased a majority interest in Lyonsdale
Biomass, LLC ("Lyonsdale Biomass") for $9.8 million from Catalyst Renewables
Corporation. Catalyst remains the owner of a minority share of Lyonsdale Biomass
and will provide asset management services. Lyonsdale Biomass owns and operates
a 19-megawatt wood-fired electric generating plant, which was built in 1992. The
plant is located in Lyonsdale, New York, which is about 35 miles northwest of
Utica, New York. The output of the plant will be sold at fixed prices to an
investment grade rated counter-party beginning May 1, 2006, and ending December
31, 2014.

NOTE 5 - SHORT-TERM INVESTMENTS

      Energy Group's short-term investments consist of Auction Rate Securities
("ARSs") and Variable Rate Demand Notes ("VRDNs"), which have been classified as
current available-for-sale securities pursuant to the provisions of SFAS No.
115, entitled Accounting for Certain Investments in Debt and Equity Securities.
ARSs and VRDNs are debt instruments with a long-term nominal maturity and a
mechanism that resets the interest rate at regular intervals. Energy Group's
investments include tax-exempt ARSs and VRDNs with interest rates that are reset
anywhere from 7 to 35 days. These investments are available to fund current
operations or to provide funding in accordance with Energy Group's strategy to
redeploy equity into its subsidiaries. Due to the nature of these securities
with regard to their interest reset periods, the aggregate carrying value
approximates their fair value, thereby not impacting shareholders equity with
regard to unrealized gains and losses. The aggregate fair value of these
short-term investments was $39.6 million at March 31, 2006, $42.1 million at
December 31, 2005, and $48.9 million at March 31, 2005. Cash flows from the
purchases and liquidation of these investments are reported separately as
investing activities in Energy Group's consolidated statements of cash flow.

NOTE 6 - SEGMENTS AND RELATED INFORMATION

      Reference is made to Note 12 - "Segments and Related Information" to the
Consolidated Financial Statements of the Corporations' 10-K Annual Report.

      Energy Group's reportable operating segments are the regulated electric
utility business and regulated natural gas utility business of Central Hudson
and the unregulated fuel distribution business of CHEC. Under the heading
"Unregulated - Other" are the investments and business development activities of
Energy Group and the energy efficiency and investment activities of CHEC,
including its ownership interests in ethanol, wind, and biomass energy projects.

      Certain additional information regarding these segments is set forth in
the following tables. General corporate expenses, Central Hudson property common
to both electric and natural gas segments, and the depreciation of Central
Hudson common property have been allocated in accordance with practices
established for regulatory purposes.

      Central Hudson's and Griffith's operations are seasonal in nature and
weather-sensitive and, as a result, financial results for interim periods are
not necessarily indicative of trends for a twelve-month period.


                                      -18-
<PAGE>

CH Energy Group, Inc. Segment Disclosure

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                Quarter Ended March 31, 2006
    (In Thousands, Except                      -------------------------------------------------------------------------------------
     Earnings Per Share)                              Regulated                  Unregulated             Eliminations       Total
------------------------------------------------------------------------------------------------------------------------------------
                                                                               Fuel
                                                Electric     Natural Gas   Distribution     Other
------------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>           <C>           <C>           <C>              <C>            <C>
Revenues from  external customers               $  136,047    $   70,809    $  109,835    $      540       $       --     $  317,231
------------------------------------------------------------------------------------------------------------------------------------
Intersegment revenues                                    3           205            --            --             (208)            --
------------------------------------------------------------------------------------------------------------------------------------
   Total revenues                               $  136,050    $   71,014    $  109,835    $      540       $     (208)    $  317,231
------------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes                    $   11,372    $   11,017    $    7,196    $    1,474       $       --     $   31,059
------------------------------------------------------------------------------------------------------------------------------------
Net income                                      $    6,443    $    6,368    $    4,318    $    1,171       $       --     $   18,300
------------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share - Diluted                    $     0.41    $     0.41    $     0.27    $     0.07(1)    $       --     $     1.16
------------------------------------------------------------------------------------------------------------------------------------
Segment Assets at March 31, 2006                $  849,802    $  294,826    $  158,549    $   93,771       $     (812)    $1,396,136
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   The amount of Unregulated EPS attributable to CHEC's other business
      activities was $0.02 per share, with the balance of $0.05 per share
      resulting primarily from interest income and business development
      activities.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                              Quarter Ended March 31, 2005
    (In Thousands, Except                      -------------------------------------------------------------------------------------
     Earnings Per Share)                              Regulated                  Unregulated             Eliminations       Total
------------------------------------------------------------------------------------------------------------------------------------
                                                                               Fuel
                                                Electric     Natural Gas   Distribution     Other
------------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>           <C>           <C>           <C>              <C>            <C>
Revenues from external customers                $  126,658    $   63,430    $   95,756    $      245       $       --     $  286,089
------------------------------------------------------------------------------------------------------------------------------------
Intersegment revenues                                    3           167            --            --             (170)            --
------------------------------------------------------------------------------------------------------------------------------------
   Total revenues                               $  126,661    $   63,597    $   95,756    $      245       $     (170)    $  286,089
------------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes                    $   12,839    $   12,239    $    7,770    $    1,263       $       --     $   34,111
------------------------------------------------------------------------------------------------------------------------------------
Net income                                      $    7,494    $    7,254    $    4,663    $      928       $       --     $   20,339
------------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share - Diluted                    $     0.47    $     0.46    $     0.29    $     0.06(1)    $       --     $     1.28
------------------------------------------------------------------------------------------------------------------------------------
Segment Assets at March 31, 2005                $  781,256    $  265,076    $  149,305    $  115,974       $     (791)    $1,310,820
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   The amount of Unregulated EPS attributable to CHEC's other business
      activities was $0.01 per share, with the balance of $0.05 per share
      resulting from interest income and business development activity.


                                      -19-
<PAGE>

Central Hudson Gas & Electric Corporation Segment Disclosure

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
           (In Thousands)                                   Quarter Ended March 31, 2006
------------------------------------------------------------------------------------------------------------------------
                                                 Electric           Natural Gas         Eliminations             Total
------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                 <C>                 <C>                  <C>
Revenues from external customers                $  136,047          $   70,809          $       --           $  206,856
------------------------------------------------------------------------------------------------------------------------
Intersegment revenues                                    3                 205                (208)                  --
------------------------------------------------------------------------------------------------------------------------
 Total Revenues                                 $  136,050          $   71,014          $     (208)          $  206,856
------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes                    $   11,493          $   11,138          $       --           $   22,631
------------------------------------------------------------------------------------------------------------------------
Net Income                                      $    6,627          $    6,426          $       --           $   13,053
------------------------------------------------------------------------------------------------------------------------
Income Available for Common Stock               $    6,443          $    6,368          $       --           $   12,811
------------------------------------------------------------------------------------------------------------------------
Segment Assets at March 31, 2006                $  849,802          $  294,826          $       --           $1,144,628
------------------------------------------------------------------------------------------------------------------------

<CAPTION>
------------------------------------------------------------------------------------------------------------------------
           (In Thousands)                                   Quarter Ended March 31, 2005
------------------------------------------------------------------------------------------------------------------------
                                                 Electric           Natural Gas         Eliminations             Total
------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                 <C>                 <C>                  <C>
Revenues from external customers                $  126,658          $   63,430          $       --           $  190,088
------------------------------------------------------------------------------------------------------------------------
Intersegment revenues                                    3                 167                (170)                  --
------------------------------------------------------------------------------------------------------------------------
 Total Revenues                                 $  126,661          $   63,597          $     (170)          $  190,088
------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes                    $   13,021          $   12,299          $       --           $   25,320
------------------------------------------------------------------------------------------------------------------------
Net Income                                      $    7,676          $    7,314          $       --           $   14,990
------------------------------------------------------------------------------------------------------------------------
Income Available for Common Stock               $    7,494          $    7,254          $       --           $   14,748
------------------------------------------------------------------------------------------------------------------------
Segment Assets at March 31, 2005                $  781,049          $  265,283          $       --           $1,046,332
------------------------------------------------------------------------------------------------------------------------
</TABLE>

NOTE 7 - NEW ACCOUNTING STANDARDS AND OTHER FASB PROJECTS

      Reference is made to the captions "New Accounting Standards and Other FASB
Projects - Standards Implemented" and "New Accounting Standards and Other FASB
Projects - Standards to be Implemented" of Note 1 - "Summary of Significant
Accounting Policies" to the Consolidated Financial Statements of the
Corporations' 10-K Annual Report.

Classification of Options and Similar Instruments Issued as Employee
Compensation that Allow for Cash Settlement Upon the Occurrence of a Contingent
Event

      On February 3, 2006, the FASB issued FASB Staff Position ("FSP") No. FAS
123(R)-4, entitled Classification of Options and Similar Instruments Issued as
Employee Compensation that Allow for Cash Settlement Upon the Occurrence of a
Contingent Event ("FSP FAS 123 (R)-4"). This FSP addresses the classification of
options and similar instruments issued as employee compensation that allow for
cash settlement upon the occurrence of a contingent event, such as a change in
control or other liquidity event of the company, death or disability of the
holder, or an initial public offering. FSP FAS 123(R)-4 amends FASB Statement
123(R) entitled, Share-Based Payment ("SFAS 123(R)"), to address such
situations.


                                      -20-
<PAGE>

      The guidance in this FSP is effective with the adoption of SFAS 123(R).
For Energy Group, SFAS 123(R) was adopted effective January 1, 2006. At this
time, this FSP is not anticipated to have any significant impact on the
financial condition, results of operations, or cash flows or Energy Group or its
subsidiaries.

Accounting for Certain Hybrid Financial Instruments - an Amendment of FASB
Statements Nos. 133 and 140

      In March 2006, the FASB issued SFAS No. 155 entitled Accounting for
Certain Hybrid Financial Instruments, an Amendment of FASB Statements No. 133
and 140 ("SFAS 155"). SFAS 155 modifies requirements for financial reporting for
certain hybrid financial instruments by requiring more consistent accounting
which eliminates exemptions and provides a means to simplify the accounting for
these instruments. SFAS 155 also resolves issues addressed in Statement 133
Implementing Issue No. D1, Application of Statement 133 to Beneficial Interests
in Securitized Financial Assets.

      SFAS 155 is effective for all financial instruments acquired or issued
after the beginning of the first fiscal year that begins after September 15,
2006, with earlier application permitted. If applicable, Energy Group would
expect to adopt SFAS 155 as of January 1, 2007. At this time, the implementation
of SFAS 155 is not expected to have a material impact on the financial
condition, results of operations, or cash flows of Energy Group or its
subsidiaries.

FASB Proposed Statement: Employers' Accounting for Defined Benefit Pension and
Other Postretirement Plans - an Amendment of FASB Statement Nos. 87, 88, 106,
and 132(R)

      On March 31, 2006, FASB issued an exposure draft of a proposed Statement
intended to improve existing reporting for defined benefit post-retirement
plans. This proposed Statement would require an employer that sponsors a defined
benefit post-retirement plan to report the current economic status (i.e. the
overfunded or underfunded status) of the plan in its statement of financial
position, which would eliminate the need for a reconciliation in the notes to
its financial statements. Moreover, the proposed Statement would also require an
employer to measure the plan assets and plan obligations as of the date of its
statement of financial position rather than as of a measurement date that is up
to three months before the end of its fiscal year. As a result of this proposed
Statement, reported financial information would measure plan assets and benefit
obligations on the same date as the employer's assets and liabilities and
reflect all changes in a plan's overfunded or underfunded status as such changes
arise.

      This proposed Statement is expected to be finalized in September 2006 and
become effective for fiscal years ending after December 15, 2006, which for
Energy Group would be fiscal year ended December 31, 2006. The FASB's proposal
to change the measurement date would be effective for Energy Group in 2007.
However, under the policy of the PSC regarding pension and OPEB costs, Central
Hudson recovers its


                                      -21-
<PAGE>

net periodic pension costs through customer rates with differences from rate
allowances deferred for future recovery from or return to customers. As a
result, it is not expected that this Statement will have a significant impact on
the financial condition, results of operations, or cash flows of Energy Group or
its subsidiaries.

NOTE 8 - EQUITY-BASED COMPENSATION INCENTIVE PLANS

      Reference is made to Note 10 - "Equity-Based Compensation Incentive Plans"
to the Consolidated Financial Statements of the Corporations' 10-K Annual Report
and to the description of Energy Group's Long-Term Performance-Based Incentive
Plan (the "2000 Plan") described therein.

      Energy Group has adopted a Long-Term Equity Incentive Plan (the "2006
Plan") to replace the 2000 Plan. The 2006 Plan was approved by shareholders on
April 25, 2006. The 2000 Plan has been terminated, with no new awards to be
granted under such plan. Outstanding awards granted under the 2000 Plan will
continue in accordance with their terms and the provisions of the 2000 Plan.

      The 2006 Plan reserves up to a maximum of 300,000 shares of Common Stock
for awards to be granted under the 2006 Plan. Awards may consist of stock option
rights, stock appreciation rights, performance shares, performance units,
restricted shares, restricted stock units, and other awards that Energy Group
may authorize. Energy Group's Compensation Committee may also, from time to time
and upon such terms and conditions as it may determine, authorize the granting
to non-employee directors of stock option rights, stock appreciation rights,
restricted shares, and restricted stock units.

      In addition to the aggregate limit in the awards described above, the 2006
Plan imposes various sub-limits on the number of shares of Common Stock that may
be issued or transferred under the 2006 Plan. The aggregate number of shares of
Common Stock actually issued or transferred by Energy Group upon the exercise of
incentive stock options shall not exceed 300,000 shares. No participant shall be
granted stock option rights and stock appreciation rights, in aggregate, for
more than 15,000 shares of Common Stock during any calendar year. No participant
in any calendar year shall receive an award of performance shares or restricted
shares that specify management objectives, in the aggregate, for more than
20,000 shares of Common Stock, or performance units having an aggregate maximum
value as of their respective date of grant in excess of $1,000,000. The number
of shares of Common Stock issued as stock appreciation rights, restricted
shares, and restricted stock units (after taking forfeitures into account) shall
not exceed, in the aggregate, 100,000 shares of Common Stock.

      Performance shares were granted, in aggregate, to executives covered under
the 2000 Plan in the amount of 29,300 shares, and 23,000 shares, on January 1,
2004, and January 1, 2005, respectively. Performance shares were granted, in
aggregate, to executives covered under the 2006 Plan in the amount of 20,710
shares on April 25, 2006. Due to the retirement of Energy Group's former
Chairman in mid-2004, pro-rated


                                      -22-
<PAGE>

shares of the 2004 grants were awarded to him in 2004. As of March 31, 2006, the
number of these performance shares that remain outstanding are as follows:
19,800 from the 2004 grant; 23,000 from the 2005 grant; and 20,710 from the 2006
grant. The ultimate number of shares earned under the awards is based on metrics
established by Energy Group's Compensation Committee at the beginning of the
award cycle. Compensation expense is recorded as performance shares are earned
over the relevant three-year life of the performance share grant prior to its
award. Compensation expense recorded related to performance shares for the
quarters ended March 31, 2006, and 2005, were not material.

      A summary of the status of stock options awarded to executives and
non-employee Directors of Energy Group and its subsidiaries under the 2000 Plan
as of March 31, 2006, is as follows:

<TABLE>
<CAPTION>
                                                         Weighted        Weighted
                                                          Average         Average
                                   Stock Option          Exercise        Remaining
                                       Shares              Price       Life in Years
                                   ------------         ----------     -------------
<S>                                     <C>               <C>               <C>
Outstanding at 12/31/05                 73,300            $46.18            5.99
      Granted                               --                --              --
      Exercised                         (6,920)           $44.85
      Expired/Cancelled                     --                --              --
                                   -----------            ------          ------
Outstanding at 3/31/06                  66,380            $46.32            5.81
                                   ===========            ======          ======

Total Shares Outstanding            15,762,000
Potential Dilution                     0.4%
</TABLE>

      A total of 6,920 non-qualified stock options with exercise prices of
$31.94, $44.06, and $48.62 were exercised during the quarter ended March 31,
2006. Total intrinsic value of options exercised was not material.

      Compensation expense recorded for the quarters ended March 31, 2006, and
2005, was not material. The balance accrued at March 31, 2006, for outstanding
stock options was $204,000.

      The following table summarizes information concerning outstanding and
exercisable stock options at March 31, 2006, by exercise price:

<TABLE>
<CAPTION>
                                                  Weighted Average
                          Number of Options           Remaining           Number of Options      Number of Options
    Exercise Price           Outstanding            Life in Years            Exercisable         Remaining to Vest
    --------------           -----------            -------------            -----------         -----------------
<S>                             <C>                     <C>                     <C>
        $31.94                  1,040                   3.75                    1,040                     --
        $44.06                 29,640                   4.75                   29,640                     --
        $48.62                 35,700                   6.75                   28,455                  7,245
                               ------                   ----                   ------                  -----
                               66,380                   5.81                   59,135                  7,245
</TABLE>

      The weighted average exercise price of options remaining to vest is
$48.62, with a weighted average remaining life of 6.75 years.


                                      -23-
<PAGE>

      Energy Group adopted SFAS 123(R) effective January 1, 2006, using the
modified prospective application. Under this application, all new awards as of
January 1, 2006, and any outstanding awards that may be modified, repurchased,
or cancelled will be accounted for under SFAS 123(R).

NOTE 9 - INVENTORY

      Inventory for Energy Group includes the inventory of Central Hudson and
Griffith. Inventory for Central Hudson is valued at average cost. Inventory for
CHEC is valued using the "first-in, first-out" (or "FIFO") inventory method.

--------------------------------------------------------------------------------
                                                      Energy Group
                                                      ------------
--------------------------------------------------------------------------------
                                            March 31,   December 31,   March 31,
                                              2006          2005         2005
--------------------------------------------------------------------------------
(In Thousands)
--------------------------------------------------------------------------------

Natural Gas                                  $16,404       $16,512       $ 4,261
--------------------------------------------------------------------------------

Petroleum Products and Propane                 5,216         4,138         3,222
--------------------------------------------------------------------------------

Materials and Supplies                         7,756         7,700         7,455
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Total                                        $29,376       $28,350       $14,938
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
                                                      Central Hudson
                                                      --------------
--------------------------------------------------------------------------------
                                            March 31,   December 31,   March 31,
                                              2006          2005         2005
--------------------------------------------------------------------------------
(In Thousands)
--------------------------------------------------------------------------------

Natural Gas                                  $16,404       $16,512       $ 4,261
--------------------------------------------------------------------------------

Petroleum Products and Propane                   740           758           632
--------------------------------------------------------------------------------

Materials and Supplies                         6,134         6,141         5,901
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Total                                        $23,278       $23,411       $10,794
--------------------------------------------------------------------------------

      The significant increase in the value of the natural gas, petroleum
products, and propane inventory at March 31, 2006, when compared to March 31,
2005, is due largely to an increase in the wholesale prices of those commodities
and the quantity of natural gas remaining in storage due to the mild winter.


                                      -24-
<PAGE>

NOTE 10 - POST-EMPLOYMENT BENEFITS

      The following are the components of Central Hudson's net periodic benefits
costs for its pension and OPEB plans for the quarters ended March 31, 2006, and
2005. The OPEB amounts for both years reflect the effect of the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 under the
provisions of FASB Staff Position 106-2, entitled Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003.


<TABLE>
<CAPTION>
                                                            Quarter Ended March 31,
                                                  Pension Benefits                      OPEB
                                             -------------------------       -------------------------
                                                2006            2005            2006            2005
                                                   (In Thousands)                  (In Thousands)
                                             -------------------------       -------------------------
<S>                                          <C>             <C>             <C>             <C>
Service cost                                 $   1,985       $   1,837       $   1,070       $     968

Interest cost                                    5,577           5,489           2,258           2,395

Expected return on plan assets                  (6,709)         (5,808)         (1,433)         (1,279)

Amortization of:
     Prior service cost                            542             535            (314)            (37)
     Transitional (asset) or obligation             --              --             641             642

Recognized actuarial (gain) or loss              3,240           3,331           1,848           1,669
                                             ---------       ---------       ---------       ---------

Net periodic benefit cost                    $   4,635       $   5,384       $   4,070       $   4,358
                                             =========       =========       =========       =========
</TABLE>

      Decisions to fund Central Hudson's pension plan (the "Retirement Plan")
are based on the value of plan assets relative to plan liabilities and available
corporate resources. The liabilities are primarily affected by the discount rate
used to determine benefit obligations. Contributions would likely be made to
eliminate any Pension Benefit Guaranty Corporation variable rate premiums or to
maintain a 90% gateway current liability funded level.

      Based on current practice, Central Hudson's actuarial consultant has
estimated that total contributions to the Retirement Plan for the four-year
period from 2006 to 2009 could range from no contribution to $45 million. The
actual contributions could vary significantly based upon economic growth,
inflation, and interest rate assumptions.

      Employer contributions for OPEBs totaled $1.2 million during the quarter
ended March 31, 2006. The total contribution to be made in 2006 is expected to
be similar to the 2005 amount of $6.1 million.

      Effective January 1, 2006, a non-qualified Supplemental Executive
Retirement Plan replaced the non-qualified Supplementary Retirement Plan and the
Retirement Benefit Restoration Plan.


                                      -25-
<PAGE>

      For additional information related to pensions and OPEB, please see Note 9
- "Post-Employment Benefits" to the Consolidated Financial Statements of the
Corporations' 10-K Annual Report.

NOTE 11 - COMMITMENTS AND CONTINGENCIES

      Energy Group and Central Hudson face a number of contingencies which arise
during the normal course of business and which have been discussed in Note 11 -
"Commitments and Contingencies" to the Consolidated Financial Statements of the
Corporations' 10-K Annual Report and to which reference is made.

City of Poughkeepsie

      On January 1, 2001, a fire destroyed a multi-family residence on Taylor
Avenue in the City of Poughkeepsie, New York resulting in several deaths and
damage to nearby residences. Eight separate lawsuits arising out of this
incident have been commenced in New York State Supreme Court, County of
Dutchess, by approximately 24 plaintiffs against Central Hudson and other
defendants, each lawsuit alleging that Central Hudson supplied the Taylor Avenue
residence with natural gas service for cooking purposes at the time of the fire.
The basis for the claimed liability of Central Hudson in these actions is that
it was allegedly negligent in the supply of such natural gas. The suits seek an
aggregate of $528 million in compensatory damages for alleged property damage,
personal injuries, wrongful death, and loss of consortium or services. Central
Hudson has notified its insurance carrier, has denied liability, and is
defending the lawsuits. Based on information known to Central Hudson at this
time, including information from ongoing discovery proceedings in the lawsuits,
Central Hudson believes that the likelihood it will have a liability in these
lawsuits is remote.

Environmental Matters

Central Hudson:

      Water

      In February 2001, Central Hudson received a letter from the New York State
Department of Environmental Conservation ("DEC") indicating that it must
terminate the discharge from an internal sump at its Neversink Hydroelectric
Facility into a regulated stream or obtain a State Pollutant Discharge
Elimination System permit for such discharge. Central Hudson filed for a draft
permit in May 2001; the DEC subsequently issued a draft permit on January 15,
2003. Central Hudson has submitted comments on that draft permit to the DEC, and
the DEC continues to review those comments.

      Air

      In October 1999, Central Hudson was informed by the New York State
Attorney General ("Attorney General") that the Danskammer Plant was included in
an investigation by the Attorney General's Office into the compliance of eight
older New York State coal-fired power plants with federal and state air
emissions rules.


                                      -26-
<PAGE>

Specifically, the Attorney General alleged that Central Hudson "may have
constructed, and continues to operate, major modifications to the Danskammer
Plant without obtaining certain requisite preconstruction permits." As part of
this investigation, Central Hudson has received several requests for information
from the Attorney General, the DEC, and the United States Environmental
Protection Agency ("EPA") seeking information about the operation and
maintenance of the Danskammer Plant during the period from 1980 to 2000,
including specific information regarding approximately 45 projects conducted
during that period. In March 2000, the EPA assumed responsibility for the
investigation. Central Hudson has completed its production of documents in
connection with the information requests, and believes any permits required for
these projects were obtained in a timely manner. Notwithstanding Central
Hudson's sale of the Danskammer Plant on January 30, 2001, Central Hudson could
retain liability depending on the type of remedy, if any, imposed in connection
with this matter.

Former Manufactured Gas Plant Facilities

      In 1986, the DEC added to the New York State Registry of Inactive
Hazardous Waste Disposal Sites ("Registry") six sites at which MGP owned or
operated by Central Hudson or its predecessors were once located. Two additional
former MGP sites were identified by Central Hudson but not placed on the
Registry by the DEC. Three of the eight sites identified are in Poughkeepsie,
New York (at Laurel Street, North Water Street, and North Perry Street); the
remaining five sites are in Newburgh, Beacon, Saugerties, Kingston, and
Catskill, New York. Central Hudson studied all eight sites to determine whether
or not they contain any hazardous wastes which could pose a threat to the
environment or public health and, if wastes were located at the sites, to
determine whether or not remedial actions should be considered. The DEC
subsequently removed the six sites it had previously placed on the Registry,
subject to future revisions of its testing methods. As discussed below, the
Laurel Street, North Water Street, North Perry Street, Newburgh, Beacon, and
Catskill sites have been the subject of further agreements with the DEC.

      Central Hudson also became aware of information contained in a DEC
Internet website indicating that, in addition to the eight sites referenced
above, Central Hudson was attributed with responsibility for three additional
MGP sites in New York State, located on Broadway in Kingston, at Vassar College
in Poughkeepsie, and on Water Street in Newburgh. In response to the website,
Central Hudson has shown the DEC that no MGP ever operated at the Broadway,
Kingston location. Rather, the location is likely to have been used for an
office associated with the MGP site at East Strand Street, Kingston. In
addition, Central Hudson has shown the DEC that it never owned or operated an
MGP site at Vassar College. The DEC has agreed to drop the Broadway, Kingston,
and Vassar sites as attributed to Central Hudson. The site identified as the
Water Street, Newburgh site is, to Central Hudson's knowledge, an MGP site that
ceased operations in the 1880's. The land upon which the plant was located was
sold in 1891, before the stock of the MGP site's former operator, Consumers Gas
Company of Newburgh, New York was acquired in 1900-01 by Newburgh Light, Heat
and Power Company, and which was later consolidated with


                                      -27-
<PAGE>

several other companies to form Central Hudson. The DEC is currently considering
whether it will agree to drop this site as attributable to Central Hudson.

      City of Newburgh: In October 1995, Central Hudson and the DEC entered into
an Order on Consent regarding the development and implementation of an
investigation and remediation program for Central Hudson's former MGP site in
Newburgh, New York, the City of Newburgh's adjacent and nearby property, and the
adjoining areas of the Hudson River. The City of Newburgh subsequently filed a
lawsuit against Central Hudson in the United States District Court for the
Southern District of New York alleging violation by Central Hudson of, among
others, federal environmental laws and seeking damages of at least $70 million.

      After a 1998 jury award of $16 million in that lawsuit, reflecting the
estimated cost of environmental remediation and damages, Central Hudson and the
City of Newburgh entered into a court-approved Settlement Agreement in 1999
under which, among other things, (i) Central Hudson agreed to remediate the City
of Newburgh's property at Central Hudson's cost pursuant to the DEC's October
1995 Order on Consent and (ii) if the total cost of the remediation were less
than $16 million, Central Hudson would pay the City of Newburgh an additional
amount up to $500,000 depending on the extent to which the cost of remediation
was less than $16 million.

      Further studies by Central Hudson of the City of Newburgh's property were
provided to the DEC, which determined that the contaminants found may pose a
significant threat to human health or the environment. As a result, Central
Hudson developed a draft Feasibility Study Report ("Feasibility Report") which
was filed with the DEC and provided to the City of Newburgh in 1999. After
review of the Feasibility Report by the DEC and the New York State Department of
Health ("DOH") and additional sampling by Central Hudson, Central Hudson
submitted revised risk assessments in June 2001, which also encompassed
additional cleanup of Hudson River sediments and property owned by the City of
Newburgh.

      The DEC and the DOH approved the revised risk assessments. The Feasibility
Report was revised based on the revised assessments and filed with the DEC on
October 29, 2003.

      On February 24, 2005, the DEC issued a Proposed Remedial Action Plan
("PRAP") for public review and comment. The PRAP proposes a $22.9 million
remediation plan which is similar in scope to one previously submitted by
Central Hudson, although it also includes a contingency fund and a projected
expense for continued maintenance and monitoring at the site. The PRAP was the
subject of a public hearing in the City of Newburgh on March 17, 2005. A public
comment period remained open until April 30, 2005. The DEC issued its Record of
Decision ("ROD") on December 2, 2005, confirming that the cleanup identified in
the PRAP will be required to be conducted by Central Hudson.

      Central Hudson has entered into a contract with Blasland, Bouck and Lee
("BBL") of Syracuse, New York with a value up to $1.6 million. Under the
contract, BBL, which


                                      -28-
<PAGE>

has conducted all studies to-date at the site, will conduct additional required
pre-design studies and will assist with development of remediation contract
specifications and remediation construction oversight assistance, in accordance
with the ROD. An initial schedule for remediating the site has been approved by
the DEC and requires Central Hudson to submit and the DEC to approve the
complete design and incorporated schedule of the remedy of the former MGP site
by September 30, 2006, and for Central Hudson to submit and the DEC to approve
the complete design and incorporated schedule of the remedy of adjacent property
and of a certain portion of the Hudson River by December 31, 2007.

      As of March 31, 2006, approximately $12.4 million has been spent on the
City of Newburgh matter, including the defense of the litigation described
above. It is not possible to predict the extent of additional remediation costs
that will be incurred in connection with this matter, but Central Hudson
believes that such costs could be in excess of $17 million. As of March 31,
2006, a $17 million estimate regarding this matter has been recorded as
liability, and the expenses have been deferred, subject to the provisions of a
PSC Order issued on June 3, 1997, that granted permission for the deferral of
these costs subject to an annual PSC review of the specific costs being
deferred. The authority from the PSC to defer these costs does not assure future
rate recovery.

      Neither Energy Group nor Central Hudson can make any prediction as to the
full financial effect of this matter on either Energy Group or Central Hudson,
including the extent, if any, of insurance reimbursement and including
implementation of environmental cleanup under the Order on Consent. However,
Central Hudson has put its insurers on notice of this matter and intends to seek
reimbursement from its insurers for the cost of any liability. Certain of the
insurers have denied coverage.

      Other MGP Sites: Central Hudson conducted site assessments of the
Poughkeepsie Laurel Street, North Water Street, and Beacon sites under Voluntary
Cleanup Agreements negotiated in 2000 with the DEC to determine if there are any
significant quantities of residues from the MGP operations on the sites and
whether any such residues would require remediation. In March 2002, the DEC
informed Central Hudson that both it and the DOH had approved Central Hudson's
Supplemental Preliminary Site Assessment for the North Water Street site, which
had concluded that the contamination at the site "does not appear to pose a
significant threat to public health and the environment." At that time, the DEC
and Central Hudson agreed that further investigation at the site would be given
lower priority than work at the other Central Hudson MGP sites. In August 2002,
however, an oily sheen on the Hudson River adjacent to this site was reported to
the DEC. As a result, the DEC revised its priority determination with respect to
the North Water Street site and has now given it a high priority for action. In
2004, Central Hudson received approval from the DEC for and conducted additional
investigation work at the North Water Street site, which included field work on
the site and in the adjacent Hudson River. A report detailing the work and data
gathered was filed with the DEC early in 2005. Subsequently, in 2005, Central
Hudson provided the DEC with an additional report of an investigation of
subsurface conditions near the Hudson River and is presently analyzing the
results of


                                      -29-
<PAGE>

additional investigations that were requested by the DEC. Neither Energy Group
nor Central Hudson can predict the outcome of the investigative work at this
time.

      In March 2004, Central Hudson requested that the Voluntary Cleanup
Agreement covering the North Water Street site be converted into a Brownfield
Cleanup Agreement under New York State's new Brownfield Cleanup Program. The
Brownfield Cleanup Agreement with the DEC was signed and effective May 12, 2005.
Central Hudson believes the Brownfield Cleanup Agreement is unlikely to
significantly change the amount or cost of any potential remediation of the
North Water Street site, but may permit the recovery by Central Hudson of some
of the remediation costs through tax credits.

      By 2003, Central Hudson had performed a full site investigation and
proposed a remediation of the Laurel Street site. The DEC has requested that
additional investigation be performed regarding the potential for off-site
contamination. Central Hudson is currently in discussions with the DEC regarding
the nature and extent of the additional investigation.

      In October 2000, Central Hudson was notified by the DEC that it had
determined that the Poughkeepsie North Perry Street site posed little or no
significant threat to the public and that no additional investigation or action
was necessary at the present time. In the last year, the DEC has requested that
Central Hudson perform very limited and focused additional investigation at the
North Perry Street site. Central Hudson has recently proposed to the DEC a work
plan for the additional investigation and expects the additional investigation
to occur in 2006.

      During the fourth quarter of 2001, Central Hudson was advised that the DEC
and the DOH found that no further remedial action was presently necessary at the
Beacon site. In January 2006, Central Hudson was advised that property adjacent
to the site of the former Beacon site appeared to have soil present that may be
contaminated with MGP-related byproducts. In response to this information,
Central Hudson has met with the DEC and is providing the additional information
it has received characterizing the nature and extent of the contamination.

      The DEC has also requested that Central Hudson enter into a Brownfield
Cleanup Agreement covering the Kingston, Saugerties, and Catskill sites.
Regarding the Kingston site, Central Hudson is considering an offer from a third
party to purchase the site. Central Hudson cannot predict whether this sale,
which is subject to Section 70 approval by the PSC, will take place. Regarding
the Catskill site, Central Hudson has recently applied for a Brownfield Cleanup
Agreement to investigate and, if necessary, remediate the site. The application
has been deemed complete by the DEC and is undergoing a public review and
comment period required by the Brownfield Cleanup Program law. Regarding the
Saugerties site, Central Hudson has submitted to the DEC an analysis indicating
that Central Hudson has no legal responsibility for contamination, if any, at
the Saugerties site. The DEC has not yet responded to the submitted analysis.


                                      -30-
<PAGE>

      A recent policy announced by the DEC could require the reopening of one or
more of Central Hudson's closed sites should the DEC determine that testing of
indoor air quality within structures located near or on the site(s) is
warranted. At this time, the DEC has not indicated that it intends to reopen any
Central Hudson site.

      Central Hudson has developed estimates of the potential costs it could
incur in connection with the remediation of four of the MGP sites, namely the
City of Newburgh site, the Laurel Street site, the North Water Street site, and
the Kingston site. The cost estimates for the Newburgh and Laurel Street sites
are based on completed feasibility studies (or their equivalents). The cost
estimates for the North Water Street and Kingston sites, however, are considered
conceptual and preliminary. Each of the cost estimates involves assumptions
relating to investigation expenses, remediation costs, potential future
liabilities, and post-remedial monitoring costs, and is based on a variety of
factors including projections regarding the amount and extent of contamination,
the location, size and use of the sites, proximity to sensitive resources,
status of regulatory investigations, and information regarding remediation
activities at other MGP sites in New York State. The cost estimates also assume
that the proposed remediation techniques are technically feasible and that the
remediation plans receive regulatory approval. The cost estimates, when
considered in the aggregate, indicate that the total costs in connection with
remediation of the four sites could exceed $125 million over the next 30-year
period, including the annual cost of operations and maintenance and an annual
inflation factor of 2.5%. Central Hudson has already recorded an aggregate of
$19.5 million as liabilities, comprised of $17 million with respect to the City
of Newburgh and $2.5 million with respect to the Laurel Street site.

      For the Laurel Street site remediation, the $2.5 million estimate was
recorded as a liability in June 2002, and the expense was deferred, subject to
the provisions of a PSC Order issued on October 25, 2002, that granted
permission for the deferral of these and other costs relating to the MGP sites.

      During the first quarter of 2006, Central Hudson spent approximately $0.1
million related to investigations of these other MGP sites. Future remediation
activities and costs may vary significantly from the assumptions used in Central
Hudson's current cost estimates. The remediation actions ultimately required at
any of the Central Hudson MGP sites could cause a material adverse effect (the
extent of which cannot be reasonably estimated) on the financial condition of
Energy Group and Central Hudson if Central Hudson were unable to recover all or
a substantial portion of these costs through rates and/or insurance. Central
Hudson has put its insurers on notice regarding these matters and intends to
seek reimbursement from its insurers for amounts, if any, for which it may
become liable.

      Under the provisions of the new rate agreement that if approved will
become effective July 1, 2006, described in Note 3 - "Regulatory Matters,"
Central Hudson will be permitted to defer for future recovery the differences
between actual costs for MGP site investigation and remediation and the rate
allowances, with carrying charges to be accrued on the deferred balances at the
authorized rate of return.


                                      -31-
<PAGE>

      Orange County Landfill

      Reference is made to the discussion under the subcaption "Orange County
Landfill" in Note 11 - "Commitments and Contingencies" to the Consolidated
Financial Statements of the Corporations' 10-K Annual Report. The Tolling
Agreement dated September 7, 2001, whereby Central Hudson agreed to toll the
applicable statute of limitations by certain state agencies against Central
Hudson for certain alleged causes of action, has through a series of sequential
agreements been extended to July 1, 2006. Settlement discussions are ongoing.
Neither Energy Group nor Central Hudson can predict the outcome of this matter.

      Newburgh Consolidated Iron Works

      By letter from the EPA dated November 28, 2001, Central Hudson, among
others, was served with a Request For Information pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act regarding any shipments
of scrap or waste materials that Central Hudson may have made to Consolidated
Iron and Metal Co., Inc. ("Consolidated Iron"), a Superfund site located in
Newburgh, New York. Sampling by the EPA has indicated that lead and
polychlorinated biphenyls (or "PCBs") are present at the site, and the EPA
expects to commence a remedial investigation and feasibility study at the site
in the future. Central Hudson responded to the EPA's information request on
January 30, 2002. In its response, Central Hudson stated that it had entered
into a contract with Consolidated Iron under which Central Hudson sold scrap
metal to Consolidated Iron. The term of the contract was from 1988 to 1989.
Records of eight and a possible ninth shipment of scrap metal to Consolidated
Iron have been identified. No records were found which indicate that the
material sold to Consolidated Iron contained or was a hazardous substance.
Central Hudson has put its insurers on notice regarding this matter and intends
to seek reimbursement from its insurers for amounts, if any, for which it may
become liable.

      Neither Energy Group nor Central Hudson can predict the outcome of this
investigation at the present time.

Asbestos Litigation

      As of March 31, 2006, of the 3,280 cases brought against Central Hudson,
1,158 remain pending. Of the cases no longer pending against Central Hudson,
1,972 have been dismissed or discontinued without payment by Central Hudson, and
Central Hudson has settled 150 cases. Central Hudson is presently unable to
assess the validity of the remaining asbestos lawsuits; accordingly, it cannot
determine the ultimate liability relating to these cases. Based on information
known to Central Hudson at this time, including Central Hudson's experience in
settling asbestos cases and in obtaining dismissals of asbestos cases, Central
Hudson believes that the costs which may be incurred in connection with the
remaining lawsuits will not have a material adverse effect on either of Energy
Group's or Central Hudson's financial position or results of operations.


                                      -32-
<PAGE>

CHEC:

      Griffith has received a demand addressed to Griffith Consumers Division
("Consumers"), the entity from which Griffith had purchased certain assets of
its business, from the CITGO Petroleum Corporation ("CITGO") for defense and
indemnification of CITGO in lawsuit commenced on or about March 13, 2001, by
James and Casey Threatte against CITGO and Gordon E. Wenner in the Circuit Court
for Loudon County, Virginia. The lawsuit seeks compensatory damages of $1.4
million plus attorney's fees, jointly and severally from CITGO and defendant
Wenner, for the alleged contamination of a plaintiff's property in Lovettsville,
Virginia, by gasoline containing methyl tertiary butyl ether (or "MTBE")
emanating from the neighboring Lovettsville Garage. CITGO maintains that
Consumers owes it a defense and indemnification pursuant to a February 1, 1999,
Distribution Franchise Agreement pursuant to which CITGO sold gasoline to
Consumers, which then resold the gasoline to the Lovettsville Garage. Griffith
does not believe it or Consumers is responsible to CITGO in this matter, in part
because the supply agreement with the Lovettsville Garage was transferred to
another distributor on August 1, 2001, and the transferee agreed to assume any
liabilities existing as of that date. Moreover, even if Griffith were determined
to be responsible to CITGO, Energy Group believes that CITGO itself is not a
proper party to the lawsuit and, therefore, Griffith would be liable only for
the reimbursement of defense costs.

      Griffith has a voluntary environmental program in connection with the West
Virginia Division of Environmental Protection regarding Griffith's Kable Oil
Bulk Plant, located in West Virginia. During 2006, $12,000 was spent on site
remediation efforts. The State of West Virginia has indicated that some
additional remediation of the site will be required and Griffith is waiting for
a proposal for the environmental remediation. In addition, Griffith spent
$51,000 on remediation efforts in Maryland, Virginia, and Connecticut.

      Griffith is currently updating the remediation assessments for all of its
environmental sites and expects to complete this work in the first half of 2006.
Griffith cannot predict whether the outcome of the current studies will require
adjustment to the corresponding environmental reserve, which is currently $3.2
million. Griffith is to be reimbursed $301,000 from the State of Connecticut
under an environmental agreement and has recorded this anticipated reimbursement
as a receivable.

      On May 31, 2002, CH Services sold all of its stock ownership interest in
CH Resources to WPS Power Development, Inc. In connection with the sale, CH
Services agreed for four years following the date of this sale to retain up to
$4 million of potential environmental liabilities which may have been incurred
by CH Resources prior to the closing, although no such material liabilities have
been identified. Energy Group has agreed to guarantee the post-closing
obligations of CH Services under the sale agreement, which guarantee now applies
to CHEC.


                                      -33-
<PAGE>

Other Matters

Central Hudson:

      Central Hudson is involved in various other legal and administrative
proceedings incidental to its business which are in various stages. While these
matters collectively involve substantial amounts, it is the opinion of
Management that their ultimate resolution will not have a material adverse
effect on either of Energy Group's or Central Hudson's financial positions or
results of operations.

      Neversink Hydro Station

      Central Hudson's ownership interest in the Neversink Hydro Station
("Neversink") was governed by agreements between Central Hudson and the City of
New York ("the City") acting through the Board of Water Supply dated April 21,
1948. That agreement provided for the transfer of Central Hudson's ownership
interest in Neversink, which has a book value of zero, to the City on December
31, 2003. Central Hudson and the City of New York engaged in negotiations
relating to the transfer of Central Hudson's ownership interest in Neversink and
extended the deadline for the transfer through a series of interim agreements.
On February 28, 2006, the parties entered into an "Agreement as to Conveyance of
the Neversink Hydroelectric Generating Plant" and an "Interconnection
Agreement." These agreements provide for the transfer of Neversink to the City
and specify the terms and conditions for interconnection and Central Hudson's
ongoing property rights for its transmission and distribution equipment. These
agreements must now be approved by the PSC pursuant to Section 70 of the Public
Service Law. The Federal Energy Regulatory Commission ("FERC") has accepted the
interconnection agreement and now must approve the transfer of Neversink's
step-up transformers and 69 kV switch. A Section 203 filing with the FERC was
submitted on March 30, 2006. A Section 70 petition was filed with the PSC on
April 13, 2006. There can be no assurance that these regulatory approvals will
be obtained.

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

EXECUTIVE SUMMARY

Business Overview

      Energy Group is a holding company with the following components: (1)
Central Hudson's regulated electric utility business, (2) Central Hudson's
regulated natural gas utility business, (3) Griffith's (and, prior to its merger
with Griffith as of December 31, 2005, SCASCO's) fuel oil, propane, and motor
fuels distribution business, and (4) CHEC's investments in renewable energy
supply, energy efficiency, an energy venture capital fund, and other investments
of Energy Group, consisting primarily of money market investments.

      Central Hudson contributed approximately 70% of Energy Group's revenue and
78% of its net income in 2005, the fuel distribution segment contributed
approximately


                                      -34-
<PAGE>

30% of Energy Group's revenue and 8% of its net income in 2005, and the
investment segment contributed less than 1% of Energy Group's revenue and 14% of
its net income in 2005.

      Energy Group intends to deliver shareholder value through a consistent
dividend (currently $2.16 per share annually) and growth in earnings per share.
Energy Group is targeting 5% annual growth in earnings per share, on average,
over the next several years.

Central Hudson

      Central Hudson delivers electricity and natural gas to approximately
363,500 customers in a defined service territory in the mid-Hudson Valley region
of New York State. Central Hudson was significantly transformed in 2001 by the
PSC's electricity industry restructuring under which formerly "vertically
integrated" electric utilities such as Central Hudson divested most or all of
their electric generating plants to unaffiliated parties. Since then, Central
Hudson's earnings have been derived primarily from delivery charges levied upon
end-users of its electricity and natural gas transmission and distribution
systems in its service territory. Central Hudson continues to procure supplies
of electricity and natural gas for a majority of its customers. In doing so,
Central Hudson recovers its actual costs through cost adjustment clauses and
without deriving profits from these activities. Central Hudson's delivery
customers are gradually migrating to third-party providers for their energy
supplies, a process which Central Hudson is working to facilitate.

      Central Hudson's weather-normalized delivery volumes have grown steadily
in recent years due to the addition of new customers, particularly residential
customers, as home construction in its service territory has been robust. This
has been due to continued migration to Central Hudson's service territory,
primarily from the New York City metropolitan area, and was in response to
expansion of the regional economy and favorable relative housing costs. In
addition, per customer consumption of electricity and natural gas has gradually
increased due to the construction of larger homes and the proliferation of
end-uses for electricity, such as computers and other electronic equipment.

      While these favorable trends are expected to continue, they could be
impacted by an economic recession, dampening of the housing market by rising
interest rates, and/or reduced consumption by customers in response to higher
energy costs.

      Central Hudson's rates are regulated by the PSC, which is responsible for
setting rates at a level that will recover the cost of providing safe and
reliable service while providing a fair and reasonable return on invested
capital. Central Hudson has focused its management attention for many years on
managing its costs and maintaining high customer satisfaction so that its costs
can be fully recovered and a reasonable rate of return can be earned under
applicable regulatory agreements.


                                      -35-
<PAGE>

      Central Hudson has achieved substantial success through its efforts,
consistently ranking among the lowest cost electric utilities in New York State,
and ranking in the top quartile in overall customer satisfaction among utilities
in the Eastern United States, as reported by J.D. Power and Associates in its
2005 Electric Utility Residential Customer Satisfaction Study.

      In July 2005, for the first time in over a decade, Central Hudson filed
for a proposed increase in its electricity and natural gas delivery rates. This
proposed increase is intended to cover cumulative inflation, the cost of capital
on an increasing investment base, costs of providing employee benefits,
including costs deferred under the currently applicable regulatory agreement,
environmental and safety compliance costs, and certain other costs.

      In April 2006, Central Hudson, the Staff of the PSC, and other parties
developed the 2006 Joint Proposal for natural gas and electric rates for the
three-year period July 1, 2006, through July 1, 2009, subject to final PSC
approval, which could occur at the earliest during its session on June 20, 2006.
New electric rates would be phased in over three years (beginning July 2006,
2007, and 2008) and natural gas delivery rates over two years (beginning July
2006 and 2007). If approved by the PSC at its June 2006 meeting, the change in
rates would increase customers' total electric bills by approximately 11% and
total natural gas bills by about 9.5% by 2009. The 2006 Joint Proposal, if
approved, gives Central Hudson the opportunity to fund investments in its
electric and natural gas infrastructure, to more effectively trim vegetation
that could interrupt electric service, and to recover the expenses associated
with programs such as the clean up of its former MGP sites and testing for stray
voltage. The 2006 Joint Proposal, if approved, will be a key driver of Central
Hudson's earnings and cash flows once it goes into effect. Central Hudson's
sales growth and its ability to continue to effectively manage its cost of
operations will also play significant roles in determining Central Hudson's
future earnings and cash flows.

      Central Hudson's investments in plant and equipment, to safely and
reliably serve the growing demand for energy in its service territory, are
expected to provide an opportunity for increased earnings over time, and are
expected to provide a significant portion of Energy Group's earnings per share
growth.

Fuel Distribution Business

      Griffith serves more than 85,000 customers in parts of Connecticut,
Delaware, the District of Columbia, Maryland, Massachusetts, New York,
Pennsylvania, Virginia, and West Virginia. For the purposes of discussion,
references to Griffith should be read as applicable to both Griffith and SCASCO
for 2005 and prior periods. Griffith and SCASCO were merged as of December 31,
2005.

      Griffith's business environment has recently been challenging and remains
so due to high wholesale fuel oil, propane, and motor fuel prices. These high
wholesale prices have required significant infusions of working capital into
Griffith and have resulted in increased price sensitivity and conservation by
Griffith's customers. Despite


                                      -36-
<PAGE>

these challenges, Griffith's profitability in 2005 exceeded the level achieved
in 2004. Customer attrition due to price sensitivity increased in 2004 and early
2005, but has since been curtailed and modest account growth has resumed. Growth
through acquisition of smaller companies, within or adjacent to Griffith's
existing delivery areas, resumed in 2005. Since 2001, Griffith has acquired and
integrated 22 small fuel distribution businesses, including one in the first
quarter of 2006 and three in April 2006. Energy Group views Griffith's cost
management, strong customer service capabilities, and access to capital as
competitive advantages that Griffith will endeavor to translate into increased
market share, both through internal marketing and selective acquisitions, in
2006.

CHEC's Investments and Other Items

      From time to time, CHEC has made investments in the competitive energy
markets. In 2006, CHEC made a third renewable energy investment - in a biomass
electric generating plant - following investments in 2004 and 2005 in an ethanol
production facility and a wind energy venture. CHEC continues to strive to find
opportunities to invest Energy Group's available cash reserves and to utilize
Energy Group's potential debt capacity by finding appropriate investments in the
energy markets. CHEC's approach has been cautious, due both to Energy Group's
limited risk tolerance and to strong competition from other investors. Passage
of the 2005 Energy Policy Act has increased incentives to invest in certain
portions of the energy markets, and certain state and federal legislative
actions have increased demand for renewable energy. CHEC is evaluating these
opportunities but remains cautious about undue reliance on government
incentives. CHEC's ability to find investments that provide attractive returns
with acceptable risks will be a key factor in determining whether Energy Group
is able to achieve its goal of 5% average annual growth in earnings per share
over the next several years. CHEC's other investments - in energy efficiency
projects, a venture capital fund, and other small partnerships - are not
expected to play a significant role in Energy Group's strategy going forward.

      Energy Group's other investments consist primarily of money market and
liquid short-term investments, income from which fluctuates with market rates of
interest. Over time, Energy Group intends to draw down the balance of its
short-term investment portfolio, primarily for investment in its subsidiaries.

Risk Management

      Energy Group's Common Stock has historically exhibited relatively low
volatility, and Energy Group recognizes its shareholder base as having a
relatively low risk tolerance. In view of this, Energy Group has an
enterprise-wide risk management process in place, which seeks to identify and
manage the risks inherent in Energy Group's businesses in a cost-effective
manner. In addition to a comprehensive insurance program, Energy Group employs
various strategies to moderate volatility in energy prices and interest rates
and to reduce potential earnings volatility resulting from the effects of
weather on sales volumes.


                                      -37-
<PAGE>

Corporate Governance

      Energy Group has embraced the corporate governance changes that have been
implemented through the Sarbanes-Oxley Act of 2002 and related rulemakings by
the SEC and the listing requirements of the New York Stock Exchange. A detailed
discussion of Energy Group's corporate governance processes can be found in
Energy Group's 2006 proxy statement available on Energy Group's website,
www.CHEnergyGroup.com. Energy Group believes that its current corporate
governance processes effectively serve the interests of its shareholders.

Credit Quality

      Energy Group believes that creditworthiness and liquidity are important
factors for its long-term success. In light of this, Energy Group has maintained
conservative financial policies at its primary subsidiary, Central Hudson, which
presently enjoys a solid A bond rating. In addition, committed lines of credit
of $75 million at Energy Group and $77 million at Central Hudson have been
established to provide sufficient liquidity in the currently volatile wholesale
energy markets.

Overview of First Quarter Results

      The impact of warmer winter weather and the expense of restoring electric
service in the wake of storms were the primary factors that combined to reduce
the first-quarter earnings for Energy Group by $0.13 per share as compared to
those of the first quarter of 2005. Energy Group posted quarterly results of
$1.16 versus $1.29 one year ago.

      Residential heating degree-days (a measurement of heating requirements)
were 9% lower than those of a year ago, and approximately 10% below normal,
which was enough to reduce earnings corporate-wide by approximately $0.16 per
share. In addition, Central Hudson incurred approximately $1.7 million in
increased expenses to restore electric service after windstorms within Central
Hudson's service territory, which further reduced quarterly earnings by
approximately $0.07 per share. Those impacts were partially offset by the
benefits of several regulatory mechanisms.

Regulated Electric and Gas Businesses

      Central Hudson's earnings were down $0.12 per share as compared to those
of the first quarter of 2005. Electric net operating revenues decreased by $0.06
per share between the first quarter of 2005 and the first quarter of 2006, as
deliveries declined by 5%. Natural gas net operating revenues also decreased by
$0.06 per share quarter to quarter, representing a decline in deliveries of 14%.
Central Hudson's earnings for the quarter were benefited, however, by several
regulatory mechanisms, including funds made available toward achieving allowed
operating income levels.


                                      -38-
<PAGE>

Fuel Distribution Business

      Earnings were $0.02 per share lower in the fuel distribution business
during the first quarter of 2006 versus those of a year ago, with weather
estimated to have reduced earnings by $0.05 per share. Total petroleum sales
fell by more than 7% as compared to the first three months of 2005 and sales to
residential customers declined by 13%. Importantly, improved service
profitability and margins, as well as the contributions of acquisitions made in
the fourth quarter of 2005, helped to offset the decline in the gross profit
from reduced sales associated with warmer winter weather.

Other Businesses

      Increased income associated with short-term investments held by Energy
Group, the holding company, added $0.01 per share to quarterly earnings, as
compared to the first quarter of 2005.

REGULATORY MATTERS

      For further information regarding Central Hudson's most recent electric
and natural gas rate filing, see Note 3 - "Regulatory Matters."

CAPITAL RESOURCES AND LIQUIDITY

      The growth of Energy Group's retained earnings in the first three months
of 2006 contributed to the increase in the book value per share of its Common
Stock from $31.97 at December 31, 2005, to $32.60 at March 31, 2006; the common
equity ratio increased from 56.0% at December 31, 2005, to 56.6% at March 31,
2006. Book value per share at March 31, 2005, was $32.07 and the common equity
ratio was 59.0%.

      Both Energy Group's and Central Hudson's liquidity reflect cash flows from
operating, investing, and financing activities, as shown on their respective
Consolidated Statements of Cash Flows and as discussed below.

      The principal factors affecting Energy Group's liquidity are the net cash
flows generated from operations, capital expenditures, and external financing of
its subsidiaries, as well as the dividends Energy Group pays to its
shareholders.

      Central Hudson's cash flows from operating activities reflect principally
its energy sales and deliveries and costs of operations. The volume of energy
sales and deliveries is dependent primarily on factors external to Central
Hudson, such as weather and economic conditions. Prices at which Central Hudson
delivers energy to its customers are determined in accordance with rate plans
approved by the PSC. In general, changes in the cost of purchased electricity,
fuel, and natural gas may affect the timing of cash flows but not net income
because these costs are fully recovered through its electric and natural gas
cost adjustment mechanisms.


                                      -39-
<PAGE>

      Central Hudson's cash flows are also affected by other regulatory deferral
mechanisms whereby cash may be expended in one period and recovery of the cash
from customers may not occur until a subsequent period.

Energy Group - Cash Flow Summary

      Changes in Energy Group's cash and temporary cash investments resulting
from operating, investing, and financing activities for the three months ended
March 31, 2006, and 2005, are summarized in the following chart:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
                                        Three Months       Three Months            Variance
        Energy Group                    Ended 2006          Ended 2005          2006 vs. 2005
------------------------------------------------------------------------------------------------
<S>                                     <C>                  <C>                  <C>
Net Cash Provided By (Used In):                       (Millions of Dollars)
------------------------------------------------------------------------------------------------
Operating Activities                    $     11.4           $     15.0           $     (3.6)
------------------------------------------------------------------------------------------------
Investing Activities                         (12.4)               (13.7)                 1.3
------------------------------------------------------------------------------------------------
Financing Activities                          (9.5)               (10.5)                 1.0
------------------------------------------------------------------------------------------------
Net change for the period                    (10.5)                (9.2)                (1.3)
------------------------------------------------------------------------------------------------
Balance at beginning of period                49.4                 70.4                (21.0)
------------------------------------------------------------------------------------------------
Balance at end of period                $     38.9           $     61.2           $    (22.3)
------------------------------------------------------------------------------------------------
</TABLE>

      Energy Group's net cash flows provided by operating activities during the
three months ended March 31, 2006, were $3.6 million lower as compared to the
three months ended March 31, 2005. Cash flow decreased primarily because of the
continued high cost for purchased electricity, natural gas, and petroleum
products due largely to an increase in the wholesale cost of each as compared to
the same period in 2005 and also due to lower electric and natural gas
deliveries.

      Net cash flows used in investing activities were $1.3 million lower in the
first three months of 2006 as compared to the first three months of 2005. The
issuance of notes receivable to partnerships and minor acquisitions by CHEC
increased expenditures in 2006, however they were partially offset by net funds
received from the purchase and sale of Energy Group's short-term investments. As
discussed in Note 2 - "Summary of Significant Accounting Policies" under the
caption "Revision in the Classification of Certain Securities," these
investments were previously classified as cash and cash equivalents. As a result
of this revision in classification, Energy Group concludes that it is
appropriate to classify these securities in the consolidated balance sheets for
Energy Group as short-term investments - available-for-sale securities. As a
result of this revision in classification, Energy Group has also made
corresponding adjustments to its consolidated statement of cash flows for all
periods presented to reflect the gross purchases and liquidation of these
available-for-sale securities as investing activities rather than as a component
of cash and cash equivalents. This revision in classification has no impact on
previously reported total current assets, total assets, working capital
position, results of operations or financial covenants and does not affect
previously reported cash flows from operating or financing activities. The
consolidated financial statements of Central Hudson were not affected by this
revision in classification. For more information relating to Energy Group's
short-term investments, see Note 5 - "Short-Term Investments."

      Net cash flows from financing activities were $1.0 million lower in the
first three months of 2006 as compared to the same three months of 2005. The
resulting decrease in cash flows used was primarily driven by lower net
repayments of short-term debt by Central Hudson in the first three months of
2006 as compared to the same period in 2005.


                                      -40-
<PAGE>

Central Hudson - Cash Flow Summary

      Changes in Central Hudson's cash and temporary cash investments resulting
from operating, investing, and financing activities for the three months ended
March 31, 2006, and 2005, are summarized in the following chart:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
                                           Three Months     Three Months       Variance
Central Hudson                              Ended 2006       Ended 2005     2006 vs. 2005
--------------------------------------------------------------------------------------------
Net Cash Provided By (Used In):                        (Millions of Dollars)
--------------------------------------------------------------------------------------------
<S>                                         <C>              <C>              <C>
Operating Activities                        $     12.4       $     18.5       $     (6.1)
--------------------------------------------------------------------------------------------
Investing Activities                             (12.2)           (12.9)             0.7
--------------------------------------------------------------------------------------------
Financing Activities                              (1.2)           (10.7)             9.5
--------------------------------------------------------------------------------------------
Net change for the period                         (1.0)            (5.1)             4.1
--------------------------------------------------------------------------------------------
Balance at beginning of period                     4.2              8.2             (4.0)
--------------------------------------------------------------------------------------------
Balance at end of period                    $      3.2       $      3.1       $      0.1
--------------------------------------------------------------------------------------------
</TABLE>

      Central Hudson's net cash flows provided by operating activities in the
three months ended March 31, 2006, were $6.1 million lower as compared to the
same three months ended March 31, 2005, for the reasons indicated in the
discussion of Energy Group's net cash flows provided by operating activities.

      Central Hudson's net cash flows related to investing activities of $12.2
million in the three months ended March 31, 2006, a decrease of $0.7 million as
compared to the first three months of 2005, were comprised entirely of
construction and removal expenditures.

      Net cash flows used for financing activities were $9.5 million lower in
the first three months of 2006 as compared to the same three months of 2005. The
net decrease was primarily driven by the absence of dividends paid to Energy
Group in 2006 and lower net repayments of short-term debt as compared to the
same period in 2005.

Financing Program

      At March 31, 2006, Energy Group, on a consolidated basis, had maturities
of $33 million of long-term debt and $29 million of short-term debt outstanding.
Cash and cash equivalents for Energy Group, consolidated, were $38.9 million at
March 31, 2006.

      Energy Group, the holding company, has a $75.0 million revolving credit
agreement with several commercial banks which as of March 31, 2006, has no
outstanding balance.

      As of March 31, 2006, Central Hudson had short-term debt outstanding of
$29 million and cash and cash equivalents of $3.2 million. The short-term debt
outstanding is from the use of uncommitted credit lines. Central Hudson has a
$75.0 million revolving credit agreement with a group of commercial banks which
as of March 31, 2006, has no outstanding balance. Central Hudson also has a
committed short-term credit agreement for $2.0 million and certain uncommitted
lines of credit with


                                      -41-
<PAGE>

various banks. These agreements give Central Hudson competitive options to
minimize the cost of its short-term borrowing.

      Central Hudson's current senior unsecured debt ratings/outlook is
A2/stable by Moody's Investors Service and A/stable by both Standard and Poor's
Corporation and Fitch Ratings.

      Energy Group and Central Hudson each believes that it will be able to meet
its reasonably likely short-term and long-term cash requirements, assuming that
Central Hudson's current and future rate plans reflect the costs of service,
including a reasonable return on invested capital.

      CHEC has a $15.0 million line of credit with a commercial bank which, as
of March 31, 2006, had no outstanding balance.

      On July 25, 2002, the Board of Directors of Energy Group authorized a
Common Stock Repurchase Program ("Repurchase Program") to repurchase up to 4.0
million shares, or approximately 25%, of outstanding Common Stock over the five
years beginning August 1, 2002. Between August 1, 2002, and December 31, 2003,
the number of shares repurchased under the Repurchase Program was 600,087 at a
cost of $27.5 million. No shares were repurchased during the three months ended
March 31, 2006, or during the twelve months ended December 31, 2005, and 2004.
Energy Group intends to set repurchase targets, if any, each year based on
circumstances then prevailing. Repurchases have been suspended while Energy
Group assesses opportunities to redeploy its cash reserves in regulated and
competitive energy-related businesses. Energy Group reserves the right to
modify, suspend, or terminate the Repurchase Program at any time without notice.

EARNINGS PER SHARE

      Energy Group's consolidated earnings per share (basic) for the first
quarter of 2006 were $1.16 per share as compared to $1.29 per share for the
first quarter of 2005, a decrease of $0.13 per share. Details of the change in
earnings are as follows:

Regulated Electric and Natural Gas Businesses

      Earnings for Central Hudson's electric and natural gas operations
decreased $0.12 per share due to the following:

      o     A decrease of $0.14 per share due to an increase in operating
            expenses mostly related to storm restoration efforts in the months
            of January and February 2006 and a $0.03 per share increase in
            expense related to uncollectible accounts and injuries and damages.

      o     A decrease of $0.06 per share due to a decrease in electric net
            operating revenues. Total billed electric deliveries decreased 5%
            including an 8% decrease in deliveries to residential customers and
            a 4% reduction in deliveries to commercial customers, both
            attributable to a decrease in usage resulting from


                                      -42-
<PAGE>

            warmer weather in the first quarter of 2006. Weather decreased
            earnings from electric deliveries by approximately $0.05 per share.
            Residential heating degree-days (electric and natural gas) were 9%
            lower than last year and 10% lower than normal.

      o     A decrease of $0.06 per share due to a decrease in natural gas net
            operating revenues primarily from the warmer weather. Despite modest
            customer growth, billed deliveries to firm natural gas customers
            decreased 14%. Deliveries to residential and commercial customers,
            largely space heating deliveries, each decreased 13%, while
            industrial deliveries, which are approximately 4% of total firm
            sales, decreased 29%. The decrease in degree-days reduced earnings
            by approximately $0.06 per share.

      o     The above decreases were partially offset by a $0.14 per share
            increase from electric and natural gas regulatory mechanisms. The
            increase is due to a reduction in shared earnings of $0.08 per share
            from electric operations resulting from lower ratemaking operating
            income to-date for the rate year ending June 30, 2006, and the
            recording of electric and natural gas revenues of $0.06 per share
            toward restoring earnings to the allowed rate of return in
            accordance with the provisions of Central Hudson's current
            Settlement Agreement.

Fuel Distribution Business

      Earnings from the fuel distribution business decreased $0.02 per share due
to the following:

      o     A $0.03 per share decrease due to an increase in operating expenses
            and a slight increase in interest expense. The increase in operating
            expenses is due to an increase in marketing expense, other general
            and administrative expenses, and added expenses due to acquisitions
            made in the fourth quarter of 2005.

      o     An increase of $0.01 per share due to an increase in service
            profitability of $0.02 per share, which was partially offset by a
            decrease in gross margin from the sale of petroleum products of
            $0.01 per share resulting from a decrease in volumes sold due to
            warmer weather, customer conservation, and customer attrition.
            Overall, sales of petroleum products decreased 7% with sales of
            heating oil to residential customers dropping 13% due primarily to
            the warmer weather. Improved margins per gallon on petroleum
            products and earnings from the 2005 acquisitions partially offset
            the decrease in gross margin. The 2005 acquisitions also increased
            the net residential customer count by 4%. As adjusted for billing
            lags, heating degree-days decreased 15%, which impacted earnings by
            approximately $0.05 per share, after accounting for the effect of
            weather-hedging contracts.


                                      -43-
<PAGE>

Other Businesses

      Earnings for Energy Group, the holding company, and CHEC's interests in
partnerships and other investments increased $0.01 per share due to an increase
in interest income at Energy Group.

RESULTS OF OPERATIONS

      The following discussion and analyses include explanations of significant
changes in revenues and expenses between the three months ended March 31, 2006,
and the three months ended March 31, 2005, for the regulated electric and
natural gas businesses, the fuel distribution business, and the other
businesses.

OPERATING REVENUES

      Energy Group's consolidated operating revenues increased $31.1 million, or
10.9%, for the first quarter of 2006 as compared to the same period in 2005.
Details of these revenue changes are presented in the following charts and
related discussions concerning the variances.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                          2006/2005 INCREASE (DECREASE)
(Thousands of Dollars)                                  THREE MONTHS ENDED MARCH 31, 2006
------------------------------------------------------------------------------------------------------------------
                                                                        Fuel
                               Electric          Natural Gas        Distribution         Other          Total
------------------------------------------------------------------------------------------------------------------
<S>                            <C>                <C>                <C>               <C>            <C>
Customer Delivery Sales        $  (2,058)(a)      $  (1,959)(b)      $  14,080(c)      $     294      $  10,357
------------------------------------------------------------------------------------------------------------------
Sales to Other Utilities             760                719                 --                --          1,479
------------------------------------------------------------------------------------------------------------------
Energy Cost Adjustment(d)          7,245              8,083                 --                --         15,328
------------------------------------------------------------------------------------------------------------------
Deferred Revenues(e)               3,122                432                 --                --          3,554
------------------------------------------------------------------------------------------------------------------
Miscellaneous                        320                104                 --                --            424
------------------------------------------------------------------------------------------------------------------
       Total                   $   9,389          $   7,379          $  14,080         $     294      $  31,142
------------------------------------------------------------------------------------------------------------------
</TABLE>

(a)   Includes an offsetting restoration of amounts from Central Hudson's
      Customer Benefit Fund (described under the caption "Rate Proceedings -
      Electric and Natural Gas" in Note 2 - "Regulatory Matters" to the
      Consolidated Financial Statements of the Corporations' 10-K Annual Report)
      for the reduction of revenues due to customer refunds to all customers and
      back-out credits for retail access customers. Customer refunds ended in
      October 2005.

(b)   Includes both firm and interruptible customers.

(c)   Due to increase in average selling price of all petroleum products due to
      higher wholesale purchase prices.

(d)   Changes in energy cost adjustment revenues do not affect earnings since
      they offset related costs.

(e)   Includes the restoration of other revenues from Central Hudson's Customer
      Benefit Fund for other authorized programs and the deferral of electric
      shared earnings in accordance with the provisions of Central Hudson's
      current rate agreement with the PSC (described in Note 2 - "Regulatory
      Matters" to the Consolidated Financial Statements of the Corporations'
      10-K Annual Report).

Regulated Electric and Natural Gas Businesses

      Utility electric and natural gas operating revenues increased $16.8
million, or 8.8%, from $190.1 million in 2005 to $206.9 million in 2006 for the
quarter ended March 31, 2006. Electric and natural gas revenues increased $9.4
million, or 7.4%, and $7.4 million, or 11.6%, respectively, primarily due to an
increase in amounts collected


                                      -44-
<PAGE>

through Central Hudson's cost adjustment mechanisms for the recovery of its
purchased electricity and natural gas costs. The increases are due to higher
purchased electricity and natural gas costs in 2006 as compared to 2005.
Electric and natural gas revenues related to regulatory mechanisms also
increased due largely to revenues made available by Central Hudson's current
Settlement Agreement to achieve allowed ratemaking operating income; however,
these revenues were offset by a decrease in revenues from deliveries.

Fuel Distribution Business

      Fuel distribution business revenues, net of the effect of weather hedging
contracts, increased $14.1 million, or 14.7%, from $95.7 million in 2005 to
$109.8 million in 2006 for the quarter ended March 31, 2006. Revenues from
petroleum products increased $13.0 million, or 14.2%, from $91.4 million in 2005
to $104.4 million in 2006 due primarily to a significant increase in the
wholesale price of petroleum products, which was partially offset by the
reduction in sales volumes discussed earlier. This includes increases of $8.7
million, or 33.9%, in motor fuel revenues, $3.9 million, or 6.1%, in heating oil
revenues, and $0.4 million in other revenues related to the sale of petroleum
products. Other revenues related to service and installations and energy
services increased $1.1 million.

SALES VOLUMES

      Sales volumes for both Central Hudson and the fuel distribution business
vary in response to weather conditions and the price of the energy product.
Electric deliveries peak in the summer and deliveries of natural gas and
petroleum products used for heating purposes peak in the winter.

Regulated Electric and Natural Gas Businesses

      The following chart reflects the change in the level of electric and
natural gas deliveries for the quarter ended March 31, 2006, as compared to the
same period for 2005.

                                        INCREASE (DECREASE) FROM 2005
                                        3 MONTHS ENDED MARCH 31, 2006
                                        ------------------------------
                                       Electric             Natural Gas
                                       --------             ------------
Residential..................            (8)%                     (13)%
Commercial...................            (4)%                     (13)%
Industrial...................             1%                      (29)%
Interruptible................            N/A                       (5)%

      Utility deliveries of electricity within Central Hudson's service
territory decreased 5% in the first quarter of 2006 as compared to the same
period in 2005. Deliveries to residential and commercial customers decreased 8%
and 4%, respectively, resulting from a decrease in usage due to a milder winter.
Deliveries to industrial customers increased 1%. Residential heating degree-days
(electric and natural gas) decreased 9% over the prior year and were 10% lower
than normal.


                                      -45-
<PAGE>

      Utility deliveries of natural gas to firm Central Hudson customers
decreased 14% in the first quarter of 2006 as compared to the same period in
2005. Deliveries to residential and commercial customers, largely space heating
deliveries, each decreased 13% due to the warmer weather and were also partially
offset by customer growth. Industrial sales, which are approximately 4% of total
firm sales in the comparative quarters, decreased 29% while interruptible sales
decreased 5%.

Fuel Distribution Business

      Sales of petroleum products by the fuel distribution business decreased
3.7 million gallons, or 7.3%, to 46.9 million gallons in the first quarter of
2006 from 50.6 million gallons in the first quarter of 2005. This was due to a
decrease of 4.4 million gallons, or 13.1%, in sales of heating oil from 33.5
million gallons in 2005 to 29.1 million gallons in 2006. The decrease resulted
from a reduction in residential sales due to warmer weather in 2006 as compared
to 2005, as evidenced by a 15% decrease in heating degree-days, as adjusted for
billing lags. The decrease in volume was partially offset by an increase in
sales from acquisitions made in the fourth quarter of 2005. Motor fuel sales
increased 0.9 million gallons, or 5.6%, from 16.0 million gallons in 2005 to
16.9 million gallons in 2006 while sales of propane decreased slightly from 1.1
million gallons in 2005 to 0.9 million gallons in 2006. Motor fuel sales
increased from acquisitions made in 2005 and the addition of one large volume
customer. The decrease in propane sales is largely attributable to the warmer
weather in 2006.

OPERATING EXPENSES

Regulated Electric and Natural Gas Businesses

      Total utility operating expenses including income taxes increased $18.6
million, or 10.8%, from $172 million in the first quarter of 2005 to $190.6
million in the first quarter of 2006. Purchased electricity and natural gas
expense increased $7.4 million and $8.5 million, respectively. Both reflect an
increase in wholesale costs and the recording of amounts related to the recovery
of these costs via Central Hudson's cost adjustment mechanisms for purchased
electricity and natural gas. The total increase in purchased natural gas expense
was partially offset by a decrease in volumes purchased for full service
customers due to the milder winter weather. Other operating expense, including
income taxes, increased $2.7 million reflecting an increase in storm restoration
costs due to severe windstorms in January and February 2006; an increase in
expense related to uncollectible accounts, injuries and damages; and increases
in other general and administrative expenses.

Fuel Distribution Business

      For the three months ended March 31, 2006, operating expenses, including
income taxes, increased $14.3 million, or 15.8%, from $90.5 million in 2005 to
$104.8 million in 2006. The cost of petroleum products increased $13.5 million,
or 19%, due to higher wholesale market prices. Other operating expenses
increased $0.8 million in 2006 due to an increase in marketing expenses, other
general and administrative


                                      -46-
<PAGE>

expenses, and additional expenses associated with the acquisitions made in the
fourth quarter of 2005.

OTHER INCOME

      On a consolidated basis, Other Income for the quarter ended March 31,
2006, increased $0.4 million as compared to the same period in 2005 due
primarily to an increase in regulatory carrying charges due from customers
related to pension costs and the recording of favorable regulatory adjustments
for the increase in the interest rates applicable to Central Hudson's variable
long-term debt. These adjustments offset the increase in interest on the
variable rate debt as noted in the following discussion regarding interest
charges.

INTEREST CHARGES

      Interest charges increased $0.7 million due to an increase in interest
charges on Central Hudson's long and short-term debt. Interest expense from
long-term debt increased due to the issuance of medium-term notes in December
2005 and increased interest on Central Hudson's variable rate debt. Additional
short-term debt was required in the first quarter of 2006 for working capital
needs due to higher fuel prices.

COMMON STOCK DIVIDENDS

      Reference is made to the caption "Common Stock Dividends and Price Ranges"
of Part II, Item 7 of the Corporations' 10-K Annual Report for a discussion of
Energy Group's dividend payments. On March 24, 2006, the Board of Directors of
Energy Group declared a quarterly dividend of $0.54 per share, payable May 1,
2006, to shareholders of record as of April 10, 2006.

OTHER MATTERS

      Changes in Accounting Standards: See Note 2 - "Summary of Significant
Accounting Policies" and Note 7 - "New Accounting Standards and Other FASB
Projects" for discussion of relevant changes, which discussion is incorporated
by reference herein.

      Higher Energy Prices: In the first quarter of 2006, Central Hudson's
regulated electric and natural gas delivery customers received bills reflecting
higher per unit energy prices than those received in the first quarter of 2005.
For heating customers, total bill impacts were partially mitigated by a
reduction in average usage in response to warmer winter weather. While higher
energy prices themselves have little or no impact on Central Hudson's earnings
due to adjustment mechanisms that recover energy costs from customers,
Management believes that continued high energy prices could cause a change in
customer behavior toward increased conservation and energy efficiency, resulting
in a decrease in delivery volumes and a negative impact on earnings.
Additionally, persistently higher prices or further price increases could lead
to an economic slowdown and dampen economic growth in Central Hudson's service


                                      -47-
<PAGE>

territory. Slower growth could adversely affect the overall volume of
electricity and natural gas deliveries, reducing earnings from utility
operations.

      Customers of the fuel distribution business are also experiencing higher
per unit prices. In the first quarter of 2006, Griffith experienced
year-over-year volume decreases that were partially driven by price-sensitive
customer attrition, conservation and energy efficiency efforts, and fuel
switching. If fuel oil prices remain high in 2006, continued customer attrition
and energy efficiency efforts could further reduce residential fuel delivery
volumes.

      Both Central Hudson's electricity and natural gas businesses and
Griffith's fuel distribution business also face several other challenges that
could result from continued higher prices: higher working capital needs driven
by lags between disbursements to energy suppliers and receipts from customers,
higher bad debt expenses resulting from customers who are unable to pay higher
energy bills, and political and regulatory responses to higher energy prices.
Management believes that Energy Group has adequate liquidity to meet the working
capital demands of the current and near-term energy price environment and is
actively monitoring bad debt expense and the political/regulatory environment.

      CHEC's investment in ethanol production may realize benefits from higher
energy prices in the future through higher prices for ethanol produced, but in
the short-term would be limited by the extent volumes have been sold at fixed
prices. These benefits, however, may be partially offset by higher prices for
the fuel used in the ethanol production process.

      In aggregate, Energy Group does not expect higher energy prices to have a
material effect on its financial results in 2006, but is unable to predict with
certainty the ultimate level of energy prices, potential customer response to
those prices, and the corresponding financial impact on its operating companies
and investments.

FORWARD-LOOKING STATEMENTS

      Statements included in this Quarterly Report on Form 10-Q and the
documents incorporated by reference which are not historical in nature, are
intended to be, and are hereby identified as, "forward-looking statements" for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended ("Exchange Act"). Forward-looking statements may be
identified by words including "anticipates," "believes," "projects," "intends,"
"estimates," "expects," "plans," "assumes," "seeks," and similar expressions.
Forward-looking statements including, without limitation, those relating to
Energy Group's and Central Hudson's ("Registrants") future business prospects,
revenues, proceeds, working capital, liquidity, income and margins, are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those indicated in the forward-looking statements, due to
several important factors including those identified from time to time in the
forward-looking statements. Those factors include, but are not limited to:
weather; energy supply and demand; fuel prices; interest rates; potential future
acquisitions; developments in the


                                      -48-
<PAGE>

legislative, regulatory and competitive environment; market risks; electric and
natural gas industry restructuring and cost recovery; the ability to obtain
adequate and timely rate relief; changes in fuel supply or costs including
future market prices for energy, capacity, and ancillary services; the success
of strategies to satisfy electricity, natural gas, fuel oil, and propane
requirements; the outcome of pending litigation and certain environmental
matters, particularly the status of inactive hazardous waste disposal sites and
waste site remediation requirements; and certain presently unknown or unforeseen
factors, including, but not limited to, acts of terrorism. Registrants undertake
no obligation to update publicly any forward-looking statements, whether as a
result of new information, future events, or otherwise.

      Given these uncertainties, undue reliance should not be placed on the
forward-looking statements.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Reference is made to Part II, Item 7A of the Corporations' 10-K Annual
Report for a discussion of market risk. There has been no material change in
either the market risks or the practices employed by Energy Group and Central
Hudson to mitigate these risks discussed in the Corporations' 10-K Annual
Report. For related discussion on this activity, see, in the Consolidated
Financial Statements of the Corporations' 10-K Annual Report, Note 1 - "Summary
of Significant Accounting Policies" under the caption "Accounting for Derivative
Instruments and Hedging Activities" and Item 7 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations" under subcaption
"Capital Resources and Liquidity."

ITEM 4 - CONTROLS AND PROCEDURES

      The Chief Executive Officer and Chief Financial Officer of Energy Group
and Central Hudson evaluated the effectiveness of the disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934, as amended) as of the end of the period covered by this Quarterly Report
on Form 10-Q and based on that evaluation, concluded that, as of the end of the
period covered by this Quarterly Report on Form 10-Q, the Registrants' controls
and procedures are effective for recording, processing, summarizing, and
reporting information required to be disclosed in their reports under the
Securities Exchange Act of 1934, as amended, within the time periods specified
in the SEC's rules and forms.

      There were no changes to the Registrants' internal control over financial
reporting that occurred during the Registrants' last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Registrants' internal control over financial reporting.


                                      -49-
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Central Hudson:

Former Manufactured Gas Plant Facilities

      For information about investigations and remediation efforts involving
former manufactured gas plant facilities owned or operated by Central Hudson or
its predecessors, see Item 3 of the Corporations' 10-K Annual Report and Note 11
- "Commitments and Contingencies" to the financial statements included in that
report and Note 11 - "Commitments and Contingencies" to the financial statements
included in Part I, Item 1 of this report under the subcaption "Former
Manufactured Gas Plant Facilities," which is incorporated herein by reference.

Orange County Landfill

      For information about the Orange County Landfill matter, see Item 3 of the
Corporations' 10-K Annual Report and Note 11 - "Commitments and Contingencies"
to the financial statements included in that report and Note 11 - "Commitments
and Contingencies" to the financial statements under the subcaption "Orange
County Landfill," included in Part I, Item 1 of this report, which is
incorporated herein by reference.

Asbestos Litigation

      For information about asbestos lawsuits to which Central Hudson is a
party, see Item 3 of the Corporations' 10-K Annual Report and Note 11 -
"Commitments and Contingencies" to the financial statement included in that
report and Note 11 - "Commitments and Contingencies" to the financial statements
under the subcaption "Asbestos Litigation," included in Part I, Item 1 of this
report, which is incorporated herein by reference.

Neversink

      For information concerning the transfer of Neversink to the City of New
York, see Item 3 of the Corporations' 10-K Annual Report and Note 11 -
"Commitments and Contingencies" to the financial statements included in that
report and Note 11 - "Commitments and Contingencies" to the financial statements
included in Part I, Item 1 of this report, under the subcaption "Neversink Hydro
Station," which is incorporated herein by reference.

CHEC:

      For information concerning Griffith's remediation efforts at the Kable Oil
Bulk plant in West Virginia, see Item 3 of the Corporations' 10-K Annual Report
and Note 11 - "Commitments and Contingencies" to the financial statements
included in that report


                                      -50-
<PAGE>

and Note 11 - "Commitments and Contingencies" to the financial statements
included in Part I, Item 1 of this report, under the caption "CHEC," which is
incorporated herein by reference.

      For information concerning SCASCO's remediation efforts in Connecticut,
see Item 3 the Corporations' 10-K Annual Report and Note 11 - "Commitments and
Contingencies" to the financial statements included in that report and Note 11 -
"Commitments and Contingencies" to the financial statements included in Part I,
Item 1 of this report, under the caption "CHEC," which is incorporated herein by
reference.

ITEM 1A. RISK FACTORS

      For discussion identifying additional risk factors that could cause actual
results to differ materially from those anticipated, see the discussion under
Item 1A - Risk Factors of the Corporations' 10-K Annual Report.

      High Wholesale Fuel Oil Prices May Adversely Affect the Ability of
      Griffith to Attract New Customers, Retain Existing Customers and Maintain
      Sales Volumes

      For the three months ended March 31, 2006, the average wholesale price of
fuel oil, as measured by the closing price on the NYMEX, increased 25% to $1.75
per gallon, from $1.40 per gallon for the same three months ended March 31,
2005. Griffith's management believes the significant rise in the wholesale price
of fuel oil has adversely impacted the ability of Griffith to attract new full
service residential customers and, to a lesser extent, retain existing full
service residential customers. Griffith's management believes some customer
attrition is due to former and prospective full service customers deciding,
because of high fuel oil prices, to purchase fuel from discount distributors,
which - unlike Griffith - do not offer other services such as equipment
installation, repair, and maintenance. In addition, Griffith's management
believes that some customers are conserving their use of fuel oil by accepting
lower temperatures in their homes and by implementing home improvements (e.g.,
more insulation; better windows). If higher fuel prices were to continue
indefinitely, or such prices were to increase significantly, Griffith could
experience further customer attrition and further reductions in sales volume due
to customer conservation. If one or both of these were to occur and be material,
the consequence could be a material reduction in profitability that could, in
turn, lead to an impairment of the goodwill included in the intangible assets on
Griffith's and Energy Group's balance sheet. Additionally, if customer attrition
were to accelerate significantly the remaining value of the customer list could
be impaired or subject to faster amortization.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

      The Annual Meeting of Shareholders of Energy Group was held on April 25,
2006. One matter voted upon at such meeting was the election of three nominees
proposed as directors by the Board of Directors as Class III directors with
terms expiring at the Annual Meeting of Shareholders to be held in 2009. No
other nominees were


                                      -51-
<PAGE>

proposed and these three nominees were elected. The total number of shares voted
was 13,186,921. The number of shares voted for each of these directors and the
number of shares withheld were as follows:

--------------------------------------------------------------------------------
     Name of Director                      Shares For            Shares Withheld
--------------------------------------------------------------------------------
E. Michel Kruse                            12,874,773                312,148
--------------------------------------------------------------------------------
Manuel J. Iraola                           12,874,912                312,009
--------------------------------------------------------------------------------
Ernest R. Verebelyi                        12,869,893                317,028
--------------------------------------------------------------------------------

      There were no broker non-votes or abstentions on the matter submitted to a
vote.

      The other Directors of Energy Group are: Steven V. Lant, Edward F. X.
Gallagher, Jeffrey D. Tranen, Margarita K. Dilley, Steven M. Fetter, and Stanley
J. Grubel.

      The shareholders approved the adoption of the CH Energy Group, Inc.
Long-Term Equity Incentive Plan (the "2006 Plan"). The 2006 Plan replaces the
Corporation's Long-Term Performance-Based Incentive Plan (the "2000 Plan"). Upon
shareholder approval of the 2006 Plan, the 2000 Plan terminated; no new awards
will be granted under such plan, although outstanding awards granted under the
2000 Plan will continue in accordance with their terms and the provisions of the
2000 Plan. This proposal was ratified by a majority vote of 7,543,798 shares
for, 5,643,123 against, and 486,631 shares abstaining. There were no broker
non-votes on the matter submitted to a vote.

      The shareholders also ratified the appointment of PricewaterhouseCoopers
LLP, an independent registered public accounting firm, as Energy Group's
independent public accountants for 2006, although shareholder ratification of
the appointment is non-binding and not required by law. This proposal was
ratified by a majority vote of 12,997,459 shares for, 189,462 shares against,
and 106,301 shares abstaining. There were no broker non-votes on the matter
submitted to a vote.

      Immediately following Energy Group's Annual Meeting of Shareholders, the
Board of Directors elected Steven V. Lant as Chairman of the Board, President
and Chief Executive Officer and E. Michel Kruse as Lead Independent Director.
The Board of Directors also made the following appointments: Christopher M.
Capone, Chief Financial Officer and Treasurer; Carl E. Meyer, Executive Vice
President; Joseph J. DeVirgilio, Jr., Executive Vice President - Corporate
Services & Administration; Arthur R. Upright, Senior Vice President; Donna S.
Doyle, Vice President - Accounting and Controller; Denise D. VanBuren, Vice
President - Corporate Communications and Community Relations; Stacey A. Renner,
Assistant Treasurer - Investor Relations; Lincoln E. Bleveans, Secretary and
Assistant Treasurer; and John E. Gould, Assistant Secretary.

      In addition, the Board of Directors designated Margarita K. Dilley as
Chair of the Audit Committee; Stanley J. Grubel as Chair of the Compensation
Committee; Steven


                                      -52-
<PAGE>

M. Fetter as Chair of the Governance and Nominating Committee; and E. Michel
Kruse as Chair of the Strategy and Finance Committee.

      The Annual Meeting of the Shareholder of Central Hudson was held on March
15, 2006. All of the nominees proposed as directors by the Board of Directors
were elected, and no other nominees were proposed. The sole shareholder of
Central Hudson, Energy Group, voted all of its shares of Central Hudson's common
stock for the nominees. The directors are: Steven V. Lant, Christopher M.
Capone, Joseph J. DeVirgilio, Jr., Carl E. Meyer, and Arthur R. Upright.

      Immediately following Central Hudson's Annual Meeting of the Shareholder,
Central Hudson's Board of Directors made the following appointments: Steven V.
Lant as Chairman of the Board and Chief Executive Officer; Carl E. Meyer,
President and Chief Operating Officer; Christopher M. Capone, Chief Financial
Officer and Treasurer; Joseph J. DeVirgilio, Jr., Executive Vice President -
Corporate Services and Administration; Arthur R. Upright, Senior Vice President
- Regulatory Affairs; Charles A. Freni, Senior Vice President - Customer
Services; Donna S. Doyle, Vice President - Accounting and Controller; James P.
Lovette, Vice President - Engineering and Environmental Affairs; Denise D.
VanBuren, Vice President - Corporate Communications and Community Relations;
Thomas C. Brocks, Assistant Vice President - Human Resources; Michael L. Mosher,
Assistant Vice President - Regulatory Affairs; Lincoln E. Bleveans, Secretary
and Assistant Treasurer; and John E. Gould, Assistant Secretary.


                                      -53-
<PAGE>

ITEM 6. EXHIBITS

      (a) The following exhibits are furnished in accordance with the provisions
of Item 601 of Regulation S-K.

 Exhibit No.
Regulation S-K
   Item 601
 Designation        Exhibit Description

12                  Statements Showing Computation of the Ratio of Earnings to
                    Fixed Charges and the Ratio of Earnings to Combined Fixed
                    Charges and Preferred Stock Dividends.

31.1                Rule 13a-14(a)/15d-14(a) Certification by Mr. Lant.

31.2                Rule 13a-14(a)/15d-14(a) Certification by Mr. Capone.

32.1                Section 1350 Certification by Mr. Lant.

32.2                Section 1350 Certification by Mr. Capone.


                                      -54-
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.


                                               CH ENERGY GROUP, INC.
                                                    (Registrant)

                               By:               /s/ Donna S. Doyle
                                    --------------------------------------------
                                                   Donna S. Doyle
                                     Vice President - Accounting and Controller


                                     CENTRAL HUDSON GAS & ELECTRIC CORPORATION
                                                  (Co-Registrant)

                               By:               /s/ Donna S. Doyle
                                    --------------------------------------------
                                                   Donna S. Doyle
                                     Vice President - Accounting and Controller

Dated: May 10, 2006


                                      -55-
<PAGE>

                                  EXHIBIT INDEX

      Following is the list of Exhibits, as required by Item 601 of Regulation
S-K, filed as part of this Quarterly Report on Form 10-Q:

 Exhibit No.
Regulation S-K
   Item 601
 Designation          Exhibit Description

12                  Statements Showing Computation of the Ratio of Earnings to
                    Fixed Charges and the Ratio of Earnings to Combined Fixed
                    Charges and Preferred Stock Dividends.

31.1                Rule 13a-14(a)/15d-14(a) Certification by Mr. Lant.

31.2                Rule 13a-14(a)/15d-14(a) Certification by Mr. Capone.

32.1                Section 1350 Certification by Mr. Lant.

32.2                Section 1350 Certification by Mr. Capone.


                                      -56-