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
              September
      30, 2009
 
 OR
 
 o  TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For
      the transition period from
              to
 
 Commission
                File Number
              Registrant,
      State of Incorporation
                Address and Telephone
Number
              IRS
      Employer
                Identification No.0-30512
              CH
      Energy Group, Inc.
                (Incorporated
      in New York)
                284
      South Avenue
                Poughkeepsie,
      New York 12601-4839
                (845)
      452-2000
              14-18044601-3268
              Central
      Hudson Gas & Electric Corporation
                (Incorporated
      in New York)
                284
      South Avenue
                Poughkeepsie,
      New York 12601-4839
                (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  o
  
  Indicate
by check mark CH Energy Group, Inc. has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
 
 Yes  o      No  o
 
 Indicate
by check mark Central Hudson Gas & Electric Corporation has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).
 
 Yes  o      No  o
 
 Indicate
by check mark whether CH Energy Group, Inc. is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.  (Check one):
 
 Large Accelerated Filer  
o       
 Accelerated Filer   x
 
 Non-Accelerated
Filer   oSmaller
Reporting Company   o
 
 Indicate
by check mark whether Central Hudson Gas & Electric Corporation is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.  (Check one):
 
 Large
Accelerated Filer   oAccelerated
Filer   o
 
 Non-Accelerated Filer  
xSmaller Reporting
Company  o
 
 Indicate
by check mark whether CH Energy Group, Inc. is a shell company (as defined in
Rule 12b-2 of the Exchange Act):
 
 Yes  o      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  o      No  x
 
 As of the
close of business on October 30, 2009, (i) CH Energy Group, Inc. had outstanding
15,804,806 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).
  
  FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2009
 
 TABLE OF
CONTENTS
 
 PART
      I – FINANCIAL INFORMATION
                PAGEITEM
      1 – FINANCIAL STATEMENTS (UNAUDITED)CH
      ENERGY GROUP, INC.Consolidated
      Statement of Income –Three Months Ended September 30, 2009 and
      2008
                6Nine Months Ended September 30, 2009 and
      2008
                7Consolidated
      Statement of Comprehensive Income –Three Months Ended September 30, 2009 and
      2008
                8Nine Months Ended September 30, 2009 and
      2008
                8Consolidated Statement of Cash Flows –Nine
      Months Ended September 30, 2009 and 2008
                9Consolidated Balance Sheet – September 30,
      2009,December
      31, 2008 and September 30, 2008
                10Consolidated Statement of Changes In Equity
      –Nine
      Months Ended September 30, 2009 and 2008
                12CENTRAL HUDSON GAS & ELECTRIC
      CORPORATIONStatement
      of Income –Three Months Ended September 30, 2009 and
      2008
                13Nine Months Ended September 30, 2009 and
      2008
                14Statement
      of Comprehensive Income –Three Months Ended September 30, 2009 and
      2008
                15Nine Months Ended September 30, 2009 and
      2008
                15Statement of Cash Flows –Nine
      Months Ended September 30, 2009 and 2008
                16Balance Sheet – September 30, 2009,December
      31, 2008 and September 30, 2008
                17Statement of Changes In Equity –Nine
      Months Ended September 30, 2009 and 2008
                19Notes to Financial Statements
                20
  Table of Contents
  TABLE OF CONTENTSPAGEITEM
      2
              MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS
              67ITEM
      3
              QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
      RISK
              114ITEM
      4
              CONTROLS AND PROCEDURES
              114PART II – OTHER INFORMATIONITEM
      1
              LEGAL PROCEEDINGS
              115ITEM
      1A
              RISK FACTORS
              115ITEM
      6
              EXHIBITS
              117SIGNATURES
              118EXHIBIT INDEX
              119CERTIFICATIONS
              123
 _______________________________________________
 
 Filing
Format
 
 This
Quarterly Report on Form 10-Q is a combined quarterly report being filed by two
different registrants:  CH Energy Group, Inc. (“CH Energy Group”) and
Central Hudson Gas & Electric Corporation (“Central Hudson”), a wholly owned
subsidiary of CH Energy Group.  Except where the content clearly
indicates otherwise, any reference in this report to CH Energy Group includes
all subsidiaries of CH Energy Group, including Central
Hudson.  Central Hudson makes no representation as to the information
contained in this report in relation to CH Energy Group and its subsidiaries
other than Central Hudson.
  Table of Contents
  PART 1 – FINANCIAL
INFORMATION
 
 ITEM 1 – FINANCIAL
STATEMENTS (UNAUDITED)
 
 CH
      ENERGY GROUP CONSOLIDATED STATEMENT OFINCOME
      (UNAUDITED)(In
      Thousands, except per share amounts)Three
      Months EndedSeptember 30,2009
              
              
              2008Operating
      RevenuesElectric
              
              $
              138,685
              
              
              $
              179,001Natural
      gas
              
              
              16,243
              
              
              
              21,773Competitive
      business subsidiaries:Petroleum
      products
              
              
              47,244
              
              
              
              88,618Other
              
              
              11,473
              
              
              
              11,395Total
      Operating Revenues
              
              
              213,645
              
              
              
              300,787Operating
      ExpensesOperation:Purchased
      electricity and fuel used in electric generation
              
              
              61,379
              
              
              
              116,900Purchased
      natural gas
              
              
              5,798
              
              
              
              13,405Purchased
      petroleum
              
              
              40,258
              
              
              
              82,002Other
      expenses of operation - regulated activities
              
              
              50,311
              
              
              
              39,247Other
      expenses of operation - competitive business subsidiaries
              
              
              19,118
              
              
              
              20,508Depreciation
      and amortization
              
              
              10,277
              
              
              
              9,713Taxes,
      other than income tax
              
              
              10,228
              
              
              
              9,634Total
      Operating Expenses
              
              
              197,369
              
              
              
              291,409Operating
      Income
              
              
              16,276
              
              
              
              9,378Other
      Income and Deductions(Loss)
      income from unconsolidated affiliates
              
              
              (75
              )
              
              
              123Interest
      on regulatory assets and investment income
              
              
              1,218
              
              
              
              1,339Other
      - net
              
              
              (1,384
              )
              
              
              (41
              )Total
      Other Income
              
              
              (241
              )
              
              
              1,421Interest
      ChargesInterest
      on long-term debt
              
              
              5,355
              
              
              
              4,926Interest
      on regulatory liabilities and other interest
              
              
              1,711
              
              
              
              1,485Total
      Interest Charges
              
              
              7,066
              
              
              
              6,411Income
      before income taxes, non-controlling interest and preferred dividends
      of subsidiary
              
              
              8,969
              
              
              
              4,388Income
      Taxes
              
              
              3,327
              
              
              
              1,193Net
      Income
              
              
              5,642
              
              
              
              3,195Net
      income attributable to non-controlling interest:Non-controlling
      interest in subsidiary
              
              
              48
              
              
              
              68Dividends
      declared on Preferred Stock of subsidiary
              
              
              242
              
              
              
              242Net
      income attributable to CH Energy Group
              
              
              5,352
              
              
              
              2,885Dividends
      declared on Common Stock
              
              
              8,535
              
              
              
              8,523Change
      in Retained Earnings
              
              $
              (3,183
              )
              
              $
              (5,638
              )Common
      Stock:Average
      shares outstandingBasic
              
              
              15,776
              
              
              
              15,771Diluted
              
              
              15,854
              
              
              
              15,819Amounts
      attributable to CH Energy Group common shareholdersEarnings
      per shareBasic
              
              $
              0.34
              
              
              $
              0.18Diluted
              
              $
              0.34
              
              
              $
              0.18Dividends
      Declared Per Share
              
              $
              0.54
              
              
              $
              0.54
 
 
 The Notes to Financial Statements are
an integral part hereof.
  - 6
-
 Table of Contents
  CH
      ENERGY GROUP CONSOLIDATED STATEMENT OF INCOME
      (UNAUDITED)(In
      Thousands, except per share amounts)Nine
      Months EndedSeptember 30,2009
              
              
              2008Operating
      RevenuesElectric
              
              $
              404,035
              
              
              $
              468,659Natural
      gas
              
              
              137,422
              
              
              
              142,267Competitive
      business subsidiaries:Petroleum
      products
              
              
              218,273
              
              
              
              379,653Other
              
              
              32,618
              
              
              
              33,653Total
      Operating Revenues
              
              
              792,348
              
              
              
              1,024,232Operating
      ExpensesOperation:Purchased
      electricity and fuel used in electric generation
              
              
              205,014
              
              
              
              291,675Purchased
      natural gas
              
              
              89,924
              
              
              
              98,008Purchased
      petroleum
              
              
              167,198
              
              
              
              334,982Other
      expenses of operation - regulated activities
              
              
              141,022
              
              
              
              123,414Other
      expenses of operation - competitive business subsidiaries
              
              
              63,748
              
              
              
              65,716Depreciation
      and amortization
              
              
              30,561
              
              
              
              28,722Taxes,
      other than income tax
              
              
              29,966
              
              
              
              28,425Total
      Operating Expenses
              
              
              727,433
              
              
              
              970,942Operating
      Income
              
              
              64,915
              
              
              
              53,290Other
      Income and DeductionsIncome
      from unconsolidated affiliates
              
              
              2
              
              
              
              459Interest
      on regulatory assets and investment income
              
              
              4,684
              
              
              
              4,404Reserve
      for note receivable
              
              
              (1,299
              )
              
              
              -Other
      - net
              
              
              (3,744
              )
              
              
              (159
              )Total
      Other Income
              
              
              (357
              )
              
              
              4,704Interest
      ChargesInterest
      on long-term debt
              
              
              15,229
              
              
              
              15,064Interest
      on regulatory liabilities and other interest
              
              
              4,575
              
              
              
              4,116Total
      Interest Charges
              
              
              19,804
              
              
              
              19,180Income
      before income taxes, non-controlling interest and preferred dividends
      of subsidiary
              
              
              44,754
              
              
              
              38,814Income
      Taxes
              
              
              17,152
              
              
              
              14,102Net
      Income
              
              
              27,602
              
              
              
              24,712Net
      (loss) income attributable to non-controlling interest:Non-controlling
      interest in subsidiary
              
              
              (141
              )
              
              
              129Dividends
      declared on Preferred Stock of subsidiary
              
              
              727
              
              
              
              727Net
      income attributable to CH Energy Group
              
              
              27,016
              
              
              
              23,856Dividends
      declared on Common Stock
              
              
              25,585
              
              
              
              25,564Change
      in Retained Earnings
              
              $
              1,431
              
              
              $
              (1,708
              )Common
      Stock:Average
      shares outstandingBasic
              
              
              15,774
              
              
              
              15,767Diluted
              
              
              15,851
              
              
              
              15,815Amounts
      attributable to CH Energy Group common shareholdersEarnings
      per shareBasic
              
              $
              1.71
              
              
              $
              1.51Diluted
              
              $
              1.70
              
              
              $
              1.51Dividends
      Declared Per Share
              
              $
              1.62
              
              
              $
              1.62
 
 
 The Notes
to Financial Statements are an integral part hereof.
  - 7
-
 Table of Contents
  CH
      ENERGY GROUPCONSOLIDATEDSTATEMENT OF COMPREHENSIVE
      INCOME (UNAUDITED)(In
      Thousands)Three
      Months EndedSeptember 30,2009
              
              
              2008Net
      Income
              
              $
              5,642
              
              
              $
              3,195Other
      Comprehensive Income:Fair
      value of cash flow hedges:Unrealized
      losses - net of tax of $6 and $125
              
              
              (9
              )
              
              
              (188
              )Reclassification
      for gains realized in net income -net of tax of $0 and $0
              
              
              -
              
              
              
              -Net
      unrealized losses on investments held by equity method investees - net of
      tax of $7 and $61
              
              
              (10
              )
              
              
              (91
              )Other
      comprehensive loss
              
              
              (19
              )
              
              
              (279
              )Comprehensive
      Income
              
              
              5,623
              
              
              
              2,916Comprehensive
      income attributable to non-controlling interest
              
              
              290
              
              
              
              310Comprehensive
      income attributable to CH Energy Group
              
              $
              5,333
              
              
              $
              2,606
 
 Nine Months EndedSeptember 30,2009
              
              
              2008Net
      Income
              
              $
              27,602
              
              
              $
              24,712Other
      Comprehensive Income:Fair
      value of cash flow hedges:Unrealized
      gains - net of tax of $(33) and ($867)
              
              
              49
              
              
              
              1,300Reclassification
      for losses realized in net income -net of tax of $0 and
    $1,343
              
              
              -
              
              
              
              (2,014
              )Net
      unrealized losses on investments held by equity method investees – net of
      tax of $8 and $214
              
              
              (11
              )
              
              
              (321
              )Other
      comprehensive income (loss)
              
              
              38
              
              
              
              (1,035
              )Comprehensive
      Income
              
              
              27,640
              
              
              
              23,677Comprehensive
      income attributable to non-controlling interest
              
              
              586
              
              
              
              856Comprehensive
      income attributable to CH Energy Group
              
              $
              27,054
              
              
              $
              22,821
 
 
 The Notes
to Financial Statements are an integral part hereof.
  - 8
-
 Table of Contents
  CH
      ENERGY GROUP CONSOLIDATED STATEMENT OF CASH FLOWS
      (UNAUDITED)(In
      Thousands)Nine
      Months EndedSeptember 30,2009
              
              
              2008Operating
      Activities:Net
      income
              
              $
              27,602
              
              
              $
              24,712Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
              
              
              26,647
              
              
              
              25,009Amortization
              
              
              3,914
              
              
              
              3,713Deferred
      income taxes - net
              
              
              2,180
              
              
              
              6,674Provision
      for uncollectibles
              
              
              11,530
              
              
              
              7,736Distributed
      equity in earnings of unconsolidated affiliates
              
              
              941
              
              
              
              844Pension
      expense
              
              
              13,296
              
              
              
              9,493Other
      post-employment benefits ("OPEB") expense
              
              
              6,669
              
              
              
              7,551Regulatory
      liability - rate moderation
              
              
              (3,789
              )
              
              
              (5,901
              )Revenue
      decoupling mechanism
              
              
              (5,529
              )
              
              
              -Regulatory
      asset amortization
              
              
              3,378
              
              
              
              3,322Gain
      on sale of property and plant
              
              
              (10
              )
              
              
              (98
              )Changes
      in operating assets and liabilities - net of business
      acquisitions:Accounts
      receivable, unbilled revenues and other receivables
              
              
              38,870
              
              
              
              15,682Fuel,
      materials and supplies
              
              
              5,352
              
              
              
              (14,066
              )Special
      deposits and prepayments
              
              
              603
              
              
              
              4,231Accounts
      payable
              
              
              (16,431
              )
              
              
              11,352Accrued
      income taxes and interest
              
              
              8,968
              
              
              
              (2,264
              )Customer
      advances
              
              
              2,159
              
              
              
              2,577Pension
      plan contribution
              
              
              (15,000
              )
              
              
              (12,895
              )OPEB
      contribution
              
              
              (1,300
              )
              
              
              (4,200
              )Regulatory
      asset - manufactured gas plant ("MGP") site remediations
              
              
              (1,595
              )
              
              
              (1,051
              )Regulatory
      asset - PSC tax surcharge and general assessment
              
              
              (15,566
              )
              
              
              -Deferred
      natural gas and electric costs
              
              
              17,993
              
              
              
              (4,832
              )Customer
      benefit fund
              
              
              (33
              )
              
              
              (369
              )Other
      - net
              
              
              10,155
              
              
              
              1,464Net
      cash provided by operating activities
              
              
              121,004
              
              
              
              78,684Investing
      Activities:Proceeds
      from sale of short-term investments
              
              
              -
              
              
              
              3,545Proceeds
      from sale of property and plant
              
              
              194
              
              
              
              181Additions
      to utility and other property and plant
              
              
              (93,946
              )
              
              
              (62,573
              )Acquisitions
      made by competitive business subsidiaries
              
              
              -
              
              
              
              (9,262
              )Other
      - net
              
              
              (3,694
              )
              
              
              958Net
      cash used in investing activities
              
              
              (97,446
              )
              
              
              (67,151
              )Financing
      Activities:Redemption
      of long-term debt
              
              
              (20,000
              )
              
              
              -Proceeds
      from issuance of long-term debt
              
              
              74,000
              
              
              
              -(Repayments)
      borrowings of short-term debt - net
              
              
              (18,500
              )
              
              
              9,000Dividends
      paid on Preferred Stock of subsidiary
              
              
              (727
              )
              
              
              (727
              )Dividends
      paid on Common Stock
              
              
              (25,573
              )
              
              
              (25,559
              )Other
      - net
              
              
              (366
              )
              
              
              5,765Net
      cash provided by (used in) financing activities
              
              
              8,834
              
              
              
              (11,521
              )Net
      Change in Cash and Cash Equivalents
              
              
              32,392
              
              
              
              12Cash
      and Cash Equivalents at Beginning of Period
              
              
              19,825
              
              
              
              11,313Cash
      and Cash Equivalents at End of Period
              
              $
              52,217
              
              
              $
              11,325Supplemental
      Disclosure of Cash Flow Information:Interest
      paid
              
              $
              15,410
              
              
              $
              18,475Federal
      and state taxes paid
              
              $
              24,785
              
              
              $
              9,986Additions
      to plant included in liabilities
              
              $
              2,685
              
              
              $
              16,349
 
 
 The Notes
to Financial Statements are an integral part hereof.
  - 9
-
 Table of Contents
  CH
      ENERGY GROUP CONSOLIDATED BALANCE SHEET
      (UNAUDITED)(In
      Thousands)September 30,
              
              
              December 31,
              
              
              September 30,2009
              
              
              2008
              
              
              2008ASSETSUtility
      PlantElectric
              
              $
              899,355
              
              
              $
              862,465
              
              
              $
              842,006Natural
      gas
              
              
              276,639
              
              
              
              263,874
              
              
              
              259,377Common
              
              
              138,925
              
              
              
              135,732
              
              
              
              118,1481,314,919
              
              
              
              1,262,071
              
              
              
              1,219,531Less:
      Accumulated depreciation
              
              
              373,693
              
              
              
              369,925
              
              
              
              368,065941,226
              
              
              
              892,146
              
              
              
              851,466Construction
      work in progress
              
              
              62,957
              
              
              
              53,778
              
              
              
              80,302Net
      Utility Plant
              
              
              1,004,183
              
              
              
              945,924
              
              
              
              931,768Non-Utility
      Property & PlantGriffith
      non-utility property & plant
              
              
              43,592
              
              
              
              42,691
              
              
              
              42,023Other
      non-utility property & plant
              
              
              23,176
              
              
              
              15,345
              
              
              
              15,29466,768
              
              
              
              58,036
              
              
              
              57,317Less:  Accumulated
      depreciation - Griffith
              
              
              25,646
              
              
              
              23,398
              
              
              
              22,710Less:  Accumulated
      depreciation - other
              
              
              2,984
              
              
              
              2,212
              
              
              
              2,000Net
      Non-Utility Property & Plant
              
              
              38,138
              
              
              
              32,426
              
              
              
              32,607Current
      AssetsCash
      and cash equivalents
              
              
              52,217
              
              
              
              19,825
              
              
              
              11,325Accounts
      receivable from customers - net of allowance for doubtful accounts; $10.0
      million, $8.8 million and $6.5 million, respectively
              
              
              85,145
              
              
              
              131,727
              
              
              
              119,338Accrued
      unbilled utility revenues
              
              
              9,308
              
              
              
              12,657
              
              
              
              8,087Other
      receivables
              
              
              8,203
              
              
              
              7,914
              
              
              
              6,854Fuel,
      materials and supplies
              
              
              31,233
              
              
              
              36,585
              
              
              
              47,794Regulatory
      assets
              
              
              64,057
              
              
              
              60,502
              
              
              
              52,179Fair
      value of derivative instruments
              
              
              263
              
              
              
              -
              
              
              
              28Special
      deposits and prepayments
              
              
              20,815
              
              
              
              21,344
              
              
              
              23,904Accumulated
      deferred income tax
              
              
              7,486
              
              
              
              7,498
              
              
              
              7,077Total
      Current Assets
              
              
              278,727
              
              
              
              298,052
              
              
              
              276,586Deferred
      Charges and Other AssetsRegulatory
      assets - pension plan
              
              
              174,723
              
              
              
              197,934
              
              
              
              40,641Regulatory
      assets - OPEB
              
              
              6,429
              
              
              
              4,257
              
              
              
              -Regulatory
      assets - other
              
              
              106,215
              
              
              
              109,743
              
              
              
              117,075Goodwill
              
              
              67,455
              
              
              
              67,455
              
              
              
              67,564Other
      intangible assets - net
              
              
              33,006
              
              
              
              36,129
              
              
              
              37,037Unamortized
      debt expense
              
              
              5,093
              
              
              
              5,009
              
              
              
              4,067Investments
      in unconsolidated affiliates
              
              
              8,417
              
              
              
              9,711
              
              
              
              9,882Other
      investments
              
              
              10,296
              
              
              
              7,815
              
              
              
              9,464Other
              
              
              16,809
              
              
              
              15,728
              
              
              
              16,146Total
      Deferred Charges and Other Assets
              
              
              428,443
              
              
              
              453,781
              
              
              
              301,876Total
      Assets
              
              $
              1,749,491
              
              
              $
              1,730,183
              
              
              $
              1,542,837
 
 
 The Notes
to Financial Statements are an integral part hereof.
  - 10
-
 Table of Contents
  CH
      ENERGY GROUP CONSOLIDATED BALANCE SHEET (CONT'D)
    (UNAUDITED)(In
      Thousands)September 30,
              
              
              December 31,
              
              
              September 30,2009
              
              
              2008
              
              
              2008CAPITALIZATION
      AND LIABILITIESCapitalizationCH
      Energy Group Common Shareholders' EquityCommon
      Stock (30,000,000 shares authorized: $0.10 par value;16,862,087 shares
      issued) 15,790,431 shares, 15,783,083 shares, and 15,783,083 shares
      outstanding, respectively
              
              $
              1,686
              
              
              $
              1,686
              
              
              $
              1,686Paid-in
      capital
              
              
              350,905
              
              
              
              350,873
              
              
              
              350,828Retained
      earnings
              
              
              218,065
              
              
              
              216,634
              
              
              
              213,931Treasury
      stock - 1,071,656 shares, 1,079,004 shares, and 1,079,004 shares,
      respectively
              
              
              (45,026
              )
              
              
              (45,386
              )
              
              
              (45,386
              )Accumulated
      other comprehensive income
              
              
              93
              
              
              
              55
              
              
              
              138Capital
      stock expense
              
              
              (328
              )
              
              
              (328
              )
              
              
              (328
              )Total
      CH Energy Group Common Shareholders' Equity
              
              
              525,395
              
              
              
              523,534
              
              
              
              520,869Non-controlling
      interest in subsidiary
              
              
              1,520
              
              
              
              1,448
              
              
              
              1,474Total
      Equity
              
              
              526,915
              
              
              
              524,982
              
              
              
              522,343Preferred
      Stock of subsidiary
              
              
              21,027
              
              
              
              21,027
              
              
              
              21,027Long-term
      debt
              
              
              463,897
              
              
              
              413,894
              
              
              
              383,893Total
      Capitalization
              
              
              1,011,839
              
              
              
              959,903
              
              
              
              927,263Current
      LiabilitiesCurrent
      maturities of long-term debt
              
              
              24,000
              
              
              
              20,000
              
              
              
              20,000Notes
      payable
              
              
              17,000
              
              
              
              35,500
              
              
              
              51,500Accounts
      payable
              
              
              34,025
              
              
              
              52,824
              
              
              
              54,596Accrued
      interest
              
              
              6,238
              
              
              
              5,899
              
              
              
              4,288Dividends
      payable
              
              
              8,777
              
              
              
              8,765
              
              
              
              8,765Accrued
      vacation and payroll
              
              
              6,910
              
              
              
              6,628
              
              
              
              6,485Customer
      advances
              
              
              32,601
              
              
              
              30,442
              
              
              
              25,622Customer
      deposits
              
              
              8,582
              
              
              
              8,445
              
              
              
              8,413Regulatory
      liabilities
              
              
              24,064
              
              
              
              4,275
              
              
              
              3,922Fair
      value of derivative instruments
              
              
              12,887
              
              
              
              15,759
              
              
              
              14,080Accrued
      environmental remediation costs
              
              
              12,986
              
              
              
              5,757
              
              
              
              7,876Accrued
      income taxes
              
              
              9,070
              
              
              
              441
              
              
              
              409Deferred
      revenues
              
              
              7,476
              
              
              
              8,827
              
              
              
              7,424Other
              
              
              14,344
              
              
              
              27,974
              
              
              
              31,651Total
      Current Liabilities
              
              
              218,960
              
              
              
              231,536
              
              
              
              245,031Deferred
      Credits and Other LiabilitiesRegulatory
      liabilities - OPEB
              
              
              -
              
              
              
              -
              
              
              
              15,505Regulatory
      liabilities - other
              
              
              101,176
              
              
              
              130,893
              
              
              
              123,828Operating
      reserves
              
              
              4,931
              
              
              
              5,155
              
              
              
              4,802Accrued
      environmental remediation costs
              
              
              14,518
              
              
              
              21,796
              
              
              
              21,860Accrued
      OPEB costs
              
              
              54,381
              
              
              
              52,645
              
              
              
              30,019Accrued
      pension costs
              
              
              157,030
              
              
              
              161,674
              
              
              
              474Other
              
              
              14,525
              
              
              
              12,478
              
              
              
              13,795Total
      Deferred Credits and Other Liabilities
              
              
              346,561
              
              
              
              384,641
              
              
              
              210,283Accumulated
      Deferred Income Tax
              
              
              172,131
              
              
              
              154,103
              
              
              
              160,260Commitments
      and ContingenciesTotal
      Capitalization and Liabilities
              
              $
              1,749,491
              
              
              $
              1,730,183
              
              
              $
              1,542,837
 
 
 The Notes
to Financial Statements are an integral part hereof.
  - 11
-
 Table of Contents
  CH
ENERGY GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(UNAUDITED)
 (In
Thousands, except share and per share amounts)
 
 CH
      Energy Group Common ShareholdersCommon
      Stock
                  $0.10
      par value; 30,000,000 shares authorized
                
                Treasury
      StockShares
      Issued
                
                Amount
                
                Shares
      Repurchased
                
                Amount
                
                Paid-In
      Capital
                
                Capital
      Stock Expense
                
                Retained
      Earnings
                
                Accumulated
      Other Comprehensive Income / (Loss)
                
                
                Non-controlling
      Interest
                
                
                Total
      EquityBalance
      at January 1, 2008
                
                
                16,862,087
                
                $
                1,686
                
                
                (1,100,087
                )
                $
                (46,252
                )
                $
                351,230
                
                $
                (328
                )
                $
                215,639
                
                $
                1,173
                
                
                $
                1,345
                
                
                $
                524,493Comprehensive
      income:Net
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                23,856
                
                
                
                
                
                
                129
                
                
                
                23,985Change
      in fair value:Derivative
      instruments
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,300
                
                
                
                
                
                
                
                1,300Investments
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (2,014
                )
                
                
                
                
                
                
                (2,014
                )Reclassification
      adjustments for losses recognized in net income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (321
                )
                
                
                
                
                
                
                (321
                )Dividends
      declared on common stock ($2.16 per share)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (25,564
                )
                
                
                
                
                
                
                
                
                
                (25,564
                )Treasury
      shares activity - net
                
                
                
                
                
                
                
                
                21,083
                
                
                866
                
                
                (402
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                464Balance
      at September 30, 2008
                
                
                16,862,087
                
                $
                1,686
                
                
                (1,079,004
                )
                $
                (45,386
                )
                $
                350,828
                
                $
                (328
                )
                $
                213,931
                
                $
                138
                
                
                $
                1,474
                
                
                $
                522,343Balance
      at January 1, 2009
                
                
                16,862,087
                
                $
                1,686
                
                
                (1,079,004
                )
                $
                (45,386
                )
                $
                350,873
                
                $
                (328
                )
                $
                216,634
                
                $
                55
                
                
                $
                1,448
                
                
                $
                524,982Comprehensive
      income:Net
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                27,016
                
                
                
                
                
                
                (141
                )
                
                
                26,875Capital
      Contributions
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                213
                
                
                
                213Change
      in fair value:Derivative
      instruments
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                49
                
                
                
                
                
                
                
                49Investments
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (11
                )
                
                
                
                
                
                
                (11
                )Reclassification
      adjustments for losses recognized in net income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Dividends
      declared on common stock ($2.16 per share)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (25,585
                )
                
                
                
                
                
                
                
                
                
                (25,585
                )Treasury
      shares activity - net
                
                
                
                
                
                
                
                
                7,348
                
                
                360
                
                
                32
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                392Balance
      at September 30, 2009
                
                
                16,862,087
                
                $
                1,686
                
                
                (1,071,656
                )
                $
                (45,026
                )
                $
                350,905
                
                $
                (328
                )
                $
                218,065
                
                $
                93
                
                
                $
                1,520
                
                
                $
                526,915
 
 
 The Notes
to Financial Statements are an integral part hereof.
  - 12
-
 Table of Contents
  CENTRAL
      HUDSON STATEMENT OF INCOME (UNAUDITED)(In
      Thousands)Three
      Months EndedSeptember 30,2009
              
              
              2008Operating
      RevenuesElectric
              
              $
              138,685
              
              
              $
              179,001Natural
      gas
              
              
              16,243
              
              
              
              21,773Total
      Operating Revenues
              
              
              154,928
              
              
              
              200,774Operating
      ExpensesOperation:Purchased
      electricity and fuel used in electric generation
              
              
              60,017
              
              
              
              115,413Purchased
      natural gas
              
              
              5,798
              
              
              
              13,405Other
      expenses of operation
              
              
              50,311
              
              
              
              39,247Depreciation
      and amortization
              
              
              8,015
              
              
              
              7,566Taxes,
      other than income tax
              
              
              9,867
              
              
              
              9,452Total
      Operating Expenses
              
              
              134,008
              
              
              
              185,083Operating
      Income
              
              
              20,920
              
              
              
              15,691Other
      Income and DeductionsInterest
      on regulatory assets and other interest income
              
              
              1,202
              
              
              
              962Other
      - net
              
              
              (710
              )
              
              
              120Total
      Other Income
              
              
              492
              
              
              
              1,082Interest
      ChargesInterest
      on other long-term debt
              
              
              4,515
              
              
              
              4,926Interest
      on regulatory liabilities and other interest
              
              
              1,693
              
              
              
              1,374Total
      Interest Charges
              
              
              6,208
              
              
              
              6,300Income
      Before Income Taxes
              
              
              15,204
              
              
              
              10,473Income
      Taxes
              
              
              6,333
              
              
              
              4,346Net
      Income
              
              
              8,871
              
              
              
              6,127Dividends
      Declared on Cumulative Preferred Stock
              
              
              242
              
              
              
              242Income
      Available for Common Stock
              
              $
              8,629
              
              
              $
              5,885
 
 
 The Notes
to Financial Statements are an integral part hereof.
  - 13
-
 Table of Contents
  CENTRAL
      HUDSON STATEMENT OF INCOME (UNAUDITED)(In
      Thousands)Nine
      Months EndedSeptember 30,2009
              
              
              2008Operating
      RevenuesElectric
              
              $
              404,035
              
              
              $
              468,659Natural
      gas
              
              
              137,422
              
              
              
              142,267Total
      Operating Revenues
              
              
              541,457
              
              
              
              610,926Operating
      ExpensesOperation:Purchased
      electricity and fuel used in electric generation
              
              
              201,782
              
              
              
              287,156Purchased
      natural gas
              
              
              89,924
              
              
              
              98,008Other
      expenses of operation
              
              
              141,022
              
              
              
              123,414Depreciation
      and amortization
              
              
              24,013
              
              
              
              22,380Taxes,
      other than income tax
              
              
              29,197
              
              
              
              27,886Total
      Operating Expenses
              
              
              485,938
              
              
              
              558,844Operating
      Income
              
              
              55,519
              
              
              
              52,082Other
      Income and DeductionsInterest
      on regulatory assets and other interest income
              
              
              3,813
              
              
              
              3,290Other
      - net
              
              
              (2,271
              )
              
              
              558Total
      Other Income
              
              
              1,542
              
              
              
              3,848Interest
      ChargesInterest
      on other long-term debt
              
              
              13,863
              
              
              
              15,064Interest
      on regulatory liabilities and other interest
              
              
              4,454
              
              
              
              3,589Total
      Interest Charges
              
              
              18,317
              
              
              
              18,653Income
      Before Income Taxes
              
              
              38,744
              
              
              
              37,277Income
      Taxes
              
              
              16,062
              
              
              
              15,212Net
      Income
              
              
              22,682
              
              
              
              22,065Dividends
      Declared on Cumulative Preferred Stock
              
              
              727
              
              
              
              727Income
      Available for Common Stock
              
              $
              21,955
              
              
              $
              21,338
 
 
 The Notes
to Financial Statements are an integral part hereof.
  - 14
-
 Table of Contents
  CENTRAL
      HUDSON STATEMENT OF COMPREHENSIVE INCOME
      (UNAUDITED)(In
      Thousands)Three
      Months EndedSeptember 30,2009
                
                
                2008Net
      Income
                
                $
                8,871
                
                
                $
                6,127Other
      Comprehensive Income
                
                
                -
                
                
                
                -Comprehensive
      Income
                
                $
                8,871
                
                
                $
                6,127
   Nine Months EndedSeptember 30,2009
                
                
                2008Net
      Income
                
                $
                22,682
                
                
                $
                22,065Other
      Comprehensive Income
                
                
                -
                
                
                
                -Comprehensive
      Income
                
                $
                22,682
                
                
                $
                22,065
 
  The Notes
to Financial Statements are an integral part hereof.
  - 15
-
 Table of Contents
  CENTRAL
      HUDSON STATEMENT OF CASH FLOWS
    (UNAUDITED)(In
      Thousands)Nine
      Months EndedSeptember 30,2009
              
              
              2008Operating
      Activities:Net
      Income
              
              $
              22,682
              
              
              $
              22,065Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
              
              
              23,217
              
              
              
              21,746Amortization
              
              
              796
              
              
              
              634Deferred
      income taxes - net
              
              
              (376
              )
              
              
              4,090Provision
      for uncollectibles
              
              
              7,966
              
              
              
              5,326Pension
      expense
              
              
              13,296
              
              
              
              9,493OPEB
      expense
              
              
              6,669
              
              
              
              7,551Regulatory
      liability - rate moderation
              
              
              (3,789
              )
              
              
              (5,901
              )Revenue
      decoupling mechanism
              
              
              (5,529
              )
              
              
              -Regulatory
      asset amortization
              
              
              3,378
              
              
              
              3,322Loss
      on sale of property and plant
              
              
              25
              
              
              
              -Changes
      in operating assets and liabilities - net:Accounts
      receivable, unbilled revenues and other receivables
              
              
              20,578
              
              
              
              7,751Fuel,
      materials and supplies
              
              
              4,554
              
              
              
              (15,729
              )Special
      deposits and prepayments
              
              
              2,332
              
              
              
              5,093Accounts
      payable
              
              
              (13,102
              )
              
              
              15,857Accrued
      income taxes and interest
              
              
              8,392
              
              
              
              899Customer
      advances
              
              
              1,437
              
              
              
              (5,194
              )Pension
      plan contribution
              
              
              (15,000
              )
              
              
              (12,895
              )OPEB
      contribution
              
              
              (1,300
              )
              
              
              (4,200
              )Regulatory
      asset - MGP site remediations
              
              
              (1,595
              )
              
              
              (1,051
              )Regulatory
      asset - PSC tax surcharge and general assessment
              
              
              (15,566
              )
              
              
              -Deferred
      natural gas and electric costs
              
              
              17,993
              
              
              
              (4,832
              )Customer
      benefit fund
              
              
              (33
              )
              
              
              (369
              )Other
      - net
              
              
              12,209
              
              
              
              3,360Net
      cash provided by operating activities
              
              
              89,234
              
              
              
              57,016Investing
      Activities:Additions
      to utility plant
              
              
              (85,843
              )
              
              
              (58,268
              )Other
      - net
              
              
              (3,937
              )
              
              
              (1,180
              )Net
      cash used in investing activities
              
              
              (89,780
              )
              
              
              (59,448
              )Financing
      Activities:Redemption
      of long-term debt
              
              
              (20,000
              )
              
              
              -Proceeds
      from issuance of long-term debt
              
              
              24,000
              
              
              
              -Repayments
      of short-term debt - net
              
              
              (8,500
              )
              
              
              (6,000
              )Additional
      paid-in capital
              
              
              25,000
              
              
              
              -Dividends
      paid on cumulative Preferred Stock
              
              
              (727
              )
              
              
              (727
              )Other
      - net
              
              
              (369
              )
              
              
              5,765Net
      cash provided by (used in) provided by financing
activities
              
              
              19,404
              
              
              
              (962
              )Net
      Change in Cash and Cash Equivalents
              
              
              18,858
              
              
              
              (3,394
              )Cash
      and Cash Equivalents - Beginning of Period
              
              
              2,455
              
              
              
              3,592Cash
      and Cash Equivalents - End of Period
              
              $
              21,313
              
              
              $
              198Supplemental
      Disclosure of Cash Flow Information:Interest
      paid
              
              $
              15,282
              
              
              $
              17,950Federal
      and state taxes paid
              
              $
              25,103
              
              
              $
              8,642Additions
      to plant included in liabilities
              
              $
              1,723
              
              
              $
              16,349
 
 
 The Notes
to Financial Statements are an integral part hereof.
  - 16
-
 Table of Contents
  CENTRAL
      HUDSONBALANCE SHEET (UNAUDITED)(In
      Thousands)September 30,
              
              
              December 31,
              
              
              September 30,2009
              
              
              2008
              
              
              2008ASSETSUtility
      PlantElectric
              
              $
              899,355
              
              
              $
              862,465
              
              
              $
              842,006Natural
      gas
              
              
              276,639
              
              
              
              263,874
              
              
              
              259,377Common
              
              
              138,925
              
              
              
              135,732
              
              
              
              118,1481,314,919
              
              
              
              1,262,071
              
              
              
              1,219,531Less:
      Accumulated depreciation
              
              
              373,693
              
              
              
              369,925
              
              
              
              368,065941,226
              
              
              
              892,146
              
              
              
              851,466Construction
      work in progress
              
              
              62,957
              
              
              
              53,778
              
              
              
              80,302Net
      Utility Plant
              
              
              1,004,183
              
              
              
              945,924
              
              
              
              931,768Non-Utility
      Property and Plant
              
              
              681
              
              
              
              445
              
              
              
              445Less:
      Accumulated depreciation
              
              
              32
              
              
              
              32
              
              
              
              32Net
      Non-Utility Property and Plant
              
              
              649
              
              
              
              413
              
              
              
              413Current
      AssetsCash
      and cash equivalents
              
              
              21,313
              
              
              
              2,455
              
              
              
              198Accounts
      receivable from customers - net of allowance for   doubtful
      accounts; $5.8 million, $4.0 million and   $3.6 million,
      respectively
              
              
              60,380
              
              
              
              85,352
              
              
              
              72,206Accrued
      unbilled utility revenues
              
              
              9,308
              
              
              
              12,657
              
              
              
              8,087Other
      receivables
              
              
              2,683
              
              
              
              3,447
              
              
              
              2,774Fuel,
      materials and supplies - at average cost
              
              
              26,561
              
              
              
              31,115
              
              
              
              39,999Regulatory
      assets
              
              
              64,057
              
              
              
              60,502
              
              
              
              52,179Fair
      value of derivative instruments
              
              
              180
              
              
              
              -
              
              
              
              -Special
      deposits and prepayments
              
              
              16,315
              
              
              
              18,573
              
              
              
              19,415Accumulated
      deferred income tax
              
              
              4,675
              
              
              
              4,685
              
              
              
              5,754Total
      Current Assets
              
              
              205,472
              
              
              
              218,786
              
              
              
              200,612Deferred
      Charges and Other AssetsRegulatory
      assets - pension plan
              
              
              174,723
              
              
              
              197,934
              
              
              
              40,641Regulatory
      assets - OPEB
              
              
              6,429
              
              
              
              4,257
              
              
              
              -Regulatory
      assets - other
              
              
              106,215
              
              
              
              109,743
              
              
              
              117,075Unamortized
      debt expense
              
              
              5,093
              
              
              
              5,009
              
              
              
              4,067Other
      investments
              
              
              10,049
              
              
              
              7,697
              
              
              
              9,325Other
              
              
              3,196
              
              
              
              2,433
              
              
              
              3,338Total
      Deferred Charges and Other Assets
              
              
              305,705
              
              
              
              327,073
              
              
              
              174,446Total
      Assets
              
              $
              1,516,009
              
              
              $
              1,492,196
              
              
              $
              1,307,239
 
 
 The Notes
to Financial Statements are an integral part hereof.
  - 17
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 Table of Contents
  CENTRAL
      HUDSON BALANCE SHEET (CONT'D) (UNAUDITED)(In
      Thousands)September 30,
              
              
              December 31,
              
              
              September 30,2009
              
              
              2008
              
              
              2008CAPITALIZATION
      AND LIABILITIESCapitalizationCommon
      Stock, 30,000,000 shares authorized; 16,862,087
      shares issued and outstanding, $5 par value
              
              $
              84,311
              
              
              $
              84,311
              
              
              $
              84,311Paid-in
      capital
              
              
              199,980
              
              
              
              174,980
              
              
              
              174,980Retained
      earnings
              
              
              140,899
              
              
              
              118,944
              
              
              
              114,014Capital
      stock expense
              
              
              (4,961
              )
              
              
              (4,961
              )
              
              
              (4,961
              )Total
      Equity
              
              
              420,229
              
              
              
              373,274
              
              
              
              368,344Cumulative
      Preferred Stock not subject to mandatory redemption
              
              
              21,027
              
              
              
              21,027
              
              
              
              21,027Long-term
      debt
              
              
              413,897
              
              
              
              413,894
              
              
              
              383,893Total
      Capitalization
              
              
              855,153
              
              
              
              808,195
              
              
              
              773,264Current
      LiabilitiesCurrent
      maturities of long-term debt
              
              
              24,000
              
              
              
              20,000
              
              
              
              20,000Notes
      payable
              
              
              17,000
              
              
              
              25,500
              
              
              
              36,500Accounts
      payable
              
              
              26,481
              
              
              
              42,913
              
              
              
              43,992Accrued
      interest
              
              
              4,876
              
              
              
              5,895
              
              
              
              4,275Dividends
      payable - Preferred Stock
              
              
              242
              
              
              
              242
              
              
              
              242Accrued
      vacation and payroll
              
              
              4,855
              
              
              
              4,896
              
              
              
              4,537Customer
      advances
              
              
              11,011
              
              
              
              9,574
              
              
              
              5,648Customer
      deposits
              
              
              8,468
              
              
              
              8,317
              
              
              
              8,285Regulatory
      liabilities
              
              
              24,064
              
              
              
              4,275
              
              
              
              3,922Fair
      value of derivative instruments
              
              
              12,887
              
              
              
              15,759
              
              
              
              14,080Accrued
      environmental remediation costs
              
              
              12,881
              
              
              
              5,563
              
              
              
              7,680Accrued
      income taxes
              
              
              9,498
              
              
              
              87
              
              
              
              6,040Other
              
              
              7,571
              
              
              
              21,284
              
              
              
              25,666Total
      Current Liabilities
              
              
              163,834
              
              
              
              164,305
              
              
              
              180,867Deferred
      Credits and Other LiabilitiesRegulatory
      liabilities - OPEB
              
              
              -
              
              
              
              -
              
              
              
              15,505Regulatory
      liabilities - other
              
              
              101,176
              
              
              
              130,893
              
              
              
              123,828Operating
      reserves
              
              
              3,777
              
              
              
              3,898
              
              
              
              3,776Accrued
      environmental remediation costs
              
              
              13,337
              
              
              
              20,621
              
              
              
              20,640Accrued
      OPEB costs
              
              
              54,381
              
              
              
              52,645
              
              
              
              30,019Accrued
      pension costs
              
              
              157,030
              
              
              
              161,674
              
              
              
              474Other
              
              
              13,798
              
              
              
              11,891
              
              
              
              13,225Total
      Deferred Credits and Other Liabilities
              
              
              343,499
              
              
              
              381,622
              
              
              
              207,467Accumulated
      Deferred Income Tax
              
              
              153,523
              
              
              
              138,074
              
              
              
              145,641Commitments
      and ContingenciesTotal
      Capitalization and Liabilities
              
              $
              1,516,009
              
              
              $
              1,492,196
              
              
              $
              1,307,239
 
 
 The Notes
to Financial Statements are an integral part hereof.
  - 18
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 Table of Contents
  CENTRAL
      HUDSON STATEMENT OF CHANGES IN EQUITY
      (UNAUDITED)(In
      Thousands, except share and per share amounts)Central
      Hudson Common ShareholdersCommon
      Stock
                $5.00
      par value;
                30,000,000
      shares authorized
              
              Treasury
      StockShares
      Issued
              
              Amount
              
              Shares
      Repurchased
              
              Amount
              
              Paid-In
      Capital
              
              Capital
      Stock Expense
              
              Retained
      Earnings
              
              Accumulated
      Other Comprehensive Income / (Loss)
              
              Total
      EquityBalance
      at January 1, 2008
              
              
              16,862,087
              
              $
              84,311
              
              
              -
              
              $
              -
              
              $
              174,980
              
              $
              (4,961
              )
              $
              92,676
              
              $
              -
              
              $
              347,006Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              21,338
              
              
              
              
              
              21,338Balance
      at September 30, 2008
              
              
              16,862,087
              
              $
              84,311
              
              
              -
              
              $
              -
              
              $
              174,980
              
              $
              (4,961
              )
              $
              114,014
              
              $
              -
              
              $
              368,344Balance
      at January 1, 2009
              
              
              16,862,087
              
              $
              84,311
              
              
              -
              
              $
              -
              
              $
              174,980
              
              $
              (4,961
              )
              $
              118,944
              
              $
              -
              
              $
              373,274Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              21,955
              
              
              
              
              
              21,955Additional
      Paid-In Capital
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              25,000
              
              
              
              
              
              
              
              
              
              
              
              25,000Balance
      at September 30, 2009
              
              
              16,862,087
              
              $
              84,311
              
              
              -
              
              $
              -
              
              $
              199,980
              
              $
              (4,961
              )
              $
              140,899
              
              $
              -
              
              $
              420,229
 
 
 The Notes
to Financial Statements are an integral part hereof.
  - 19
-
 Table of Contents
  NOTESTO FINANCIAL STATEMENTS (UNAUDITED)
 
 NOTE 1 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
 
 Basis
of Presentation
 
 This
Quarterly Report on Form 10-Q is a combined report of CH Energy Group, Inc. (“CH
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 CH Energy Group and
Central Hudson.  CH Energy Group’s Consolidated Financial Statements
include the accounts of CH Energy Group and its wholly owned subsidiaries, which
include Central Hudson and CH Energy Group’s non-utility subsidiary, Central
Hudson Enterprises Corporation (“CHEC”).   Operating results of
CHEC include its wholly owned subsidiaries, Griffith Energy Services, Inc.
(“Griffith”), CH-Auburn Energy, LLC (“CH-Auburn”), CH-Greentree, LLC
(“CH-Greentree”), and CH-Lyonsdale, LLC (“CH-Lyonsdale”), and its majority owned
subsidiary Lyonsdale Biomass, LLC (“Lyonsdale”).  CHEC’s operating
results are consolidated in the Consolidated Financial Statements of CH Energy
Group. The non-controlling interest shown on CH Energy Group’s Consolidated
Financial Statements represents the minority owner’s proportionate share of the
income and equity of Lyonsdale and preferred stock of Central
Hudson.  Inter-company balances and transactions have been eliminated
in consolidation.
 
 The
Financial Statements were prepared in conformity with accounting principles
generally accepted in the United States of America (“GAAP”), which for regulated
public utilities, includes the Financial Accounting Standards Board’s (“FASB”)
Accounting Standards Codification (“ASC”) 980, Regulated Operations,
(formerly Statement of Financial Accounting Standards (“SFAS”) No. 71, Accounting for the Effects of Certain Types of
Regulation).  For additional information regarding regulatory
accounting see Note 2 – “Regulatory Matters”.
 
 Unaudited
Financial Statements
 
 The
accompanying Consolidated Financial Statements of CH Energy Group and Financial
Statements of 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 Financial Statements
do not contain the detail or footnote disclosures concerning accounting policies
and other matters which would be included in annual Financial Statements and,
accordingly, should be read in conjunction with the audited Financial Statements
(including the Notes thereto) included in the combined CH Energy Group/Central
Hudson Annual Report on Form 10-K for the year ended December 31, 2008 (the
“Corporations’ 10-K Annual Report”).
  - 20
-
 Table of Contents
  CH Energy
Group’s and Central Hudson’s balance sheets as of September 30, 2008 are not
required to be included in this Quarterly Report on Form 10-Q; however, these
balance sheets are included for supplemental analysis purposes.
 
 Reclassification
 
 Certain
amounts in the 2008 Financial Statements have been reclassified to conform to
the 2009 presentation.
 
 Effective
January 1, 2009, Central Hudson adopted ASC 810-10-65-1, Transition Related to FASB Statement
No. 160, Noncontrolling Interests in Consolidated Financial Statements – an
amendment of ARB No.51, (formerly SFAS No. 160 – Noncontrolling Interest in
Consolidated Financial Statements).  In accordance with this
standard, CH Energy Group modified the presentation of minority interest or
non-controlling interest in the prior periods presented for CH Energy Group’s
Consolidated Statement of Income, Consolidated Statement of Cash Flow and
Consolidated Balance Sheet.  For more information, see Note 3 – “New
Accounting Standards and Other FASB Projects”.
 
 Cash
and Cash Equivalents
 
 For
purposes of the Statement of Cash Flows and the Balance Sheet, CH Energy Group
and Central Hudson consider temporary cash investments with a maturity (when
purchased) of three months or less, to be cash equivalents.
 
 Revenue
Recognition
 
 CH Energy
Group’s deferred revenue balances as of September 30, 2009, December 31, 2008
and September 30, 2008 were $7.5 million, $8.8 million and $7.4 million,
respectively.  The deferred revenue balance will be recognized in
competitive business subsidiaries’ operating revenues over the 12-month term of
the respective customer contract.
 
 As
required by the New York State Public Service Commission (“PSC”), Central Hudson
records gross receipts tax revenues and expenses on a gross income statement
presentation basis (i.e., included in both revenue and
expenses).  Sales and use taxes for both Central Hudson and Griffith
are accounted for on a net basis (excluded from revenue).
  - 21
-
 Table of Contents
  Fuel,
Materials and Supplies
 
 Fuel,
materials and supplies for CH Energy Group are valued using the following
accounting methods:
 
 Company
              Valuation MethodCentral
      Hudson
              Average
      costGriffith
              FIFOLyonsdale
              Weighted
      average cost
 
 The
following is a summary of CH Energy Group’s and Central Hudson’s inventories (In
Thousands):
 
 CH Energy
Group
 
 September 30,
              
              
              December 31,
              
              
              September 30,2009
              
              
              2008
              
              
              2008Natural
      gas
              
              $
              16,670
              
              
              $
              22,684
              
              
              $
              32,019Petroleum
      products and propane
              
              
              1,935
              
              
              
              2,782
              
              
              
              5,367Fuel
      used in electric generation
              
              
              776
              
              
              
              586
              
              
              
              822Materials
      and supplies
              
              
              11,852
              
              
              
              10,533
              
              
              
              9,586Total
              
              $
              31,233
              
              
              $
              36,585
              
              
              $
              47,794
 
 Central
Hudson
 
 September 30,
              
              
              December 31,
              
              
              September 30,2009
              
              
              2008
              
              
              2008Natural
      gas
              
              $
              16,670
              
              
              $
              22,684
              
              
              $
              32,019Petroleum
      products and propane
              
              
              550
              
              
              
              550
              
              
              
              557Fuel
      used in electric generation
              
              
              329
              
              
              
              343
              
              
              
              344Materials
      and supplies
              
              
              9,012
              
              
              
              7,538
              
              
              
              7,079Total
              
              $
              26,561
              
              
              $
              31,115
              
              
              $
              39,999
 
 Depreciation
and Amortization
 
 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 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.
 
 ASC 410,
Asset Retirement and
Environmental Obligations, (formerly SFAS No. 143, Accounting for Asset Retirement
Obligations), 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 ASC 980, Central Hudson continues to
accrue for the future cost of removal for its rate-regulated natural gas and
electric utility assets.  In accordance with ASC 410, Central Hudson
has classified $47.9 million, $47.6 million, and $49.5 million of net cost of
removal as regulatory liabilities as of September 30, 2009, December 31, 2008,
and September 30, 2008, respectively.
  - 22
-
 Table of Contents
  For
financial statement purposes, both Griffith and Lyonsdale have depreciation
provisions that 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.
 
 Amortization
of intangibles (other than goodwill) is computed on the straight-line method
over the assets’ expected useful lives.  See Note 6 – “Goodwill and
Other Intangible Assets” for further discussion.
 
 Earnings
Per Share
 
 In the
calculation of earnings per share (basic and diluted) of CH Energy Group’s
common stock (“Common Stock”), earnings for CH Energy Group are reduced by the
preferred stock dividends of Central Hudson.  The average dilutive
effect of CH Energy Group’s stock options, performance shares and restricted
shares was 77,983 shares and 47,827 shares for the three months ended September
30, 2009 and 2008, respectively. The average dilutive effect of CH Energy
Group’s stock options, performance shares and restricted shares was 77,663
shares and 47,814 shares for the nine months ended September 30, 2009 and 2008,
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 some of the periods
presented.  Excluded from the calculation were options for 17,420
shares for the three and nine months ended September 30, 2009, and 39,980 shares
for the three and nine months ended September 30, 2008.  For
additional information regarding stock options and performance shares, see Note
11 – “Equity-Based Compensation.”
 
 Equity-Based
Compensation
 
 CH Energy
Group has an equity-based employee compensation plan that is described in Note
11 – “Equity-Based Compensation.”
 
 Parental
Guarantees
 
 CH Energy
Group and CHEC 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.
  - 23
-
 Table of Contents
  The
guarantees described above have been issued to counterparties to assure the
payment, when due, of certain obligations incurred by CH Energy Group
subsidiaries in physical and financial transactions related to heating oil,
propane, other petroleum products, and weather and commodity
hedges.  At September 30, 2009, the aggregate amount of subsidiary
obligations covered by these guarantees was $2.7 million.  Where
liabilities exist under the commodity-related contracts subject to these
guarantees, these liabilities are included in CH Energy Group’s Consolidated
Balance Sheet.
 
 Other
Guarantees
 
 Central
Hudson had a reimbursement obligation with respect to a $6.8 million standby
letter of credit issued by a financial institution to support a real estate
transaction that closed in June 2009.  No premium was received or is
receivable by Central Hudson in connection with this letter of
credit.  This uncollateralized letter of credit was issued February
29, 2008 and expired upon the closing of the real estate
transaction.
 
 Product
Warranties
 
 Griffith
offers a multi-year warranty on heating system installations and has recorded
liabilities for the estimated costs of fulfilling its obligations under these
warranties.  CH Energy Group’s approximate aggregate potential
liability for product warranties at September 30, 2009, December 31, 2008 and
September 30, 2008 was not material.  CH Energy Group’s liabilities
for these product warranties were determined by accruing the present value of
future estimated warranty expense based on the number and type of contracts
outstanding and historical costs for these contracts.
 
 Consolidation
 
 CH Energy
Group and its subsidiaries do not have any interests in special purpose entities
and do not have material affiliations with any variable interest entities that
require consolidation under the provisions of ASC 810-10-25-30.
  - 24
-
 Table of Contents
  Common
Stock Dividends
 
 CH Energy
Group’s ability to pay dividends may be affected by the ability of its
subsidiaries to pay dividends. The Federal Power Act limits the payment of
dividends by Central Hudson to its retained earnings.  More
restrictive is the PSC’s limit on the dividends Central Hudson may pay to CH
Energy Group which is 100% of the average annual income available for common
stock, calculated on a two-year rolling average basis.  Based on this
calculation as of September 30, 2009, Central Hudson would be able to pay a
maximum of $28.3 million in dividends to CH Energy Group without violating the
restrictions by the PSC.  Central Hudson’s dividend would be reduced
to 75% of its average annual income in the event of a downgrade of its senior
debt rating below “BBB+” by more than one rating agency if the stated reason for
the downgrade is related to CH Energy Group or any of Central Hudson’s
affiliates.  Further restrictions are imposed for any downgrades below
this level.  Central Hudson’s current senior unsecured debt
rating/outlook is ‘A’/stable by both Standard & Poor’s Rating Services
(“Standard & Poor’s”) and Fitch Ratings and ‘A3’/negative by Moody’s
Investors Service (“Moody’s”).1  CH Energy
Group’s other subsidiaries do not have express restrictions on their ability to
pay dividends.
 
 On
September 30, 2009, the Board of Directors of CH Energy Group declared a
quarterly dividend of $0.54 per share, payable November 2, 2009, to shareholders
of record as of October 13, 2009.
 
 
 __________________
 1 These
ratings reflect only the views of the rating agency issuing the rating, are not
recommendations to buy, sell, or hold securities of Central Hudson and may be
subject to revision or withdrawal at any time by the rating agency issuing the
rating.  Each rating should be evaluated independently of any other
rating.
 - 25
-
 Table of Contents
  NOTE 2 – REGULATORY
MATTERS
 
 Summary
of Regulatory Assets and Liabilities
 
 The
following table sets forth Central Hudson’s regulatory assets and liabilities
(In Thousands):
 
 September 30,
              
              
              December 31,
              
              
              September 30,2009
              
              
              2008
              
              
              2008Regulatory Assets (Debits):Current:Deferred
      purchased electric and natural gas costs
              
              $
              26,113
              
              
              $
              41,931
              
              
              $
              34,309Deferred
      unrealized losses on derivatives
              
              
              12,707
              
              
              
              15,759
              
              
              
              14,080PSC
      tax surcharge
              
              
              15,594
              
              
              
              -
              
              
              
              -Revenue
      decoupling mechanism ("RDM")
              
              
              5,565
              
              
              
              -
              
              
              
              -Residual
      natural gas deferred balances
              
              
              3,988
              
              
              
              2,812
              
              
              
              3,790Other
              
              
              90
              
              
              
              -
              
              
              
              -64,057
              
              
              
              60,502
              
              
              
              52,179Long-term:Deferred
      pension costs
              
              
              174,723
              (1)
              
              
              197,934
              
              
              
              40,641Carrying
      charges - pension reserve
              
              
              664
              (1)
              
              
              10,642
              
              
              
              9,621Deferred
      costs - MGP site remediation
              
              
              25,840
              (1)
              
              
              30,397
              
              
              
              30,704Deferred
      OPEB costs (Note 10)
              
              
              6,429
              (1)
              
              
              4,257
              
              
              
              -Deferred
      debt expense on re-acquired debt
              
              
              4,999
              
              
              
              5,442
              
              
              
              5,589Residual
      natural gas deferred balances
              
              
              17,533
              
              
              
              22,825
              
              
              
              21,909Income
      taxes recoverable through future rates
              
              
              48,989
              
              
              
              26,874
              
              
              
              38,312Storm
      costs
              
              
              -
              (1)
              
              
              3,085
              
              
              
              -Other
              
              
              8,190
              (1)
              
              
              10,478
              
              
              
              10,940287,367
              
              
              
              311,934
              
              
              
              157,716Total
      Regulatory Assets
              
              $
              351,424
              
              
              $
              372,436
              
              
              $
              209,895Regulatory Liabilities
      (Credits):Current:Excess
      electric depreciation reserve
              
              $
              16,569
              
              
              $
              -
              
              
              $
              -Gas
      costs deferred - GSC
              
              
              2,174
              
              
              
              -
              
              
              
              -Income
      taxes refundable through future rates
              
              
              5,321
              
              
              
              4,275
              
              
              
              3,92224,064
              
              
              
              4,275
              
              
              
              3,922Long-term:Customer
      benefit fund
              
              
              4,043
              
              
              
              4,266
              
              
              
              4,496Deferred
      cost of removal
              
              
              47,880
              
              
              
              47,630
              
              
              
              49,513Excess
      electric depreciation reserve
              
              
              21,818
              
              
              
              32,313
              
              
              
              32,399Income
      taxes refundable through future rates
              
              
              18,318
              
              
              
              19,756
              
              
              
              17,732Deferred
      OPEB costs
              
              
              -
              (1)
              
              
              -
              
              
              
              15,505Carrying
      charges - OPEB reserve
              
              
              723
              (1)
              
              
              5,633
              
              
              
              -Other
              
              
              8,394
              (1)
              
              
              21,295
              
              
              
              19,688101,176
              
              
              
              130,893
              
              
              
              139,333Total
      Regulatory Liabilities
              
              $
              125,240
              
              
              $
              135,168
              
              
              $
              143,255Net
      Regulatory Assets
              
              $
              226,184
              
              
              $
              237,268
              
              
              $
              66,640
 
 (1)
              Effective
      July 1, 2009, Central Hudson offset all or a portion of certain regulatory
      assets and liabilities, including full offset of the June 30, 2009
      balances for Carrying charges - OPEB reserve, Carrying charges - pension
      reserve and Storm costs in accordance with the 2009 Rate
      Order.
  - 26
-
 Table of Contents
  The
significant regulatory assets and liabilities include:
 
 PSC tax
surcharge:  In the third quarter of 2009, Central Hudson paid
$17.7 million to the PSC for a new tax surcharge instituted in April
2009.  This charge represented a full year assessment; however, $2.1
million of this surcharge has been collected from customers as of September 30,
2009.  The remainder is being collected over the next six
months.  In March 2010, Central Hudson will begin making bi-annual
installments of approximately $8.9 million for this surcharge and will collect
the amounts from customers in the subsequent six month period.
 
 RDM:  The
2009 Rate Order authorized a revenue decoupling mechanism as part of the rate
increase which allows Central Hudson to recognize revenues at the level approved
in rates for most of Central Hudson’s electric customer classes and recognized
sales at the approved level per customer in rates for most of Central Hudson’s
gas customer classes.
 
 Storm
Costs:  The 2009 Rate Order authorized the recovery of
restoration costs incurred by the Company related to an ice storm in December
2008 through an offset against certain electric regulatory liability
balances.
 
 Excess Electric Depreciation
Reserve:  Per the 2009 Rate Order, $8.8 million of additional
excess electric depreciation reserve was transferred in July
2009.  The transfer represented a portion of the electric depreciation
reserve that was in excess of the theoretical book reserve based on depreciation
rates approved by the PSC in 2009.  The 2009 Rate Order prescribed the
use of the Excess Electric Depreciation Reserve to offset certain electric
regulatory assets and liabilities.  As a result of these adjustments,
the Excess Electric Depreciation Reserve increased by $9.9
million.  The remainder is to be used for authorized rate
moderation.
 
 Residual Natural Gas
Deferred Balances:  Per the 2009 Rate Order, certain gas
regulatory assets and liabilities were identified for offset, resulting in a net
regulatory asset balance.  Additionally, $2.8 million of excess gas
depreciation reserve identified by the PSC was transferred as a reduction to
this balance.  As a result of the 2009 Rate Order adjustments, the
Residual Natural Gas Deferred Balance increased by $0.1 million.  The
remaining balance is to be amortized over a five-year period beginning July 1,
2009.
  - 27
-
 Table of Contents
  2009
Rate Order
 
 From July
1, 2009 through June 30, 2010, Central Hudson operates under the terms of the
2009 Rate Order, which provides for the following:
 
 ·
              Electric
      delivery increase of $39.6 million moderated by a $20.0 million customer
      bill credit from the excess depreciation
  reserve.
 
 ·
              Natural
      gas delivery increase of $13.8
million.
 
 ·
              Delivery
      rates based on a ROE of 10.0%.
 
 ·
              Common
      equity layer of 47% of permanent
capital.
 
 ·
              RDM
      for both electric and gas delivery
service.
 
 ·
              Continued
      funding for the full recovery of the Company’s current pension and OPEB
      costs and continues deferral authorization for pensions, OPEBs, research
      and development costs, stray voltage testing, MGP site remediation
      expenditures and electric and gas supply cost recovery and variable rate
      debt.
 
 ·
              New
      deferral authorizations for: fixed debt costs; the costs to bring electric
      lines into compliance with current height above ground requirements; and
      the New York State Temporary
Assessment.
 
 ·
              Continuation,
      with minor modifications, of the Company’s Electric Reliability, Gas
      Safety and Customer Service performance
  mechanisms.
 
 ·
              Recovery
      through offset against a deferred liability account (non-cash) of the $3.3
      million in incremental storm restoration costs incurred from the December
      2008 ice storm.
  - 28
-
 Table of Contents
  NOTE 3 - NEW ACCOUNTING
STANDARDS AND OTHER FASB PROJECTS
 
 New
accounting standards are summarized below, and explanations of the underlying
information for all standards (except those not currently applicable to CH
Energy Group and its subsidiaries) follow the chart.
 
 Category
              
              Codification
      Reference
              
              Former
      Reference
              
              Title
              
              Issued
      Date
              
              Effective
      DateUnder
      Assessment(1)Variable
      Interest Entities
              
              SFAS
      No. 167
              
              N/A
              
              Amendments
      to ASC 810-10-25-38 (formerly FIN 46(R))
              
              Jun-09
              
              Jan-10Postretirement
      Benefit Plan Assets
              
              ASC
      715-20-65-2
              
              FSP
      No. FAS 132(R)-1
              
              Employers'
      Disclosures about Postretirement Benefit Plan Assets
              
              Dec-08
              
              Dec-09Fair
      Value Measurement
              
              ASU
      No. 2009-05
              
              N/A
              
              Amendments
      to ASC 820-10 - Fair Value Measurements and Disclosures-Overall, for the
      fair value measurement of liabilities
              
              Aug-09
              
              Dec-09Implemented(2)GAAP
      Hierarchy
              
              SFAS
      No. 168
              
              N/A
              
              The
      FASB Accounting Standards Codification and the Hierarchy of Generally
      Accepted Accounting Principles - a replacement of SFAS No.
    162
              
              Jun-09
              
              Sep-09Subsequent
      Events
              
              ASC
      855
              
              SFAS
      No. 165
              
              Subsequent
      Events
              
              May-09
              
              Jun-09Business
      Combinations
              
              ASC
      805
              
              FSP
      No. FAS 141(R)-1
              
              Business
      Combinations (encompassing Accounting for Assets Acquired and Liabilities
      Assumed in a Business Combination That Arise from
      Contingencies)
              
              Apr-09
              
              Jan-09Fair
      Value Measurement
              
              ASC
      820
              
              FSP
      No. FAS 157-4
              
              Fair
      Value Measurements and Disclosures (encompassing Determining Fair Value
      When the Volume and Level of Activity for the Asset or Liability Have
      Significantly Decreased and Identifying Transactions That Are Not
      Orderly)
              
              Apr-09
              
              Jun-09Other-Than-Temporary-Investments
              
              ASC
      320
              
              FSP
      No. FAS 115-2 and FAS 124-2
              
              Investments
      - Debt and Equity Securities (encompassing Recognition and Presentation of
      Other-Than-Temporary Impairments)
              
              Apr-09
              
              Jun-09Financial
      Instruments
              
              ASC
      825
              
              FSP
      No.
                FAS
      107-1 and APB 28-1
              
              Financial
      Instruments (encompassing Interim Disclosures about Fair Value of
      Financial Instruments)
              
              Apr-09
              
              Jun-09Equity
      Method Investments
              
              ASC
      323-10
              
              EITF
      Issue No. 08-6
              
              Investments
      - Equity Method  (formerly Equity Method Investment Accounting
      Considerations)
              
              Nov-08
              
              Jan-09Liabilities
      Measured at Fair Value
              
              ASC
      820
              
              EITF
      Issue No. 08-5
              
              Fair
      Value Measurement and Disclosures (encompassing Issuer's Accounting for
      Liabilities Measured at Fair Value with a Third-Party Credit
      Enhancement)
              
              Sep-08
              
              Jan-09Credit
      Derivatives
              
              ASC
      815-10-65-2
              
              FSP
      No.
                FAS
      133-1 and
                FIN
      45-4
              
              Disclosures
      About Credit Derivatives and Certain Guarantees:  An Amendment
      of FASB Statement No. 133 and FASB Interpretation No. 45; and
      Clarification of the Effective Date of FASB Statement No.
    161
              
              Sep-08
              
              Jan-09Derivative
      Instruments
              
              ASC
      815
              
              SFAS
      No. 161
              
              Derivatives
      and Hedging (encompassing Disclosures About Derivative Instruments and
      Hedging Activities)
              
              Mar-08
              
              Jan-09Share-Based
      Payments
              
              ASC
      260-10-55
              
              FSP
      No.
                EITF
      03-6-1
              
              Participating
      Share-Based Payment Awards (formerly Determining Whether Instruments
      Granted in Share-Based Payment Transactions are Participating
      Securities)
              
              Jun-08
              
              Jan-09Business
      Combinations
              
              ASC
      805
              
              SFAS
      No. 141R
              
              Business
      Combinations (formerly Business Combinations - Revised)
              
              Dec-07
              
              Jan-09Noncontrolling
      Interests
              
              ASC
      810-10-65-1
              
              SFAS
      No. 160
              
              Transition
      Related to FASB Statement No. 160, Noncontrolling Interests in
      Consolidated Financial Statements - an amendment of ARB No. 51 (formerly
      Noncontrolling Interest in Consolidated Financial
    Statements)
              
              Dec-07
              
              Jan-09Intangible
      Assets
              
              ASC
      350-30
              
              FSP
      No. FAS 142-3
              
              General
      Intangibles Other than Goodwill (encompassing Determining the Useful Life
      of Intangible Assets)
              
              Nov-07
              
              Jan-09Not Currently
      Applicable(3)Financial
      Assets
              
              SFAS
      No. 166
              
              N/A
              
              Accounting
      for Transfers of Financial Assets - an amendment of FAS
140
              
              Jun-09
              
              Jan-10
 
 Impact
Key:
 1 - No
significant impact on the financial condition, results of operations and cash
flows of CH Energy Group and its subsidiaries expected.
 2 -
Following the chart, the impacts are separately disclosed as of standard
effective dates.
 3 - No
current impact on the financial condition, results of operations and cash flows
of CH Energy Group and its subsidiaries.
  - 29
-
 Table of Contents
  Standards
Under Assessment
 
 SFAS No.
167 amends ASC 810-10-25-38, Consolidation Based on VariableInterests (formerly FASB
Interpretation No. 46(R), Consolidation of Variable Interest
Entities).This Statement
requires an enterprise involved with variable interest entities to perform an
analysis to determine whether the enterprise’s variable interest or interests
give it a controlling financial interest in the variable interest entity.This Statement
is effective for annual reporting periods beginning after November 15,
2009.  SFAS No. 167 has not been superseded by the FASB Accounting
Standards Codification.  It is not expected that this Statement will
have a significant impact on the Company.
 
 ASC
715-20-65-2 (formerly FASB Staff Position (“FSP”) No. FAS 132(R)-1) provides
guidance on an employer’s disclosures about plan assets of a defined benefit
pension or other post-retirement plan.  The ASC defines the objectives
of the disclosures as providing users of the financial statements with an
understanding of how investment allocation decisions are made, pertinent factors
of investment policies and strategies, major categories of plan assets, inputs
and valuation techniques used to measure the fair value of plan assets, the
effect of fair value measurements using significant unobservable inputs on
changes in the plan assets for the period, and significant concentrations of
credit risk within plan assets.  In accomplishing these objectives,
expanded disclosures related to pension and other post-retirement benefit plans
will be made beginning for fiscal periods ending after December 15,
2009.  It is not expected that this ASC will have a significant impact
on the Company.
 
 ASU No.
2009-05, an update to ASC 820-10, Fair Value Measurements and
Disclosures-Overall, for the fair value measurements of liabilities,
establishes a hierarchy of valuation techniques preferred and defines that the
restrictions on the transfer of liabilities do not need to be considered in
assessing the fair value of liabilities.  This update is effective for
fiscal periods ending after December 15, 2009.  It is not expected
that this ASU will have a significant impact on the Company.
 
 Standards
Implemented
 
 SFAS No.
168 (which was not superseded by FASB Accounting Standards Codification)
identifies the FASB Accounting Standards Codification as the source of
authoritative US Generally Accepted Accounting Principles (“GAAP”) recognized by
FASB for nongovernmental entities.  SFAS No. 168 supersedes SFAS No.
162 by defining the Codification as the only authoritative
GAAP.  There was no significant impact on the Company upon adoption of
this standard.
 
 ASC 855
(formerly SFAS No. 165) provides general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or available to be issued.  CH Energy
Group implemented this standard for interim reporting periods ending June 30,
2009.  There was no significant impact on the Company upon adoption of
this standard.
  - 30
-
 Table of Contents
  ASC 805
(formerly FSP No. FAS 141(R)-1) includes amendments to and clarifies application
issues regarding the accounting and disclosure provisions for contingencies in
FASB Statement No. 141 (R), Business
Combinations.This ASC includes amendments to Statement 141(R)
by replacing the guidance on the initial recognition and measurements of assets
and liabilities arising from contingencies acquired or assumed in business
combinations.  CH Energy Group implemented ASC 805 (formerly FSP No.
141(R)-1) upon its issuance.  There was no significant impact on the
Company upon adoption of this standard.
 
 ASC 820
(which encompasses FSP No. FAS 157-4) provides factors that should be considered
in determining whether there has been a significant decrease in the volume and
level of activity for an asset or liability and guidance on additional analysis
that may be necessary as a result in estimating fair value in accordance with
ASC 820.  This ASC also includes guidance on identifying circumstances
that indicate whether a transaction is considered orderly.  There was
no significant impact on the Company upon adoption of this
ASC.  Management cannot predict what impact, if any, this ASC will
have on future valuations.
 
 ASC 320
(which encompasses FSP No. FAS 115-2 and FAS 124-2) amends the
other-than-temporary impairment guidance relating to debt securities classified
as available-for-sale or held-to-maturity in accordance with FAS 115, Accounting for Certain Investments
in Debt and Equity Securities, which is superseded by the
ASC.  The objective of this ASC is to improve the presentation and
disclosure of other-than-temporary impairments in the financial
statements.  CH Energy Group implemented this ASC for the interim
reporting period ended June 30, 2009.  There was no significant impact
on the Company upon adoption of this ASC.
 
 ASC 825,
FinancialInstruments, encompasses FSP No. FAS 107-1 and
APB 28-1 amends SFAS No. 107, Disclosures about Fair Value of
Financial Instruments, to require disclosures about the fair value of
financial instruments for interim reporting periods, in addition to the annual
disclosures previously required. This ASC also amends APB Opinion No. 28, Interim Financial Reporting,
to require those disclosures in summarized financial information at interim
reporting periods.  CH Energy Group implemented this ASC for the
interim reporting period ended June 30, 2009 and the additional required interim
disclosures have been incorporated in Note 15 – “Fair Value
Measurements”.  There was no significant impact on the Company upon
adoption of this FSP.
 
 ASC
323-10 (formerly Emerging Issues Task Force (“EITF”) Issue No. 08-6) provides
guidance related to certain accounting considerations for equity method
investments.  Specifically, this guidance clarifies the accounting
guidance on issues related to the determination of the initial carrying value of
an equity method investment, the performance of impairment assessments of
underlying indefinite-lived intangible assets of an equity method investment,
the accounting for the issuance of shares by an equity method investment, and
the accounting for a change in an investment from the equity method to the cost
method.  CH Energy Group implemented ASC 323-10 on January 1,
2009.  There was no significant impact on the Company upon adoption of
this ASC.
  - 31
-
 Table of Contents
  ASC 820
encompasses EITF Issue No. 08-5 which clarifies that the issuer of a liability
with a third-party credit enhancement that is inseparable from the liability
shall not include the effect of the credit enhancement in the fair value
measurement of the liability, but the issuer should discuss the existence of
this third-party credit enhancement.  There was no significant impact
on the Company upon adoption of this ASC.
 
 ASC
815-10-65-2 (formerly FSP No. FAS 133-1 and FIN 45-4) require more detailed
disclosures about credit derivatives, including the potential adverse effects of
changes in credit risk on the financial position, financial performance, and
cash flows of the sellers of the instruments.  ASC 815, Derivatives and Hedging,
replaces SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, to require increased disclosures by
sellers of credit derivatives, including credit derivatives embedded in hybrid
instruments.  The ASC also encompasses FIN 45, Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, to require an additional disclosure about the
current status of the payment or performance risk of a
guarantee.  There was no significant impact on the Company upon
adoption of this ASC.
 
 ASC 815
encompasses SFAS No. 161 and requires entities to provide qualitative
disclosures about the objectives and strategies for using derivatives, and
quantitative data about the fair value of and gains and losses on derivative
contracts.  ASC 815 also requires more information about the location
and amounts of derivative instruments in financial statements, how derivatives
are accounted for under the ASC, and how hedges affect the entity's financial
position, financial performance and cash flows.  For more information,
see Note 14 – “Accounting for Derivative Instruments and Hedging
Activities”.  There was no significant impact on the Company upon
adoption of this standard.
 
 ASC
260-10-55 (formerly FSP No. EITF 03-6-1) clarifies that instruments granted in
share-based payment transactions are considered participating securities prior
to vesting if they contain non-forfeitable rights to dividends or dividend
equivalents and therefore need to be included in the computation of EPS under
the two-class method described in SFAS No. 128, Earnings Per Share, which was
superseded by ASC 260, encompassing both the FSP and SFAS.  There was
no significant impact on the Company upon adoption of this ASC.
 
 ASC 805
(formerly SFAS No. 141R) requires that acquisition-related costs be expensed in
the period incurred and can no longer be capitalized and included as a cost of
the acquired business.  The objective of ASC 805 is to improve the
relevance, representational faithfulness, and comparability of the information
that an entity provides in its financial reports about a business combination
and its effects. This standard applies to all transactions or events in which an
entity obtains control of one or more businesses, and to combinations achieved
without the transfer of consideration.  There was no significant
impact on the Company upon adoption of this standard.
  - 32
-
 Table of Contents
  ASC
810-10-65-1 (formerly SFAS No. 160) amends Accounting Research Bulletin (“ARB”)
51 to establish accounting and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a
subsidiary.  It clarifies that a non-controlling interest in a
subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements.  The
objective of ASC 810-10-65-1 is to improve the relevance, comparability and
transparency of the financial information that an entity provides in its
consolidated financial statements.  There was no significant impact on
the Company upon adoption of this standard.
 
 ASC
350-30 (formerly FSP No. FAS 142-3) amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of recognized intangible assets under SFAS No. 142, Goodwill and Other Intangible
Assets, which was superseded by ASC 350.  The guidance is
intended to improve consistency between the recognized useful asset life, and
the period of expected cash flows used to measure the fair value of the
asset.  There was no significant impact on the Company upon adoption
of this FSP.
 
 NOTE 4 – INCOME
TAX
 
 ASC 740,
Income Taxes,
supersedes FIN 48 which clarified the accounting for uncertainty in income taxes
recognized in an entity’s financial statements in accordance with SFAS 109,
titled Accounting for Income
Taxes, also superseded by the ASC.  As there are no uncertain
tax positions, no interest or penalties have been recorded in the financial
statements.  If CH Energy Group and its subsidiaries incur any
interest or penalties on underpayment of income taxes, the amounts would be
included on the line “Other liabilities” on the Consolidated Balance Sheet and
on the line “Other – net” on the Consolidated Statement of Income.  CH
Energy Group and its subsidiaries file a consolidated Federal and New York State
income tax return, which represents the major tax jurisdictions of CH Energy
Group.  The statute of limitations for federal tax years 2006 through
2008 are still open for audit and tax years 2007 and 2008 are currently under
audit.  The New York State income tax return is currently open for
audit for tax years 2006 through 2008.
 
 NOTE 5 - ACQUISITIONS AND
INVESTMENTS
 
 Acquisitions
 
 During
the nine months ended September 30, 2009, CH Energy Group and its subsidiaries
made no acquisitions.
  - 33
-
 Table of Contents
  Investments
 
 CHEC
holds a 12% interest in preferred equity units plus subordinated notes issued by
Cornhusker Holdings.  Cornhusker Holdings is the owner of Cornhusker
Energy Lexington, LLC (“CEL”), a fuel ethanol production facility located in
Nebraska that began operation as of the end of January 2006.  This
investment is accounted for under the equity method.  As of September
30, 2009, CHEC’s total investment in Cornhusker consisted of subordinated notes
totaling $10.2 million, including interest, and an equity investment of $2.2
million.  In response to the continuation of lower than expected crush
margins, Management stopped accruing interest income on the subordinated debt
and will record such interest on the cash basis until the current outstanding
balance of interest has been paid.  The recoverability of the
Company’s total investment in Cornhusker Holdings is predicated on CEL achieving
sufficient positive cash flow to repay the notes receivable, as indicated in
CEL’s cash flow forecast.  If CEL does not achieve sufficient positive
cash flow, the investment and notes receivable may become
impaired.  CEL re-negotiated the deadline in its senior note agreement
for completing the expansion of the plant’s capacity and output to December 31,
2009.  Management expects the expansion of the plant’s capacity to be
completed by that date, but believes the output required under the terms of the
note agreement may not be achieved until the first quarter of
2010.  If the expanded output is not achieved by December 31, 2009
(and following any cure period as provided for under the terms of the
agreement), CEL may request a waiver to extend the deadline, and if CEL is
unable to obtain a waiver by December 31, 2009, the senior note holder may have
the right to accelerate all amounts due under the senior note.
 
 In the
fourth quarter of 2007, CHEC’s subsidiary, CH-Auburn Energy, LLC (“CH-Auburn”),
entered into a 15-year Energy Services Agreement (“ESA”) to supply the City of
Auburn, NY (the “City”) with a portion of its electricity needs by constructing
and operating a 3-megawatt electric generating plant in Auburn that will burn
gas derived from wastewater sludge and a landfill to generate renewable
power.  Under the agreement with the City as renegotiated on March 31,
2009, the project will utilize methane gas generated by the City of Auburn
landfill to produce and sell electricity to the City.  A second phase
digester portion of the project was eliminated from the restructured project,
but may be reinitiated by the City at a later time.  Project permits
were received and site construction began in August 2009.  As of
September 30, 2009, CH-Auburn has incurred approximately $4.4 million of design
and construction costs related to this investment.  CH-Auburn is
consolidated in the Consolidated Financial Statements of CH Energy
Group.
 
 In June
2007, CHEC made a $1.2 million loan to Buckeye Biopower, LLC (“Buckeye”) for
development of a corn-ethanol plant.   Since receipt of the loan
from CHEC, the developers have entered into a lease for a site, and a Letter of
Intent to provide engineering, procurement and construction for the
plant.  In June 2008, the developers paid CHEC all interest owed on
the loan for the initial term and extended the term of the loan for one
additional year.  Current low crush margins for corn-to-ethanol plants
and credit market conditions have made the arrangement of construction financing
difficult.  CHEC’s Management has notified the developers that the
loan is past due and has recorded a reserve for the full outstanding
balance.
  - 34
-
 Table of Contents
  In April
2009, CHEC’s subsidiary, CH-Greentree, LLC (“CH-Greentree”) entered into an
agreement to invest $5.5 million in the acquisition, construction and
installation of a molecular gate for lease to Beacon Landfill Gas Holdings
(“Beacon”) at Beacon’s currently operating landfill gas processing plant at the
Greentree landfill in western Pennsylvania.  The molecular gate is
used to remove nitrogen from the landfill gas produced by the Greentree facility
thereby increasing its energy content and quality, thus allowing Beacon to sell
more of its landfill gas output.  The term of the lease is seven years
and construction was substantially complete on June 30,
2009.  CH-Greentree is consolidated in the Consolidated Financial
Statements of CH Energy Group.
 
 NOTE 6 - GOODWILL AND OTHER
INTANGIBLE ASSETS
 
 Intangible
assets include separate, identifiable, intangible assets such as customer
relationships, trademarks, and covenants not to compete.  Intangible
assets with finite lives are amortized over their useful lives.  The
estimated useful life for customer relationships is 15 years, which is believed
to be appropriate in view of average historical customer
attrition.  The estimated useful lives of trademarks range from 10 to
15 years and are based upon Management’s assessment of several variables such as
brand recognition, Management’s plan for the use of the trademark, and other
factors that will affect the duration of the trademark’s life.  The
useful life of a covenant not to compete is based on the expiration date of the
covenant, generally between three and ten years.  Intangible assets
with indefinite useful lives and goodwill are no longer amortized, but instead
are periodically reviewed for impairment.  Griffith tests the goodwill
and intangible assets remaining on the balance sheet for impairment annually in
the fourth quarter, and retests between annual tests if an event should occur or
circumstances arise that would more likely than not reduce the fair value below
its carrying amount.  Amortization expense was $1.0 million and $1.1
million for the three-month periods ended September 30, 2009 and 2008,
respectively.  Amortization expense was $3.1 million for both of the
nine-month periods ended September 30, 2009 and 2008,
respectively.  The estimated annual amortization expense for each of
the next five years, assuming no new acquisitions, is approximately $4.0
million.  The carrying amount for goodwill was $67.5 million as of
September 30, 2009, $67.5 million as of December 31, 2008, and was $67.6 million
as of September 30, 2008.  For tax purposes, goodwill is amortized
ratably over a 15-year period, beginning in the month of
acquisition.
 
 The
weighted average amortization periods for customer relationships, trademarks and
covenants not to compete are 15 years, 11 years, and 8.9 years,
respectively.  The weighted average amortization period for all
amortizable intangible assets is 14.6 years.
  - 35
-
 Table of Contents
  The
components of amortizable intangible assets of CH Energy Group are summarized as
follows (In Thousands):
 
 September 30,
      2009
              
              
              December 31,
      2008
              
              
              September 30,
      2008Gross
      Carrying Amount
              
              
              Accumulated
      Amortization
              
              
              Gross
      Carrying Amount
              
              
              Accumulated
      Amortization
              
              
              Gross
      Carrying Amount
              
              
              Accumulated
      AmortizationCustomer
      relationships
              
              $
              55,166
              
              
              $
              25,007
              
              
              $
              55,171
              
              
              $
              22,248
              
              
              $
              55,141
              
              
              $
              21,328Trademarks
              
              
              2,956
              
              
              
              578
              
              
              
              2,956
              
              
              
              372
              
              
              
              2,956
              
              
              
              300Covenants
      not to compete
              
              
              1,605
              
              
              
              1,136
              
              
              
              1,605
              
              
              
              983
              
              
              
              1,660
              
              
              
              1,092Total
      Amortizable Intangibles
              
              $
              59,727
              
              
              $
              26,721
              
              
              $
              59,732
              
              
              $
              23,603
              
              
              $
              59,757
              
              
              $
              22,720
 
 NOTE 7 - SHORT-TERM
BORROWING ARRANGEMENTS
 
 CH Energy
Group maintains a $150 million revolving credit facility with several commercial
banks to provide committed liquidity.  This facility’s term expires in
February 2013.  As of September 30, 2009 and December 31, 2008, there
were no borrowings under this facility.  As of September 30, 2008, the
loan outstanding under this facility was $15.0 million.The notes payable
balances reported in the CH Energy Group Consolidated Balance Sheet reflect the
borrowings of CH Energy Group’s subsidiaries as of September 30, 2009, December
31, 2008 and September 30, 2008, as discussed below.
 
 Central
Hudson maintains a revolving credit facility with several commercial banks,
pursuant to PSC authorization, in the amount of $125 million, for a five-year
term ending January 2, 2012.  As of September 30, 2009 and December
31, 2008, there were no borrowings under this agreement. As of September 30,
2008, $15.0 million was outstanding under this facility.
 
 Both the
CH Energy Group and Central Hudson credit facilities reflect commitments from
JPMorgan Chase Bank, N.A., Bank of America, N.A., HSBC Bank USA, N.A. and
KeyBank National Association.  If these lenders are unable to fulfill
their commitments under these facilities, funding may not be available as
needed.
 
 Central
Hudson also maintains certain uncommitted lines of credit that diversify its
sources of cash and provide competitive options to minimize its cost of
short-term debt.  As of September 30, 2009, December 31, 2008 and
September 30, 2008, Central Hudson’s outstanding balance on these lines of
credit, in aggregate was $17.0 million, $25.5 million and $21.5 million,
respectively.
 
 On March
27, 2009, Central Hudson filed with the PSC a Financing Petition seeking
authorization to increase its multi-year committed credit to $175 million and to
issue up to $250 million of long-term debt through December 31,
2012.  An Order was issued on September 22, 2009.  The Order
authorizes Central Hudson to seek a higher level of committed credit, which will
enable greater liquidity to support construction forecasts, known seasonality,
volatile energy markets, adverse borrowing environments, and other unforeseen
events.
  - 36
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  On
January 18, 2008, Griffith established an uncommitted line of credit of up to
$25 million with a commercial bank for the purpose of funding seasonal working
capital, and for general corporate purposes.  Under the terms of the
line, the maximum amount that could be outstanding was $25 million during the
period between December 1st of
each year and May 31st of
each following year, and $15 million during the period between June 1st and
November 30th of
each year.  On April 30, 2009, Griffith Management allowed its
uncommitted line of credit to expire.  As of December 31, 2008, there
were borrowings under this agreement of $10.0 million.  There were no
borrowings under this agreement as of September 30, 2008.  The
obligations of Griffith under the line of credit were guaranteed by CH Energy
Group and CHEC.
 
 NOTE 8 – CAPITALIZATION –
COMMON AND PREFERRED STOCK
 
 There
were no repurchases of common or preferred stock in the nine months ended
September 30, 2009.
 
 In April
2009, CH Energy Group invested $25 million in Central Hudson, which was recorded
as additional paid-in capital.  Central Hudson paid no common stock
dividends in the first nine months of 2009.
 
 NOTE 9 – CAPITALIZATION -
LONG-TERM DEBT
 
 On April
17, 2009, CH Energy Group entered into a Note Purchase Agreement to issue and
sell, in a private placement exempt from registration under the Securities Act
of 1933, $50 million of senior unsecured notes. The notes bear interest at the
rate of 6.58% per annum and mature on April 17, 2014. CH Energy Group completed
the sale of $35 million in principal amount of the notes on April 17, 2009, and
$15 million in principal amount on June 15, 2009.  CH Energy Group
will use the proceeds from the sale of the notes to repay short-term debt and
for general corporate purposes.
 
 On
September 30, 2009, Central Hudson issued $24 million of 30-year, 5.80% Series F
notes. The proceeds from this issuance will be used for general corporate
purposes including the pay down of short-term debt outstanding, funding
construction expenditures and working capital requirements. The current rating
and outlook on these bonds and Central Hudson’s other senior unsecured debt is
‘A’/stable by Standard & Poor’s and Fitch Ratings and ‘A3’/negative by
Moody’s.2  Central
Hudson has $20 million remaining on its Series F notes, but does not expect to
issue additional notes in 2009.
 
 
 ___________________
 2These
ratings reflect only the views of the rating agency issuing the rating, are not
recommendations to buy, sell, or hold securities of Central Hudson and may be
subject to revision or withdrawal at any time by the rating agency issuing the
rating.  Each rating should be evaluated independently of any other
rating.
  - 37
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  On
September 9, 2009, Moody’s downgraded Central Hudson’s senior unsecured debt and
issuer ratings to ‘A3’ from ‘A2’. Moody’s has stated that the downgrade was due
to weakness in the company’s financial performance through the twelve months
ended June 30, 2009.  Moody’s maintained the outlook at negative to
reflect the current weakness in financial metrics and the company’s ongoing need
for rate relief to support planned capital expenditures.  The
downgrade is not expected to have a material impact on Central Hudson’s
financial performance.
 
 NYSERDA
 
 Central
Hudson has five debt series that were issued in conjunction with the sale of
tax-exempt pollution control revenue bonds by New York State Energy Research and
Development Authority (“NYSERDA”).  These NYSERDA bonds, totaling $166
million, are insured by Ambac Assurance Corporation (“Ambac”).  The
current underlying rating and outlook on these bonds and Central Hudson’s other
senior unsecured debt is ‘A’/stable by Standard & Poor’s and Fitch Ratings
and ‘A3’/negative by Moody’s.3
 
 Central
Hudson’s 1998 NYSERDA Series A Bonds, totaling $16.7 million, were re-marketed
on December 1, 2008.  Under the terms of the applicable indenture,
Central Hudson converted the bonds to a fixed rate of 6.5% which will continue
until their maturity in December 2028.  Prior to the December 1, 2008
re-marketing, the bonds bore interest at 3.0%.
 
 Central
Hudson’s 1999 NYSERDA Series A Bonds, totaling $33.4 million, have an interest
rate that is fixed to maturity in 2027 at 5.45%.
 
 
 _____________________
 3These
ratings reflect only the views of the rating agency issuing the rating, are not
recommendations to buy, sell, or hold securities of Central Hudson and may be
subject to revision or withdrawal at any time by the rating agency issuing the
rating.  Each rating should be evaluated independently of any other
rating.
  - 38
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  Central
Hudson’s 1999 NYSERDA Bonds, Series B, C, and D, totaling $115.9 million, are
multi-modal bonds that are currently in auction rate mode.  Beginning
in 1999 when the bonds were issued, the bonds’ interest rate has been reset
every 35 days in a Dutch auction.  Auctions in the market for
municipal auction rate securities have experienced widespread failures since
early in 2008.  Generally, an auction failure occurs because there is
an insufficient level of demand to purchase the bonds and the bondholders who
want to sell must hold the bonds for the next interest rate
period.  Since February 2008, all auctions for Central Hudson’s three
series of auction rate bonds have failed.  As a consequence, the
interest rate paid to the bondholders has been set to the then prevailing
maximum rate defined in the trust indenture.  Central Hudson’s maximum
rate results in interest rates that are generally higher than expected results
from the auction process.  For the foreseeable future, Central Hudson
expects the interest rate to be set at the maximum rate, determined on the date
of each auction as 175% of the yield on an index of tax-exempt short-term debt,
or its approximate equivalent.  In the third quarter of 2009, the
average maximum rate applicable on the bonds was 0.65%.  In its
Orders, the PSC has authorized deferral accounting treatment for the interest
costs from Central Hudson’s three series of variable rate 1999 NYSERDA
Bonds.  As a result, variations in interest rates on these bonds are
deferred for future recovery from or refund to customers and Central Hudson does
not expect the auction failures to have any adverse impact on
earnings.  To mitigate the potential impact of unexpected increases in
short-term interest rates, Central Hudson purchases interest rate caps based on
an index for short-term tax-exempt debt. Central Hudson replaced the cap that
expired on March 31, 2009 with a one-year cap, effective April 1, 2009 set at
4.375%.  The cap is based on the monthly weighted average of an index
of tax-exempt variable rate debt, multiplied by 175% to align with the maximum
rate formula of the three series of variable rate 1999 NYSERDA
Bonds.  Central Hudson would receive a payout if the bonds reset at
rates above 4.375%.  During the third quarter of 2009, the average did
not exceed the cap rate and therefore no payments were received.
 
 Central
Hudson is currently evaluating what actions, if any, it may take in the future
in connection with its 1999 NYSERDA Bonds, Series B, C and
D.  Potential actions may include converting the debt from auction
rate to another interest rate mode or refinancing with taxable
bonds.
 
 On March
27, 2009, Central Hudson filed with the PSC a Financing Petition seeking
authorization to increase its multi-year committed credit to $175 million and to
issue up to $250 million of long-term debt through December 31,
2012.  An Order was issued on September 22, 2009.  The Order
authorizes Central Hudson to issue and sell $250 million of long-term debt to
finance its construction expenditures, refund maturing long-term debt, and
potentially refinance its 1999 NYSERDA Bonds, Series B, C and
D.  Central Hudson plans to register a new series of notes pursuant to
the authority granted by the PSC.
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  NOTE 10 - POST-EMPLOYMENT
BENEFITS
 
 Central
Hudson provides certain health care and life insurance benefits for retired
employees through its post-retirement benefit plans.  Managerial,
professional and supervisory employees (“non-union”) hired prior to January 1,
2008, may become eligible for these benefits if they reach retirement age while
employed by Central Hudson.  In order to reduce the total costs of
these benefits, other post-retirement benefit (“OPEB”) plan changes were
negotiated with the IBEW Local 320 for unionized employees and certain retired
employees effective May 1, 2008.  Plans were also amended to eliminate
post-retirement benefits for union employees hired on or after May 1,
2008.
 
 The
following are the components of Central Hudson’s net periodic benefit costs for
its pension and OPEB plans for the three and nine months ended September 30,
2009 and 2008 (In Thousands):
 
 Pension
      Benefits
              
              
              OPEB(1)Three
      Months Ended
                September 30,
              
              
              Three
      Months Ended
                September 30,2009
              
              
              2008
              
              
              2009
              
              
              2008Service
      cost
              
              $
              1,956
              
              
              $
              1,942
              
              
              $
              518
              
              
              $
              513Interest
      cost
              
              
              6,455
              
              
              
              6,238
              
              
              
              1,792
              
              
              
              1,862Expected
      return on plan assets
              
              
              (4,969
              )
              
              
              (7,578
              )
              
              
              (1,271
              )
              
              
              (1,774
              )Amortization
      of:Prior
      service cost (credit)
              
              
              544
              
              
              
              517
              
              
              
              (1,467
              )
              
              
              (1,571
              )Transitional
      obligation (asset)
              
              
              -
              
              
              
              -
              
              
              
              642
              
              
              
              642Recognized
      actuarial loss
              
              
              6,350
              
              
              
              3,102
              
              
              
              2,208
              
              
              
              1,687Net
      Periodic Benefit Cost
              
              $
              10,336
              
              
              $
              4,221
              
              
              $
              2,422
              
              
              $
              1,359
 
 
 Pension
      Benefits
              
              
              OPEB(1)Nine
      Months Ended
                September 30,
              
              
              Nine
      Months Ended
                September 30,2009
              
              
              2008
              
              
              2009
              
              
              2008Service
      cost
              
              $
              5,870
              
              
              $
              5,826
              
              
              $
              1,556
              
              
              $
              1,540Interest
      cost
              
              
              19,365
              
              
              
              18,716
              
              
              
              5,374
              
              
              
              5,586Expected
      return on plan assets
              
              
              (14,907
              )
              
              
              (22,734
              )
              
              
              (3,813
              )
              
              
              (5,322
              )Amortization
      of:Prior
      service cost (credit)
              
              
              1,632
              
              
              
              1,551
              
              
              
              (4,401
              )
              
              
              (4,713
              )Transitional
      obligation (asset)
              
              
              -
              
              
              
              -
              
              
              
              1,924
              
              
              
              1,925Recognized
      actuarial loss
              
              
              19,050
              
              
              
              9,306
              
              
              
              6,626
              
              
              
              5,061Net
      Periodic Benefit Cost
              
              $
              31,010
              
              
              $
              12,665
              
              
              $
              7,266
              
              
              $
              4,077
 
 (1)
              The
      OPEB amounts for both years reflect the effect of the Medicare
      Prescription Drug Improvement and Modernization Act of 2003 under the
      provision of ASC 715-60, Defined Benefit Plans – Other Postretirement
      (encompassing FSP No. FAS 106-2, titled Accounting and Disclosure
      Requirements Related to the Medicare Prescription Drug, Improvement and
      Modernization Act of 2003).
  - 40
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  In
accordance with the measurement date provisions of ASC 715-20 (formerly SFAS
158), Central Hudson changed its measurement date for its pension plan (the
“Retirement Plan”) from September 30 to December 31 for its financial statements
for the year ended December 31, 2008.  Central Hudson elected the
“15-month-transition approach” and recorded an adjustment in the first quarter
of 2008 to recognize the effects of the change in measurement
date.  This adjustment represented 3/15ths of the net periodic pension
cost determined for the period from October 1, 2007 to December 31, 2008; the
remaining 12/15ths of the net periodic pension cost was recorded over the twelve
months ended December 31, 2008.  The recording of this adjustment
increased Central Hudson’s pension liability by $0.4 million, comprised of the
following components (In Thousands):
 
 Adjustment
      for 3/15ths of net periodic pension costs
              
              $
              2,788Adjustment
      for amortization of prior service costs and actuarial losses (1)
              
              
              (2,426
              )Net
      increase to pension liability
              
              $
              362
 
 (1)
              Liability
      recognized previously on Consolidated Balance Sheet upon initial
      implementation of ASC 715-20.
 
 In
accordance with the provisions of ASC 715-20, Central Hudson’s pension liability
balance (i.e., the funded status) at September 30, 2009, December 31, 2008 and
September 30, 2008, was $157.5 million, $162.2 million and $1.0 million,
respectively.  These balances include recognition for the difference
between the projected benefit obligation (“PBO”) for pensions and the market
value of the pension assets, as well as consideration for non-qualified
executive plans.  As a result of volatile conditions in the economy
and financial markets over the past year, Central Hudson’s Retirement Plan
assets have significantly decreased relative to the plan
liabilities.
 
 The
following reflects the impact of the recording of ASC 715-20 adjustments on the
Balance Sheets of CH Energy Group and Central Hudson (In
Thousands):
 
 September
      30,
              
              
              December
      31,
              
              
              September
      30,2009
              
              
              2008
              
              
              2008Prefunded
      (accrued) pension costs prior to ASC 715-20 adjustment
              
              $
              13,873
              
              
              $
              29,884
              
              
              $
              34,141Additional
      liability required
              
              
              (171,401
              )
              
              
              (192,084
              )
              
              
              (35,142
              )Accrued
      pension liability per ASC 715-20
              
              $
              (157,528
              )
              
              $
              (162,200
              )
              
              $
              (1,001
              )Total
      offset to additional liability -Regulatory
      assets - Retirement Plan
              
              $
              171,401
              
              
              $
              192,084
              
              
              $
              35,142
 
 Pursuant
to ASC 715-20, gains or losses and prior service costs or credits that arise
during the period but are not recognized as components of net periodic pension
cost would typically be recognized as a component of other comprehensive income,
net of tax.  However, Central Hudson records regulatory assets rather
than adjusting comprehensive income to offset the additional ASC 715-20
liability.  The recording of a regulatory asset is consistent with the
PSC’s 1993 Statement of Policy regarding pensions and OPEB (“1993 PSC
Policy”).  Under the 1993 PSC Policy, differences between pension
expense and rate allowances covering these costs are deferred for future
recovery from or return to customers with carrying charges accrued on cash
differences.
  - 41
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  Decisions
to fund Central Hudson’s Retirement Plan are based on several factors, including
the value of plan assets relative to plan liabilities, legislative requirements,
regulatory considerations, and available corporate resources.  As a
result of volatile conditions in the economy and financial markets over the past
year, Central Hudson’s Retirement Plan assets have significantly decreased
relative to the plan liabilities.  Despite recent gains in the
financial markets, Central Hudson cannot predict the funding impact of these
gains on the Plan because the annual valuation driving contributions was
performed as of October 1, 2008, the Retirement Plan year-end, and has not been
updated for the current plan year at this time.  The liabilities are
affected by the discount rate used to determine benefit obligations and the
accruing of additional benefits.  Central Hudson considers the
provisions of the Pension Protection Act of 2006 in determining its funding for
the Retirement Plan for the near-term and future
periods.  Contributions to the Retirement Plan during the nine months
ended September 30, 2009 and September 30, 2008 were $14.6 million and $12.5
million, respectively.
 
 Employer
contributions for OPEB totaled $1.3 million and $4.2 million during the nine
months ended September 30, 2009 and September 30, 2008,
respectively.  Contribution levels are determined by various factors
including the discount rate, expected return on plan assets, medical claims
assumptions used, mortality assumptions used, benefit changes, and corporate
resources.
 
 NOTE 11 - EQUITY-BASED
COMPENSATION
 
 A summary
of the status of performance shares granted to executives under the 2006 Plan is
as follows:
 
 Performance
      SharesPerformance
      Shares
              Outstanding
      atGrant
      Date
              
              Grant
      Price
              
              Granted
              September 30,
      2009January
      25, 2007
              
              $
              51.09
              
              21,330
              19,380January
      24, 2008
              
              $
              42.44
              
              33,440
              31,900January
      26, 2009
              
              $
              49.29
              
              36,730
              36,730
 
 The
ultimate number of shares earned under the awards is based on metrics
established by the 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.  The portion of the compensation expense related to an
employee who retires during the performance period is the amount recognized up
to the date of retirement.
 
 On May 1,
2009, performance shares earned as of December 31, 2008 for the award cycle with
a grant date of April 25, 2006 were issued to participants.  Those
recipients electing not to defer this compensation under the CH Energy Group
Directors and Executives Deferred Compensation Plan received shares issued from
CH Energy Group's treasury stock.  A total of 4,560 shares were issued
from CH Energy Group's treasury stock on May 1, 2009.  Additionally,
due to the retirement of one of Central Hudson's executive officers on January
1, 2009, a pro-rated number of shares under the January 25, 2007 and January 24,
2008 grants were paid to this individual on July 2, 2009.  An
additional 294 shares were issued from CH Energy Group's treasury stock on this
date in satisfaction of these awards.
  - 42
-
 Table of Contents
  The
following table summarizes compensation expense for performance shares for the
three and nine months ended September 30, 2009 and 2008 (In
Thousands):
 
 Three
      Months Ended
              
              
              Nine
      Months EndedSeptember 30,
              
              
              September 30,2009
              
              
              2008
              
              
              2009
              
              
              2008Performance
      shares - compensation expense
              
              $
              129
              
              
              $
              228
              
              
              $
              623
              
              
              $
              294
 
 The
following table summarizes information concerning stock options granted through
September 30, 2009:
 
 WeightedNumber
      of
              
              Number
      of
              
              Average
              
              Number
      ofExercise
              
              Options
              
              Options
              
              Remaining
              
              OptionsDate
      of Grant
              
              Price
              
              Granted
              
              Outstanding
              
              Life
      in Years
              
              ExercisableJanuary
      1, 2000
              
              $
              31.94
              
              30,300
              
              320
              
              0.25
              
              320January
      1, 2001
              
              $
              44.06
              
              59,900
              
              18,560
              
              1.25
              
              18,560January
      1, 2003
              
              $
              48.62
              
              36,900
              
              17,420
              
              3.25
              
              17,420127,100
              
              36,300
              
              2.20
              
              36,300
 
 A summary
of the status of stock options awarded to executives and non-employee Directors
of CH Energy Group and its subsidiaries under the 2000 Plan is as
follows:
 
 Stock
      Option
                  Shares
                
                Weighted
                  Average
                  Exercise
      Price
                
                Weighted
                  Average
                  Remaining
      Life
                  in
      YearsOutstanding
      at 12/31/08
                40,300
                
                $
                46.05
                
                3.91Granted
                -
                
                
                -Exercised
                4,000
                
                
                45.20Expired
      / Forfeited
                -
                
                
                -Outstanding
      at 9/30/09
                36,300
                
                $
                46.14
                
                2.20Total
      CH Energy Group Shares Outstanding
                
                15,790,431Potential
      Dilution
                
                
                0.2
                %
 
 Compensation
expense related to stock options for the three and nine months ended September
30, 2009 and 2008 was immaterial.  The balance accrued for outstanding
options was $0.1 million as of September 30, 2009 and 2008.  The
intrinsic value of outstanding options was not material as of September 30, 2009
and 2008.  No non-qualified stock options were exercised during the
three and nine months ended September 30, 2009.
  - 43
-
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  The
following table summarizes information concerning restricted shares granted
through September 30, 2009 (Dollars In Thousands):
 
 Grant
      Date
              
              Number
      of Shares Granted
              
              Fair
      Value on Date of Grant
              
              Vesting
      Terms
              
              Unvested
      Shares Outstanding at September 30, 2009January
      2, 2008
              
              10,000
              
              $
              443
              
              End
      of 3 years
              
              9,500
              (1)January
      2, 2008
              
              2,100
              
              $
              93
              
              Ratably
      over 3 years
              
              1,400January
      26, 2009
              
              2,930
              
              $
              144
              
              End
      of 3 years
              
              2,930
 
 (1)
              500
      shares were forfeited upon resignation of the employee holding the
      shares.
 
 The above
shares granted were issued from CH Energy Group’s treasury stock and are
presented in the Consolidated Balance Sheet as an increase in common shares
outstanding and as a reduction in treasury stock.  In accordance with
ASC 718-40 (formerly SFAS 123(R)), unvested restricted shares do not impact the
number of common shares outstanding used in the basic EPS calculation and as
such the number of unvested outstanding shares noted above have only been
included in the diluted EPS calculation as of September 30, 2009 and
2008.  The total compensation cost related to these restricted shares
was $0.1 million for the three months ended September 30, 2009 and 2008 and $0.2
million for the nine months ended September 30, 2009 and 2008.  Total
recognized tax benefits related to these restricted stock awards was immaterial
for the three and nine months ended September 30, 2009 and 2008.
 
 NOTE 12 - COMMITMENTS AND
CONTINGENCIES
 
 Electricity
Purchase Commitments
 
 On March
6, 2007,Central Hudson
entered into an agreement with Entergy Nuclear Power Marketing, LLC to purchase
electricity (but not capacity) on a unit-contingent basis at defined prices from
January 1, 2008 through December 31, 2010.  On an annual basis, the
electricity purchased through the Entergy contract represents approximately 22%
of Central Hudson’s full-service customer requirements and costs approximately
$57.5 million.  For the nine months ended September 30, 2009 and 2008,
the energy supplied under this agreement cost approximately $40.1 million and
$42.8 million, respectively.
 
 Purchases
under the Entergy contract are supplemented by shorter-term contracts, such as
the Dynegy contract discussed below, contracts for differences, and by purchases
from the NYISO, which oversees the bulk electricity transmission system, and the
capacity market in New York State, and other parties.  On January 30,
2008, Central Hudson entered into an 11-month agreement with Dynegy Power
Marketing, Inc. to purchase 589,200 MWh of electricity on a unit-contingent
basis at defined prices from February 1, 2008 to December 31,
2008.  The electricity purchased through the Dynegy contract
represented approximately 15% of Central Hudson’s full-service customer
requirements for the nine months ended September 30, 2008 and cost approximately
$36.3 million.
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  In the
event the above noted counterparties are unable to fulfill their commitments to
deliver under the terms of the agreements, Central Hudson would obtain the
supply from the NYISO market, and under Central Hudson’s current ratemaking
treatment, recover the full cost from customers.  As such, there would
be no impact on earnings.
 
 Central
Hudson must also acquire sufficient peak load capacity to meet the peak load
requirements of its full service customers.  This capacity is made up
of its own generating capacity, contracts with capacity providers, and purchases
from the NYISO capacity market.
 
 Contingencies
 
 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 against Central Hudson and other defendants. The
basis for the claimed liability of Central Hudson in these actions is that it
was allegedly negligent in the supply of natural gas.  The suits seek
an aggregate of $528 million in compensatory damages. Central Hudson has
notified its insurance carrier, denied liability, and defended the
lawsuits.  On December 10, 2008, Central Hudson entered into a
settlement agreement with the plaintiffs and one remaining
defendant.  Under the settlement agreement, Central Hudson has agreed
to make payments to the plaintiffs that will not be material in the
aggregate.  The settlement agreement is subject to final approval by
the Court.
 
 Environmental
Matters
 
 Central
Hudson
 
 Ø
              Air
 
 In
October 1999, Central Hudson was informed by the New York State Attorney General
(“Attorney General”) that the Danskammer Point Steam Electric Generating Station
(“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.  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.”  In March 2000,
the Environmental Protection Agency (“EPA”) assumed responsibility for the
investigation.  Central Hudson has completed its production of
documents requested by the Attorney General, the New York State Department of
Environmental Conservation (“DEC”), and the EPA, 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.  In
March 2009, Dynegy notified Central Hudson that Dynegy had received an
information request pursuant to the Clean Air Act from the EPA for the
Danskammer Plant covering the period beginning January 2000 to
present.  At that time, Dynegy also submitted to Central Hudson a
demand for indemnification for any fines, penalties or other losses that may be
incurred by Dynegy arising from the period that Central Hudson owned the
Danskammer Plant.  Central Hudson presently has insufficient
information with which to predict the outcome of this matter.
  - 45
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 Table of Contents
  Ø
              Former Manufactured Gas Plant
      Facilities
 
 Like most
late 19th and
early 20th
century utilities in the northeastern United States, Central Hudson and its
predecessors owned and operated manufactured gas plants (“MGPs”) to serve their
customers’ heating and lighting needs.  MGPs manufactured gas from
coal and oil.  This process produced certain by-products that may pose
risks to human health and the environment.
 
 The DEC,
which regulates the timing and extent of remediation of MGP sites in New York
State, has notified Central Hudson that it believes Central Hudson or its
predecessors at one time owned and/or operated MGPs at eight sites in Central
Hudson’s franchise territory.  The DEC has further requested that
Central Hudson investigate and, if necessary, remediate these sites under a
Consent Order, Voluntary Cleanup Agreement, or Brownfield Cleanup
Agreement.  The DEC has placed five of these sites on the New York
State Environmental Site Remediation Database.  A number of the sites
are now owned by third parties and have been redeveloped for other
uses.  The DEC has recently begun inquiries regarding a ninth
site.  The status of the sites is as follows:
  - 46
-
 Table of Contents
  Site
              
              Status#1
              
              Beacon,
      NY
              
              Remediation
      complete.  Final Report Approved by the DEC.  Awaiting
      Decision Document from the DEC and an environmental easement from the
      property owner.#2
              
              Newburgh,
      NY
              
              Remediation
      complete in one area under the terms of the DEC-approved
      plan.  The final Construction Completion Report on this area has
      been filed with the DEC.  For the remaining areas, the Final
      Remedial Design for these areas was approved by the DEC on September 17,
      2009.  Remediation of the remaining areas to begin in the 4th
      quarter of 2009.#3
              
              Laurel
      Street
                Poughkeepsie,
      NY
              
              Remediation
      work is complete.  Preparing Final Report and post-remediation
      Site Management Plan.  Additional monitoring/recovery wells
      requested by the DEC will be installed in the 4th
      quarter of 2009.#4
              
              North
      Water Street
                Poughkeepsie,
      NY
              
              Additional
      land and river investigations have been requested by the DEC.  A
      work plan for this investigation work will be completed and submitted to
      the DEC in the 4th
      quarter of 2009.  Visible oil sheens occurring in the Hudson
      River at the site are being investigated.#5
              
              Kingston,
      NY
              
              Brownfield
      Cleanup Agreement was executed and the Citizen Participation Plan (“CPP”)
      was submitted to the DEC.  Additional land and river
      investigations have been requested by the DEC and a work plan for this
      investigation work has been approved by the DEC.  This
      additional land and river investigation will begin in the 4th
      quarter of 2009.#6
              
              Catskill,
      NY
              
              Site
      investigation continues under the DEC-approved Brownfield Cleanup
      Agreement.  Access agreements for additional investigation work
      have been executed and the work began on October 5,
  2009.#7
              
              Saugerties,
      NY
              
              Central
      Hudson does not believe it has any liability for this site and is working
      with the DEC to confirm this.#8
              
              Bayeaux
      Street
                Poughkeepsie,
      NY
              
              Central
      Hudson does not believe it has any further liability for this
      site.#9
              
              Broad
      Street
                Newburgh,
      NY
              
              The
      DEC has recently made inquiries about this additional
      site.  Central Hudson does not believe it has any liability for
      this site and has responded to the DEC on June 22, 2009 confirming this
      position.
 
 In the
second quarter of 2008, Central Hudson updated the estimate of potential
remediation and future operating, maintenance and monitoring costs for sites #
2, 3, 4, 5 and 6 indicating that the total cost for the five sites could exceed
$165 million over the next 30 years.  The updated estimate for sites #
2 and 3 was based on completed remedial investigations and feasibility
studies.  As such, the estimate is subject to change based on the
current investigations, final remedial design (and associated engineering
estimates), DEC and New York State Department of Health (“NYSDOH”) comments and
requests, remedial design changes/negotiations and changed or unforeseen
conditions during remediation.  The updated estimates for sites # 4, 5
and 6 were based on partially completed remedial investigations and current DEC
and NYSDOH preferences related to site remediation, and are considered
conceptual and preliminary.  The updated estimate reflects updated
cost information along with the latest information from the investigation and
remediation work being done on MGP sites # 2, 3 and 4 and to include site #
6.  The cost estimate involves assumptions relating to investigation
expenses, remediation costs, potential future liabilities, and post-remedial
operating, maintenance and 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.  This cost estimate
also assumes that proposed or anticipated remediation techniques are technically
feasible and that proposed remediation plans receive DEC and NYSDOH
approval.  Further, the updated estimate could change materially based
on changes to technology relating to remedial alternatives and changes to
current laws and regulations.
  - 47
-
 Table of Contents
  Prior to
2009, Central Hudson recorded a $24.7 million estimated liability for sites # 2
and 3 based on estimates of remediation costs for the proposed clean-up
plans.  As of September 30, 2009, $24.2 million of this recorded
estimated liability has not been spent; $12.3 million of this recorded estimated
liability is expected to be spent over the next twelve months.
 
 No
amounts have been recorded in connection with the physical remediation of sites
# 4, 5 and 6, for which Central Hudson has developed estimated future costs
based on conceptual and preliminary plans.  Absent DEC-approved
remediation plans, management cannot reasonably estimate what cost, if any, will
actually be incurred.  The portion of the $165 million referenced
above that is related to these three sites is approximately $121
million.  Prior to 2009, Central Hudson had recorded a $1.5 million
estimated liability in connection with estimated costs for preliminary
investigations, site testing and development of remediation plans for sites # 4,
5 and 6 through 2010.  Based on the latest forecast of activities at
these sites, this estimated liability has been increased in 2009 to $2.0
million.  As of September 30, 2009, none of this recorded estimated
liability has been spent; $0.5 million of this recorded estimated liability is
expected to be spent over the next twelve months.  This estimated
amount may change in the future as additional information is obtained regarding
the results of site-testing, the scope of site investigation plans approved by
the DEC and NYSDOH, and the evolving development of new
technologies.  Central Hudson cannot predict the results of site
testing, the nature, timing or extent of comments from the DEC and NYSDOH, or
changes in technology.  The impact of these uncertainties on the
estimate cannot be determined.
  - 48
-
 Table of Contents
  With
regard to sites # 7, 8 and 9, Central Hudson does not have sufficient
information to estimate its potential remediation cost if any; as previously
stated, Central Hudson believes that it has no liability for these
sites.
 
 Central
Hudson spent $3.2 million in the nine months ended September 30, 2009 related to
site investigation and remediation for sites #2, 3, 4, 5 and 6.  Based
on the 2006 Rate Order, on July 1, 2007, Central Hudson started the recovery of
a rate allowance for MGP Site Investigation and Remediation
Costs.  This recovery totaled $4.0 million as of September 30, 2009
with $1.5 million recovered in 2009.
 
 Central
Hudson has put its insurers on notice and intends to seek reimbursement from its
insurers for the costs of any liabilities.  Certain of these insurers
have denied coverage.  Pursuant to the 2006 Rate Order, Central Hudson
is permitted to defer for future recovery the differences between actual costs
for MGP site investigation and remediation and the associated rate allowances,
with carrying charges to be accrued on the deferred balances at the authorized
pre-tax rate of return.  The 2009 Rate Order provides recovery of a
rate allowance of $2.8 million during the July 2009 through June 2010 rate
year.  Additionally, the 2009 Rate Order authorizes recovery of
certain amounts spent over the rate allowance from the net electric regulatory
liability balance and authorizes continued deferral for all other MGP site
remediation expenditures.
 
 Future
remediation activities, including operating, maintenance and monitoring and
related costs may vary significantly from the assumptions used in Central
Hudson’s current cost estimates, and these costs could have a material adverse
effect (the extent of which cannot be reasonably determined) on the financial
condition, results of operations and cash flows of CH Energy Group and Central
Hudson if Central Hudson were unable to recover all or a substantial portion of
these costs via collection in rates from customers and/or through
insurance.
 
 Ø
              Little Britain
      Road
 
 In
December 1977, Central Hudson purchased property at 610 Little Britain Road, New
Windsor, New York.  In 1992, the DEC informed Central Hudson that the
DEC was preparing to conduct a Preliminary Site Assessment (“PSA”) of the site
and in 1995, the DEC issued an Order of Consent in which Central Hudson agreed
to conduct the PSA.  In 2000, following completion of the PSA, Central
Hudson and the DEC entered into a Voluntary Cleanup Agreement (“VCA”) whereby
Central Hudson removed approximately 3,100 tons of soil and has conducted a
routine groundwater sampling program since that time.  Groundwater
sampling results show the presence of certain contaminants at levels exceeding
DEC criteria.  Deep groundwater wells were installed in 2005 and 2006,
which also show contaminants exceeding DEC criteria.  The DEC
responded with a request for a plan to address the
contamination.  Central Hudson has submitted a proposal to the DEC for
limited additional site work, including an assessment of vapor intrusion into a
building on the site, and closure of the VCA.  Negotiations between
DEC and Central Hudson regarding additional site work and closure of the VCA are
ongoing.  Central Hudson completed a soil vapor intrusion study and
results indicated that indoor air met Occupational Safety and Health
Administration (“OSHA”) and NYSDOH standards, however, concentrations beneath
the building’s concrete slab warranted installation of a mitigation system. This
mitigation system was installed in 2008.  At this time Central Hudson
does not have sufficient information to estimate the need for additional
remediation or potential remediation costs.  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.  Central Hudson cannot predict the outcome of this
matter.
  - 49
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 Table of Contents
  Ø
              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 (“CERCLA”) 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 indicated that lead and polychlorinated
biphenyls (or “PCBs”) are present at the site, and the EPA subsequently
commenced a remedial investigation and feasibility study at the
site.  No records were found which indicate that the materials shipped
by Central Hudson to Consolidated Iron contained or was a hazardous
substance.  In April 2008, Central Hudson received a letter from the
Consolidated Iron Joint Defense Group (“JDG”), a group of potentially
responsible parties asserting a contribution claim against Central
Hudson.  The JDG had reached an agreement in principle with the EPA to
resolve claims at the Consolidated Iron site under a consent decree to be filed
with the court.  In December 2008, Central Hudson entered into a
settlement agreement with the JDG pursuant to which the consent decree would be
amended to add Central Hudson as an additional settling party, subject to the
approval of the court.  The amendment to the consent decree has been
approved by the court.  Central Hudson anticipates no further
liability for the site, in which case Management does not expect a material
impact on earnings.  However, the consent decree provides the EPA with
the right to reopen the matter under certain circumstances and Central Hudson
cannot predict the outcome of this matter at the present time.
 
 Ø
              Asbestos
      Litigation
 
 As of
September 30, 2009, of the 3,317 asbestos cases brought against Central Hudson,
1,187 remain pending.  Of the cases no longer pending against Central
Hudson, 1,978 have been dismissed or discontinued without payment by Central
Hudson, and Central Hudson has settled 152 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 the financial position, results of operations or cash
flows of either CH Energy Group or Central Hudson.
  - 50
-
 Table of Contents
  CHEC
 
 During
the nine months ended September 30, 2009, Griffith spent $0.1 million on
remediation efforts in Maryland, Virginia and Connecticut.  Griffith
is entitled to be reimbursed $0.2 million from the State of Connecticut under an
environmental agreement and has recorded this amount as a
receivable.
 
 Griffith
has a reserve for environmental remediation which is $1.3 million as of
September 30, 2009, of which $0.1 million is expected to be spent in the next
twelve months.
 
 Other
Matters
 
 Central
Hudson and Griffith are involved in various other legal and administrative
proceedings incidental to their businesses, which are in various
stages.  While these matters collectively could involve substantial
amounts, it is the opinion of Management that their ultimate resolution will not
have a material adverse effect on either of CH Energy Group’s or the individual
segment’s financial positions, results of operations, or cash
flows.
 
 NOTE 13 - SEGMENTS AND
RELATED INFORMATION
 
 CH 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 Griffith.  Other activities
of CH Energy Group, which do not constitute a business segment include the
investments and business development activities of CH Energy Group and the
renewable energy and investment activities of CHEC, including its ownership
interests in ethanol, wind, landfill gas and biomass energy projects and are
reported under the heading “Other Businesses and Investments.”
 
 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’s
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.  Demand for
electricity typically peaks during the summer, while demand for natural gas and
heating oil typically peaks during the winter.
  - 51
-
 Table of Contents
  CH
      Energy Group Segment Disclosure(In
      Thousands)Three
      Months Ended September 30, 2009OtherCentral
      Hudson
              
              
              
              BusinessesNatural
              
              
              
              andElectric
              
              Gas
              
              Griffith
              
              Investments
              
              Eliminations
              
              
              TotalRevenues
      from external customers
              $
              138,685
              
              $
              16,243
              
              $
              55,517
              
              $
              3,200
              
              $
              -
              
              
              $
              213,645Intersegment
      revenues
              
              1
              
              
              11
              
              
              -
              
              
              -
              
              
              (12
              )
              
              
              -Total
      revenues
              
              138,686
              
              
              16,254
              
              
              55,517
              
              
              3,200
              
              
              (12
              )
              
              
              213,645Interest
      and investment income
              
              817
              
              
              385
              
              
              -
              
              
              1,029
              
              
              (1,013
              )
              (1)
              
              1,218Interest
      expense
              
              4,993
              
              
              1,215
              
              
              924
              
              
              947
              
              
              (1,013
              )
              (1)
              
              7,066Earnings
      before income taxes
              
              16,514
              
              
              (1,310
              )
              
              (5,831
              )
              
              (404
              )
              
              -
              
              
              
              8,969Net
      income (loss) attributable to CH Energy Group
              
              9,755
              
              
              (1,126
              )
              
              (3,441
              )
              
              164
              
              
              -
              
              
              
              5,352Segment
      assets at September 30
              
              1,124,163
              
              
              391,846
              
              
              167,476
              
              
              67,400
              
              
              (1,394
              )
              (2)
              
              1,749,491
 
 (1)
              This
      represents the elimination of inter-company interest income (expense)
      generated from lending activities between CH Energy Group (the holding
      company), and its subsidiaries (CHEC and
  Griffith).
 (2)
              Includes
      non-controlling owner's interest of $1,520 related to
      Lyonsdale.
 
 
 CH
      Energy Group Segment Disclosure(In
      Thousands)Three
      Months Ended September 30, 2008OtherCentral
      Hudson
              
              
              
              BusinessesNatural
              
              
              
              andElectric
              
              Gas
              
              Griffith
              
              Investments
              
              Eliminations
              
              
              TotalRevenues
      from external customers
              $
              179,001
              
              $
              21,773
              
              $
              97,049
              
              $
              2,964
              
              $
              -
              
              
              $
              300,787Intersegment
      revenues
              
              4
              
              
              28
              
              
              -
              
              
              -
              
              
              (32
              )
              
              
              -Total
      revenues
              
              179,005
              
              
              21,801
              
              
              97,049
              
              
              2,964
              
              
              (32
              )
              
              
              300,787Interest
      and investment income
              
              549
              
              
              413
              
              
              17
              
              
              1,502
              
              
              (1,142
              )
              (1)
              
              1,339Interest
      expense
              
              4,945
              
              
              1,355
              
              
              1,130
              
              
              123
              
              
              (1,142
              )
              (1)
              
              6,411Earnings
      before income taxes
              
              12,848
              
              
              (2,375
              )
              
              (7,395
              )
              
              1,310
              
              
              -
              
              
              
              4,388Net
      income (loss) attributable to CH Energy Group
              
              7,659
              
              
              (1,774
              )
              
              (4,438
              )
              
              1,438
              
              
              -
              
              
              
              2,885Segment
      assets at September 30
              
              966,553
              
              
              340,686
              
              
              195,037
              
              
              43,503
              
              
              (2,942
              )
              (2)
              
              1,542,837
 
 (1)
              This
      represents the elimination of inter-company interest income (expense)
      generated from lending activities between CH Energy Group (the holding
      company), and its subsidiaries (CHEC and
  Griffith).
 (2)
              Includes
      non-controlling owner's interest of $1,474 related to
      Lyonsdale.
  - 52
-
 Table of Contents
  CH
      Energy Group Segment Disclosure(In
      Thousands)Nine
      Months Ended September 30, 2009OtherCentral
      Hudson
              
              
              
              BusinessesNatural
              
              
              
              andElectric
              
              Gas
              
              Griffith
              
              Investments
              
              Eliminations
              
              
              TotalRevenues
      from external customers
              $
              404,035
              
              $
              137,422
              
              $
              244,037
              
              $
              6,854
              
              $
              -
              
              
              $
              792,348Intersegment
      revenues
              
              11
              
              
              263
              
              
              -
              
              
              -
              
              
              (274
              )
              
              
              -Total
      revenues
              
              404,046
              
              
              137,685
              
              
              244,037
              
              
              6,854
              
              
              (274
              )
              
              
              792,348Interest
      and investment income
              
              2,465
              
              
              1,348
              
              
              5
              
              
              4,075
              
              
              (3,209
              )
              (1)
              
              4,684Interest
      expense
              
              14,546
              
              
              3,771
              
              
              2,981
              
              
              1,715
              
              
              (3,209
              )
              (1)
              
              19,804Earnings
      before income taxes
              
              30,354
              
              
              8,390
              
              
              7,485
              
              
              (1,475
              )
              
              -
              
              
              
              44,754Net
      income attributable to CH Energy Group
              
              17,734
              
              
              4,221
              
              
              4,415
              
              
              646
              
              
              -
              
              
              
              27,016Segment
      assets at September 30
              
              1,124,163
              
              
              391,846
              
              
              167,476
              
              
              67,400
              
              
              (1,394
              )
              (2)
              
              1,749,491
 
 (1)
              This
      represents the elimination of inter-company interest income (expense)
      generated from lending activities between CH Energy Group (the holding
      company), and its subsidiaries (CHEC and
  Griffith).
 (2)
              Includes
      non-controlling owner's interest of $1,520 related to
      Lyonsdale.
 
 
 CH
      Energy Group Segment Disclosure(In
      Thousands)Nine
      Months Ended September 30, 2008OtherCentral
      Hudson
              
              
              
              BusinessesNatural
              
              
              
              andElectric
              
              Gas
              
              Griffith
              
              Investments
              
              Eliminations
              
              
              TotalRevenues
      from external customers
              $
              468,659
              
              $
              142,267
              
              $
              404,680
              
              $
              8,626
              
              $
              -
              
              
              $
              1,024,232Intersegment
      revenues
              
              12
              
              
              230
              
              
              -
              
              
              -
              
              
              (242
              )
              
              
              -Total
      revenues
              
              468,671
              
              
              142,497
              
              
              404,680
              
              
              8,626
              
              
              (242
              )
              
              
              1,024,232Interest
      and investment income
              
              1,982
              
              
              1,308
              
              
              67
              
              
              4,558
              
              
              (3,511
              )
              (1)
              
              4,404Interest
      expense
              
              14,644
              
              
              4,009
              
              
              3,665
              
              
              373
              
              
              (3,511
              )
              (1)
              
              19,180Earnings
      before income taxes
              
              29,531
              
              
              7,746
              
              
              (2,179
              )
              
              3,716
              
              
              -
              
              
              
              38,814Net
      income (loss) attributable to CH Energy Group
              
              17,486
              
              
              3,852
              
              
              (1,308
              )
              
              3,826
              
              
              -
              
              
              
              23,856Segment
      assets at September 30
              
              966,553
              
              
              340,686
              
              
              195,037
              
              
              43,503
              
              
              (2,942
              )
              (2)
              
              1,542,837
 
 (1)
              This
      represents the elimination of inter-company interest income (expense)
      generated from lending activities between CH Energy Group (the holding
      company), and its subsidiaries (CHEC and
  Griffith).
 (2)
              Includes
      non-controlling owner's interest of $1,474 related to
      Lyonsdale.
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 Table of Contents
  Central
      Hudson Segment Disclosure(In
      Thousands)Three
      Months Ended September 30, 2009Electric
              
              
              Natural
      Gas
              
              
              Eliminations
              
              
              TotalRevenues
      from external customers
              
              $
              138,685
              
              
              $
              16,243
              
              
              $
              -
              
              
              $
              154,928Intersegment
      revenues
              
              
              1
              
              
              
              11
              
              
              
              (12
              )
              
              
              -Total
      revenues
              
              
              138,686
              
              
              
              16,254
              
              
              
              (12
              )
              
              
              154,928Interest
      and investment income
              
              
              817
              
              
              
              385
              
              
              
              -
              
              
              
              1,202Interest
      expense
              
              
              4,993
              
              
              
              1,215
              
              
              
              -
              
              
              
              6,208Income
      before income taxes
              
              
              16,514
              
              
              
              (1,310
              )
              
              
              -
              
              
              
              15,204Income
      available for common stock
              
              
              9,755
              
              
              
              (1,126
              )
              
              
              -
              
              
              
              8,629Segment
      assets at September 30
              
              
              1,124,163
              
              
              
              391,846
              
              
              
              -
              
              
              
              1,516,009
 
 Central
      Hudson Segment Disclosure(In
      Thousands)Three
      Months Ended September 30, 2008Electric
              
              
              Natural
      Gas
              
              
              Eliminations
              
              
              TotalRevenues
      from external customers
              
              $
              179,001
              
              
              $
              21,773
              
              
              $
              -
              
              
              $
              200,774Intersegment
      revenues
              
              
              4
              
              
              
              28
              
              
              
              (32
              )
              
              
              -Total
      revenues
              
              
              179,005
              
              
              
              21,801
              
              
              
              (32
              )
              
              
              200,774Interest
      and investment income
              
              
              549
              
              
              
              413
              
              
              
              -
              
              
              
              962Interest
      expense
              
              
              4,945
              
              
              
              1,355
              
              
              
              -
              
              
              
              6,300Income
      before income taxes
              
              
              12,848
              
              
              
              (2,375
              )
              
              
              -
              
              
              
              10,473Income
      available for common stock
              
              
              7,659
              
              
              
              (1,774
              )
              
              
              -
              
              
              
              5,885Segment
      assets at September 30
              
              
              966,553
              
              
              
              340,686
              
              
              
              -
              
              
              
              1,307,239
 
 Central
      Hudson Segment Disclosure(In
      Thousands)Nine
      Months Ended September 30, 2009Electric
              
              
              Natural
      Gas
              
              
              Eliminations
              
              
              TotalRevenues
      from external customers
              
              $
              404,035
              
              
              $
              137,422
              
              
              $
              -
              
              
              $
              541,457Intersegment
      revenues
              
              
              11
              
              
              
              263
              
              
              
              (274
              )
              
              
              -Total
      revenues
              
              
              404,046
              
              
              
              137,685
              
              
              
              (274
              )
              
              
              541,457Interest
      and investment income
              
              
              2,465
              
              
              
              1,348
              
              
              
              -
              
              
              
              3,813Interest
      expense
              
              
              14,546
              
              
              
              3,771
              
              
              
              -
              
              
              
              18,317Income
      before income taxes
              
              
              30,354
              
              
              
              8,390
              
              
              
              -
              
              
              
              38,744Income
      available for common stock
              
              
              17,734
              
              
              
              4,221
              
              
              
              -
              
              
              
              21,955Segment
      assets at September 30
              
              
              1,124,163
              
              
              
              391,846
              
              
              
              -
              
              
              
              1,516,009
 
 Central
      Hudson Segment Disclosure(In
      Thousands)Nine
      Months Ended September 30, 2008Electric
              
              
              Natural
      Gas
              
              
              Eliminations
              
              
              TotalRevenues
      from external customers
              
              $
              468,659
              
              
              $
              142,267
              
              
              $
              -
              
              
              $
              610,926Intersegment
      revenues
              
              
              12
              
              
              
              230
              
              
              
              (242
              )
              
              
              -Total
      revenues
              
              
              468,671
              
              
              
              142,497
              
              
              
              (242
              )
              
              
              610,926Interest
      and investment income
              
              
              1,982
              
              
              
              1,308
              
              
              
              -
              
              
              
              3,290Interest
      expense
              
              
              14,644
              
              
              
              4,009
              
              
              
              -
              
              
              
              18,653Income
      before income taxes
              
              
              29,531
              
              
              
              7,746
              
              
              
              -
              
              
              
              37,277Income
      available for common stock
              
              
              17,486
              
              
              
              3,852
              
              
              
              -
              
              
              
              21,338Segment
      assets at September 30
              
              
              966,553
              
              
              
              340,686
              
              
              
              -
              
              
              
              1,307,239
  - 54
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 Table of Contents
  NOTE 14 - ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
 
 ASC 815,
Derivatives and Hedging
(formerly SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities), as amended, established accounting
and reporting requirements for derivative instruments and hedging
activities.  ASC 815 requires that an entity recognize the fair value
of all derivative instruments as either assets or liabilities on the balance
sheet with the corresponding unrealized gains or losses recognized in
earnings.  ASC 815 permits the deferral of the effective portion of
unrealized gains and losses on derivatives that are properly designated as
hedges under ASC 815.
 
 CH Energy
Group and its subsidiaries enter into derivative instruments for hedging
purposes in conjunction with the Company’s energy risk management program, not
for speculative purposes.  Central Hudson uses derivative contracts to
hedge exposure to variability in the prices of natural gas and electricity and
to hedge exposure to variability in interest rates for its variable rate
long-term debt.  The types of derivative instruments typically used by
Central Hudson are natural gas futures and swaps to hedge natural gas purchases,
contracts for differences (electricity swaps) to hedge electricity purchases,
and interest rate caps to hedge interest payments on variable rate
debt.  Although the use of these instruments is intended to hedge cash
flows, they are not designated as hedges under the provisions of ASC 815, and
the related gains and losses are included as part of Central Hudson's commodity
cost and/or price-reconciled in its natural gas and electricity cost adjustment
charge clauses.  Griffith uses derivative instruments to hedge
variability in the price of heating oil purchased for delivery to its
customers.  In 2009 and 2008, Griffith purchased call option contracts
to establish ceiling prices to hedge forecasted heating oil supply requirements
for capped price programs not hedged by firm purchase
commitments.  The options hedge purchase cash flows related to
commodity price changes.  These derivatives are designated as cash
flow hedges under the provisions of ASC 815 and the portion of the change in
fair value of the options that is effective in hedging the purchase cash flow is
included in the cost of sales as the hedged transaction occurs.
 
 At
September 30, 2009, Central Hudson had open derivative contracts to hedge
natural gas prices during November 2009 - March 2010, covering approximately
46.3% of Central Hudson's projected total natural gas supply requirements during
the upcoming winter heating season.  In its electric operations,
Central Hudson had open derivative contracts at September 30, 2009 to hedge the
price of approximately 22.5% of its projected electricity requirements for
October - December 2009, and 18.1% of its projected requirements in each of the
years 2010, 2011, and 2012.  At September 30, 2009, Griffith had open
OTC call option positions covering approximately 2.2% of its anticipated fuel
oil supply requirements for the period October 2009 – May 2010.
 
 Central
Hudson and Griffith both hold contracts for derivative instruments under master
netting agreements.  Of the fourteen total agreements held by both
companies, eleven contain credit-risk related contingent
features.  The circumstances that could trigger these features, the
aggregate fair value of the derivative instruments that contain contingent
features and the amount that would be required to settle these instruments on
September 30, 2009 if the contingent features were triggered are described
below.
  - 55
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 Table of Contents
  Contingent Contracts(Dollars
      In Thousands)As
      of September 30, 2009Triggering
      Event
              
              #
      of Contracts Containing the Triggering Feature
              
              
              Gross
      Fair Value of Contract
              
              
              Cost
      to Settle if Contingent Feature is Triggered
                (net
      of collateral)Central Hudson:Change
      in Ownership(CHEG
      ownership ofCHG&E
      falls below 51%)
              
              
              1
              
              
              $
              (705
              )
              
              $
              (705
              )Credit
      Rating Downgrade(to
      below BBB-)
              
              
              5
              
              
              
              (18
              )
              
              
              (18
              )Adequate
      Assurance(1)
              
              
              2
              
              
              
              (763
              )
              
              
              (763
              )Total
      Central Hudson
              
              
              8
              
              
              
              (1,486
              )
              
              
              (1,486
              )Griffith:Change
      in Ownership(CHEG
      ownership ofCHEC
      falls below 51%)
              
              
              1
              
              
              
              47
              
              
              
              47Adequate
      Assurance(1)
              
              
              2
              
              
              
              36
              
              
              
              36Total
      Griffith
              
              
              3
              
              
              
              83
              
              
              
              83Total
      CH Energy Group
              
              
              11
              
              
              $
              (1,403
              )
              
              $
              (1,403
              )
 
 (1)
              If
      the counterparty has reasonable grounds to believe CHG&E's or
      Griffith's creditworthiness or performance has become unsatisfactory, it
      can request collateral in an amount determined by the counterparty, not to
      exceed the amount required to settle the
  contract.
 
 CH Energy
Group uses master netting agreements to mitigate the credit risk of financial
derivatives, and in accordance with ASC 210-20, Offsetting(formerly FSP No.
FIN 39-1, Amendment of FASB
Interpretation No. 39), has elected gross presentation for its derivative
contracts under master netting agreements.  On September 30, 2009,
neither Central Hudson nor Griffith had collateral posted against the fair value
amount of derivatives under any of these agreements.  If collateral
were posted, CH Energy Group’s policy is to also report the collateral positions
on a gross basis.
 
 The fair
value of CH Energy Group’s and Central Hudson’s derivative instruments and their
location in the respective Balance Sheets are described below, followed by a
description of their effect on the respective Statements of
Income.  For additional information regarding Central Hudson’s
physical hedges, see the discussion following the caption “Electricity Purchase
Commitments” in Note 12 – “Commitments and Contingencies.”
  - 56
-
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  Gross Fair Value of Derivative
      Instruments(In
      Thousands)September 30,
                2009
              
              
              December 31,
                2008
              
              
              September 30,
                2008Derivatives in an Asset
      Position:Not
      Designated as Hedging Instruments:(1)Central
      Hudson electricity swap contracts
              
              $
              103
              
              
              $
              -
              
              
              $
              -Central
      Hudson natural gas swap contracts
              
              
              77
              
              
              
              -
              
              
              
              -Central
      Hudson interest rate swap contract
              
              
              -
              
              
              
              -
              
              
              
              -Total
      Central Hudson Derivatives in an Asset Position
              
              
              180
              
              
              
              -
              
              
              
              -Designated
      as Hedging Instruments under ASC 815 (formerly SFAS 133):Griffith
      heating oil call option contracts
              
              
              83
              
              
              
              -
              
              
              
              28Total
      CH Energy Group Derivatives in Asset Position
              
              $
              263
              
              
              $
              -
              
              
              $
              28Derivatives in a Liability
      Position:Not
      Designated as Hedging Instruments:(1)Central
      Hudson electricity swap contracts
              
              $
              (10,698
              )
              
              $
              (5,538
              )
              
              $
              (3,807
              )Central
      Hudson natural gas swap contracts
              
              
              (2,189
              )
              
              
              (10,221
              )
              
              
              (10,273
              )Total
      Central Hudson Derivatives in a Liability Position
              
              
              (12,887
              )
              
              
              (15,759
              )
              
              
              (14,080
              )Total
      CH Energy Group Derivatives in Liability Position
              
              $
              (12,887
              )
              
              $
              (15,759
              )
              
              $
              (14,080
              )Total
      Central Hudson Derivatives - Net
              
              $
              (12,707
              )
              
              $
              (15,759
              )
              
              $
              (14,080
              )Total
      CH Energy Group Derivatives - Net
              
              $
              (12,624
              )
              
              $
              (15,759
              )
              
              $
              (14,052
              )
 
 (1)
              See discussion following tables
      for additional information regarding regulatory treatment of gains and
      losses on Central Hudson's derivative
  contracts.
  - 57
-
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  The Effect of Derivative
Instruments on the Statements of Income
 (In
Thousands)
 
 CH Energy
Group
 Designated as Hedging
Instruments:
  Derivatives
      in ASC 815 (formerly SFAS 133) Cash Flow Hedging
    Relationships
              
              Amount
      of Gain/(Loss)
                Recognized
      in OCI on Derivative
              
              
              Amount
      of Gain/(Loss) Reclassified
                from
      Accumulated OCI into IncomeThree
      Months Ended
              
              
              Nine
      Months Ended
              
              
              Three
      Months Ended
              
              
              Nine
      Months EndedSeptember 30,
              
              
              September 30,
              
              
              September 30,
              
              
              September 30,2009
              
              
              2008
              
              
              2009
              
              
              2008
              
              
              2009
              
              
              2008
              
              
              2009
              
              
              2008Griffith
      heating oil call option contracts
              
              $
              (9
              )
              
              $
              (188
              )
              
              $
              49
              
              
              $
              1,300
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              (2,014
              )Total
              
              $
              (9
              )
              
              $
              (188
              )
              
              $
              49
              
              
              $
              1,300
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              (2,014
              )
 
 For the
three months ended September 30, 2009 and 2008, the amount of loss recognized in
income for Griffith heating oil call option contracts designated as hedging
instruments was immaterial and $0.2 million, respectively.  For the
nine months ended September 30, 2009 and 2008, the amount of gain recognized was
$0.1 million and $1.3 million, respectively.  The loss reclassified
from Accumulated OCI into income for Griffith's heating oil call option
contracts for all periods presented is located in purchased
petroleum.
 
 Not Designated as Hedging
Instruments:
  Amount
      of Gain/(Loss) Recognized as (Increase)/Decrease in Purchased Electric and
      Purchased Natural Gas
              
              Location
      of Gain/(Loss)Three
      Months Ended
              
              Nine
      Months EndedSeptember 30,
              
              September 30,2009
              
              2008
              
              2009
              
              2008Central
      Hudson electricity swap contracts
              $
              (9,771
              )
              $
              (2,335
              )
              $
              (20,550
              )
              $
              (1,246
              )
              Regulatory
      asset(1)Central
      Hudson natural gas swap contracts
              
              (388
              )
              
              -
              
              
              (11,641
              )
              
              (1,026
              )
              Regulatory
      asset(1)Central
      Hudson interest rate swap contract
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              Regulatory
      asset(1)Total
              $
              (10,159
              )
              $
              (2,335
              )
              $
              (32,191
              )
              $
              (2,272
              )
 
 Central HudsonDesignated as Hedging
      Instruments:NoneNot Designated as Hedging
      Instruments:Amount
      of Gain/(Loss) Recognized as (Increase)/Decrease in Purchased Electric and
      Purchased Natural Gas
              
              Location
      of Gain/(Loss)Three
      Months Ended
              
              Nine
      Months EndedSeptember 30,
              
              September 30,2009
              
              2008
              
              2009
              
              2008Electricity
      swap contracts
              $
              (9,771
              )
              $
              (2,335
              )
              $
              (20,550
              )
              $
              (1,246
              )
              Regulatory
      asset(1)Natural
      gas swap contracts
              
              (388
              )
              
              -
              
              
              (11,641
              )
              
              (1,026
              )
              Regulatory
      asset(1)Interest
      rate swap contract
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              Regulatory
      asset(1)Total
              $
              (10,159
              )
              $
              (2,335
              )
              $
              (32,191
              )
              $
              (2,272
              )
 
 (1)
              Realized
      gains and losses on Central Hudson’s derivative instruments are conveyed
      to or recovered from customers through PSC-authorized deferral accounting
      mechanisms, with an offset in revenue and on the balance sheet, and no
      impact on results of
operations.
  - 58
-
 Table of Contents
  Central
Hudson recorded actual net losses of $10.2 million and $32.2 million on such
hedging activities for the three and nine months ended September 30, 2009, as
compared to net losses of $2.3 million and $2.3 million for the same periods in
2008.  For more information regarding the fair value of the Company’s
outstanding derivative contracts, see Note 15 – “Financial
Instruments”.
 
 In the
three and nine months ended September 30, 2009 and 2008, Griffith’s call options
were effective with immaterial gains or losses from ineffectiveness recorded.
The assessment of hedge effectiveness for these hedges excludes the change in
the fair value of the premium paid for these derivative
instruments.  The total fair value of open derivative instruments at
September 30, 2009 was a net unrealized gain of $0.1 million.  The
total fair value at December 31, 2008 and September 30, 2008 was not
material.  These amounts were recorded in each period as part of the
cost or price of the related commodity transactions.  The fair values
of call options are determined based on the market value of the underlying
commodity.   The total net loss including premium expense was
$0.1 million and $0.2 million in the three and nine months ended September 30,
2009.  Unrealized losses expected to be reclassified into earnings
over the next twelve months are not material.  A total net loss
including premium expense of $0.8 million was recorded in the three months ended
September 30, 2008.  A total net gain of $1.1 million was recorded in
the nine months ended September 30, 2008.
 
 In
addition to the above, Griffith uses weather derivative contracts to hedge the
effect on earnings of significant variances in weather conditions from normal
patterns if such contracts can be obtained on reasonable
terms.  Weather derivative contracts are accounted for in accordance
with ASC 815-45, Weather
Derivatives, (formerly EITF Issue No. 99-2, Accounting for Weather
Derivatives).  In the three months ended September 30, 2009,
Griffith made no settlement payments to and received no payments from
counterparties.  In the nine months ended September 30, 2009, Griffith
made a settlement payment of $0.2 million to counterparties and received no
payments from counterparties.  In the three and nine months ended
September 30, 2008, Griffith did not make or receive settlement payments to or
from counterparties.
  - 59
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 Table of Contents
  NOTE 15 – FAIR VALUE
MEASUREMENTS
 
 Assets
and Liabilities Recorded at Fair Value
 
 ASC 820
establishes a fair value hierarchy to prioritize the inputs used in valuation
techniques based on observable and unobservable data, but not the valuation
techniques themselves.  Observable inputs are inputs that reflect the
assumptions market participants would use in pricing the asset or
liability.  Unobservable inputs are inputs that reflect the reporting
entity’s own assumptions about the assumptions market participants would use in
pricing an asset or a liability.  Classification of inputs is
determined based on the lowest level input that is significant to the overall
valuation.  The fair value hierarchy prioritizes the inputs to
valuation techniques into the three categories described below.
 
 §
              Level 1
      Inputs:  Quoted prices (unadjusted) in active markets for
      identical assets or liabilities.
 
 §
              Level 2
      Inputs:  Directly or indirectly observable (market-based)
      information.  This includes quoted prices for similar assets or
      liabilities in active markets and quoted prices for identical or similar
      assets or liabilities in markets that are not
  active.
 
 §
              Level 3
      Inputs:  Unobservable inputs for the asset or liability
      for which there is either no market data, or for which asset and liability
      values are not correlated with market
value.


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On
September 30, 2009, CH Energy Group reported one major category of assets and
liabilities at fair value; derivative contracts.  Derivative contracts
are measured on a recurring basis.  The fair value of CH Energy
Group's reportable assets and liabilities at September 30, 2009, December 31,
2008 and September 30, 2008 by category and hierarchy level follows (In
Thousands):





Asset
      or Liability Category
            
            Fair
      Value
            
            
            Quoted
      Prices in Active Markets for Identical Assets
              (Level 1)
            
            
            Significant
      Other Observable Inputs
              (Level 2)
            
            
            Significant
      Unobservable Inputs
              (Level
      3)As
      of September 30, 2009AssetsDerivative
      Contracts:Central
      Hudson - Electric
            
            $
            103
            
            
            $
            -
            
            
            $
            -
            
            
            $
            103Central
      Hudson - Natural Gas
            
            
            77
            
            
            
            77
            
            
            
            -
            
            
            
            -Griffith
      - Heating Oil
            
            
            83
            
            
            
            83
            
            
            
            -
            
            
            
            -Total
      Assets
            
            $
            263
            
            
            $
            160
            
            
            $
            -
            
            
            $
            103LiabilitiesDerivative
      Contracts:Central
      Hudson - Electric
            
            $
            (10,698
            )
            
            $
            -
            
            
            $
            -
            
            
            $
            (10,698
            )Central
      Hudson - Natural Gas
            
            
            (2,189
            )
            
            
            (2,189
            )
            
            
            -
            
            
            
            -Total
      Liabilities
            
            $
            (12,887
            )
            
            $
            (2,189
            )
            
            $
            -
            
            
            $
            (10,698
            )As
      of December 31, 2008LiabilitiesDerivative
      Contracts:Central
      Hudson - Electric
            
            $
            (5,538
            )
            
            $
            -
            
            
            $
            -
            
            
            $
            (5,538
            )Central
      Hudson - Natural Gas
            
            
            (10,221
            )
            
            
            (10,221
            )
            
            
            -
            
            
            
            -Total
      Liabilities
            
            $
            (15,759
            )
            
            $
            (10,221
            )
            
            $
            -
            
            
            $
            (5,538
            )As
      of September 30, 2008AssetsDerivative
      Contracts:Griffith
      - Heating Oil
            
            $
            28
            
            
            $
            28
            
            
            $
            -
            
            
            $
            -Total
      Assets
            
            $
            28
            
            
            $
            28
            
            
            $
            -
            
            
            $
            -LiabilitiesDerivative
      Contracts:Central
      Hudson - Electric
            
            $
            (3,807
            )
            
            $
            -
            
            
            $
            -
            
            
            $
            (3,807
            )Central
      Hudson - Natural Gas
            
            
            (10,273
            )
            
            
            (10,273
            )
            
            
            -
            
            
            
            -Total
      Liabilities
            
            $
            (14,080
            )
            
            $
            (10,273
            )
            
            $
            -
            
            
            $
            (3,807
            )




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The table
listed below provides a reconciliation of the beginning and ending net balances
for assets and liabilities measured at fair value and classified as Level 3 in
the fair value hierarchy (In Thousands):





Three
      Months EndedSeptember
      30, 2009
            
            September
      30, 2008Balance
      at Beginning of Period
            
            $
            (11,271
            )
            
            $
            8,362Unrealized
      gains/(losses)
            
            
            676
            
            
            
            (12,169
            )Realized
      losses
            
            
            (9,771
            )
            
            
            (2,335
            )Purchases,
      issuances, sales and settlements
            
            
            9,771
            
            
            
            2,335Transfers
      in and/or out of Level 3
            
            
            -
            
            
            
            -Balance
      at End of Period
            
            $
            (10,595
            )
            
            $
            (3,807
            )The
      amount of total gains or losses for the period included in earnings
      attributable to the change in unrealized gains or losses relating to
      derivatives still held at end of period
            
            
            -
            
            
            $
            -Nine
      Months EndedSeptember
      30, 2009
            
            September
      30, 2008Balance
      at Beginning of Period
            
            $
            (5,538
            )
            
            $
            77Unrealized
      losses
            
            
            (5,057
            )
            
            
            (3,884
            )Realized
      losses
            
            
            (20,550
            )
            
            
            (1,246
            )Purchases,
      issuances, sales and settlements
            
            
            20,550
            
            
            
            1,246Transfers
      in and/or out of Level 3
            
            
            -
            
            
            
            -Balance
      at End of Period
            
            $
            (10,595
            )
            
            $
            (3,807
            )The
      amount of total gains or losses for the period included in earnings
      attributable to the change in unrealized gains or losses relating to
      derivatives still held at end of period
            
            $
            -
            
            
            $
            -





For more
information regarding derivative activities of the Company, see Note 14 -
"Accounting for Derivative Instruments and Hedging Activities".




- 62
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 Table of Contents


Other
Fair Value Disclosures





The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments for which it is practicable to estimate that
value:





Cash and Cash
Equivalents:  The carrying amount approximates fair value
because of the short maturity of those instruments.





Long-term
Debt:  The fair value is estimated based on the quoted market
prices for the same or similar issues or to current rates offered to CH Energy
Group or Central Hudson for debt of the same remaining maturities and credit
quality.





Notes
Payable:  The carrying amount approximates fair value because
of the short maturity of those instruments.





Notes
Receivable:  The carrying value approximates fair value based
on current market rates for notes issued by companies with comparable
credit risk.


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CH
      ENERGY GROUPLong-term Debt Maturities and Fair
      Value(Dollars
      in Thousands)September 30, 2009Expected
      Maturity Date2009
            
            2010
            
            2011
            
            2012
            
            2013
            
            Thereafter
            
            Total
            
            Fair
      ValueFixed
      Rate:
            
            $
            -
            
            
            $
            24,000
            
            
            $
            -
            
            
            $
            36,000
            
            
            $
            30,000
            
            
            $
            282,047
            
            
            $
            372,047
            
            
            $
            390,445Estimated
      Effective Interest Rate
            
            
            -
            %
            
            
            4.38
            %
            
            
            -
            %
            
            
            6.71
            %
            
            
            6.92
            %
            
            
            5.95
            %
            
            
            6.00
            %Variable
      Rate:
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            115,850
            
            
            $
            115,850
            
            
            $
            115,850Estimated
      Effective Interest Rate
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            0.99
            %
            
            
            0.99
            %Total
      Debt Outstanding
            
            
            
            $
            487,897
            
            
            $
            506,295Estimated
      Effective Interest Rate
            
            
            
            4.81
            %December 31, 2008Expected
      Maturity Date2009
            
            2010
            
            2011
            
            2012
            
            2013
            
            Thereafter
            
            Total
            
            Fair
      ValueFixed
      Rate:
            
            $
            20,000
            
            
            $
            24,000
            
            
            $
            -
            
            
            $
            36,000
            
            
            $
            30,000
            
            
            $
            208,044
            
            
            $
            318,044
            
            
            $
            296,086Estimated
      Effective Interest Rate
            
            
            6.06
            %
            
            
            4.38
            %
            
            
            -
            %
            
            
            6.71
            %
            
            
            6.92
            %
            
            
            5.79
            %
            
            
            5.91
            %Variable
      Rate:
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            115,850
            
            
            $
            115,850
            
            
            $
            115,850Estimated
      Effective Interest Rate
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            4.10
            %
            
            
            4.10
            %Total
      Debt Outstanding
            
            
            
            $
            433,894
            
            
            $
            411,936Estimated
      Effective Interest Rate
            
            
            
            5.43
            %




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CENTRAL
      HUDSONLong-term Debt Maturities and Fair
      Value(Dollars
      in Thousands)September 30, 2009Expected
      Maturity Date2009
            
            2010
            
            2011
            
            2012
            
            2013
            
            Thereafter
            
            Total
            
            Fair
      ValueFixed
      Rate:
            
            $
            -
            
            
            $
            24,000
            
            
            $
            -
            
            
            $
            36,000
            
            
            $
            30,000
            
            
            $
            232,047
            
            
            $
            322,047
            
            
            $
            336,130Estimated
      Effective Interest Rate
            
            
            -
            %
            
            
            4.38
            %
            
            
            -
            %
            
            
            6.71
            %
            
            
            6.92
            %
            
            
            5.80
            %
            
            
            5.90
            %Variable
      Rate:
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            115,850
            
            
            $
            115,850
            
            
            $
            115,850Estimated
      Effective Interest Rate
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            0.99
            %
            
            
            0.99
            %Total
      Debt Outstanding
            
            
            
            $
            437,897
            
            
            $
            451,980Estimated
      Effective Interest Rate
            
            
            
            4.60
            %December 31, 2008Expected
      Maturity Date2009
            
            2010
            
            2011
            
            2012
            
            2013
            
            Thereafter
            
            Total
            
            Fair
      ValueFixed
      Rate:
            
            $
            20,000
            
            
            $
            24,000
            
            
            $
            -
            
            
            $
            36,000
            
            
            $
            30,000
            
            
            $
            208,044
            
            
            $
            318,044
            
            
            $
            296,086Estimated
      Effective Interest Rate
            
            
            6.06
            %
            
            
            4.38
            %
            
            
            -
            %
            
            
            6.71
            %
            
            
            6.92
            %
            
            
            5.79
            %
            
            
            5.91
            %Variable
      Rate:
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            115,850
            
            
            $
            115,850
            
            
            $
            115,850Estimated
      Effective Interest Rate
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            4.10
            %
            
            
            4.10
            %Total
      Debt Outstanding
            
            
            
            $
            433,894
            
            
            $
            411,936Estimated
      Effective Interest Rate
            
            
            
            5.43
            %


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NOTE 16 – SUBSEQUENT
EVENTS





CH Energy
Group has performed an evaluation of subsequent events through November 9, 2009,
the date the financial statements were issued, and noted two events occurring
subsequent to September 30, 2009 and through the date of our evaluation
requiring disclosure.  On October 15, 2009, Central Hudson contributed
$8.0 million to its Retirement Plan.  On November 4, 2009, Griffith
Energy Services (“Griffith”), a subsidiary of CH Energy Group, entered into an
Asset Purchase Agreement for the sale of its holdings in Rhode Island,
Connecticut and Pennsylvania for approximately $76 million.  This
divestiture follows an approximately year-long strategic review and is expected
to reduce the volatility of both earnings and cash flow of the fuel delivery
business segment.  The assets to be sold include intangible assets of
$17.6 million, accounts receivable of $12.1 million, net fixed assets of $7.8
million, inventory of $2.2 million, and other current assets of $0.8
million.  The liabilities to be sold total are approximately $18.7
million.  In accordance with ASC 350 (formerly SFAS 142, Goodwill and Other Intangible
Assets), when a portion of a reporting unit that constitutes a business
is disposed of, goodwill associated with that business shall be included in the
carrying amount of the business in determining the gain or loss on
disposal.  A goodwill allocation will be performed upon the sale of
the Griffith holdings.  The sale is subject to customary commercial
closing conditions and working capital adjustments.  The sale is
expected to be completed in December 2009.


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ITEM2
      -
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





EXECUTIVE
SUMMARY





BUSINESS
OVERVIEW





CH Energy
Group is a holding company with four business units:





Business
Segments


(1)
Central Hudson’s regulated electric utility business;


(2)
Central Hudson’s regulated natural gas utility business;


(3)
Griffith’s fuel distribution business; and





Other Businesses and
Investments


(4)
              CHEC’s
      investments in renewable energy supply, ethanol production, energy
      efficiency, an energy sector venture capital fund, and the holding
      company’s activities, which consist primarily of financing its
      subsidiaries and business
development.





A
breakdown by business unit of CH Energy Group’s operating revenues of $213.6
million and $300.8 million for the three months ended September 30, 2009 and
2008, respectively, is illustrated below.




CH Energy Group Revenue by Business
Unit  Chart 1






(1)
            A
      portion of the revenues above represent amounts collected from customers
      for the recovery of purchased electric and natural gas costs at Central
      Hudson and the cost of purchased petroleum products at Griffith and
      therefore have no material impact on net income.  A breakout of
      these components is as follows:





Electric
3rd
Quarter 2009: 28% cost recovery revenues + 37% other revenues = 65%


Electric
3rd
Quarter 2008: 39% cost recovery revenues + 21 % other revenues =
60%


Natural
gas 3rd
Quarter 2009: 3% cost recovery revenues + 5% other revenues = 8%


Natural
gas 3rd
Quarter 2008: 4% cost recovery revenues + 3% other revenues = 7%


Griffith
3rd
Quarter 2009: 22% commodity costs + 4% other revenues = 26%


Griffith
3rd
Quarter 2008: 29% commodity costs + 3% other revenues = 32%


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A
breakdown by business unit of CH Energy Group’s operating revenues of $792.3
million and $1,024.2 million for the nine months ended September 30, 2009 and
2008, respectively, is illustrated below.





CH
Energy Group Revenue by Business Unit


Chart 2


(1)
            A
      portion of the revenues above represent amounts collected from customers
      for the recovery of purchased electric and natural gas costs at Central
      Hudson and the cost of purchased petroleum products at Griffith and
      therefore have no material impact on net income.  A breakout of
      these components is as follows:





Electric
YTD 2009: 25% cost recovery revenues + 26% other revenues = 51%


Electric
YTD 2008: 28% cost recovery revenues + 18% other revenues = 46%


Natural
gas YTD 2009: 11% cost recovery revenues + 6% other revenues = 17%


Natural
gas YTD 2008: 10% cost recovery revenues + 4% other revenues = 14%


Griffith
YTD 2009: 28% commodity costs + 3% other revenues = 31%


Griffith
YTD 2008: 37% commodity costs + 2% other revenues = 39%




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A
breakdown by business unit of CH Energy Group’s net income of $5.4 million and
$2.9 million for the three months ended September 30, 2009 and 2008,
respectively, is illustrated below.  The results for the three-month
periods reflect the seasonality of Central Hudson’s natural gas business and
Griffith’s fuel oil distribution business.





CH
Energy Group Net Income by Business Unit


Chart 3


A
breakdown by business unit of CH Energy Group’s net income of $27.0 million and
$23.9 million for the nine months ended September 30, 2009 and 2008,
respectively, is illustrated below.





CH
Energy Group Net Income by Business Unit


Chart 4


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A
breakdown by segment of CH Energy Group’s total assets of $1,749 million as of
September 30, 2009 is illustrated below.





CH
Energy Group Assets at September 30, 2009 by Business Unit


Chart 5


As the
graphs above indicate, as of September 30, 2009, 86% of CH Energy Group’s assets
are employed in the electric and natural gas businesses, which are subject to
regulation by the Public Service Commission (“PSC”) (as discussed in more detail
below), and the remaining 14% of its assets are employed in non-regulated
businesses.  Due to the seasonality of the fuel distribution and
natural gas businesses, each business unit’s relative contribution to total
earnings can vary significantly from quarter to quarter.  As such, a
more meaningful view of results can be seen on a rolling twelve month
basis.  For the twelve months ended September 30, 2009, CH Energy
Group derived 70% of its net income from the regulated electric and natural gas
business and 30% of its net income from the non-regulated
businesses.  The unregulated businesses’ contribution to earnings has
increased over the past few years primarily due to the increased earnings of
Griffith combined with Central Hudson’s lower earnings which have resulted from
actual sales volumes falling significantly below the projected levels in the
2006 Rate Order.  Despite the relative increase in Griffith’s
contribution to earnings, the large relative proportion of the regulated utility
business is supportive of stability of earnings over the
long-term.  CH Energy Group believes that this business profile
appeals to the risk appetite and return expectations of its shareholder
base.




CH Energy
Group’s objective is to deliver value to its shareholders through current
income, in the form of quarterly dividend payments, and share price appreciation
over time, which should result from earnings growth over the
long-term.  CH Energy Group seeks to employ its resources in a manner
that supports this objective.  The Company regularly considers a range
of strategies that include: acquisitions, alternative financial structures,
operating efficiency improvements, allocation of capital between business units,
entry into new lines of business, and divesting all or portions of existing
lines of business.  The mix of strategies or relative emphasis on each
strategy evolves over time, based on the expected contribution of each strategy
to shareholder value.  CH Energy Group also believes managing risk is
another important component of its strategy to deliver value to shareholders,
and emphasizes earnings and cash flow stability and
creditworthiness.


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During
the third quarter of 2009, the Company continued its business focus on investing
in the regulated electric and natural gas businesses of Central
Hudson.  Central Hudson continued to pursue additional opportunities
for investment in its infrastructure, as well as expanded opportunities in
electric and gas transmission, renewable energy production and energy efficiency
services.




Acquisitions
by Griffith remained suspended through the third quarter of 2009, pending
completion of Management’s strategic review which began in late
2008.  The review was commenced in light of energy price volatility in
order to determine the best strategy for Griffith to deliver long-term value to
CH Energy Group shareholders.  On November 4, 2009, Management
announced the completion of this review with the announcement of its planned
sale of approximately 43% of Griffith’s customer base at a
gain.  Management believes this divestiture will reduce the impact of
volatility that Griffith’s operations have on CH Energy Group’s earnings and
cash flow.  Concurrent with this announcement, Management announced
its intent to resume its prior acquisition strategy to expand as appropriate
through selected “tuck-in” acquisitions in the Mid-Atlantic region.




During
the second quarter of 2009, CHEC invested in a landfill gas project which
Management believes will be supportive of stable and predictable income streams
and cash flow.  This investment is discussed in more detail under
Other Businesses and Investments.  CHEC continues to pursue additional
investments with similar characteristics.  Based on current market
conditions, the Company does not expect to invest in new ethanol
projects.  Additionally, given the volatility of fuel supply prices,
the Company does not expect to invest in new biomass projects.




CH Energy
Group believes access to capital is fundamental to its long-term
success.   In the second quarter of 2009, CH Energy Group
privately placed $50 million of senior unsecured notes, at an interest rate of
6.58%, for the first time introducing long-term debt that is expected to be
serviced by non-utility operations and investments.  With the
continued growth of Central Hudson and with the development of new opportunities
at CHEC, the Company believes that it may also be appropriate at some point in
the next few years to issue additional shares of common equity as part of the
Company’s financing program.  CH Energy Group also expects to consider
selling assets in its portfolio to raise cash and avoid, reduce, or postpone an
issuance of additional shares of common stock, as conditions
warrant.




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CENTRAL
HUDSON





Central
Hudson delivers electricity and natural gas to approximately 300,000 electric
customers and 74,000 natural gas customers in a defined service territory in the
Mid-Hudson Valley region of New York State.  The rates Central Hudson
charges its customers are set by the PSC.  These rates are designed to
recover the cost of providing safe and reliable service to Central Hudson’s
customers and to provide a fair and reasonable return on the capital invested by
shareholders.  Central Hudson’s earnings are derived primarily from
the revenue it generates from delivering energy to its
customers.  Central Hudson also procures supplies of electricity and
natural gas for customers who have not chosen to utilize an independent third
party supplier.  The PSC has authorized Central Hudson to recover the
costs of the electric and gas commodities from customers, without earning a
profit on the commodity costs.




Central
Hudson’s Management seeks to increase shareholder value through obtaining
current recovery of its costs of doing business, increasing its rate base, and
earning an allowed Return on Equity (“ROE”) that provides a fair and reasonable
return for providers of equity capital.  Management is committed to
providing safe and reliable service, to customer satisfaction, and to promoting
positive customer and regulatory relations.  Management believes these
commitments are important in its efforts to obtain full cost recovery and
reasonable returns for shareholders.  Management’s strategies include
effectively managing costs, requesting rate increases to align the revenues from
customers with the cost of providing service, and investing in its energy
delivery infrastructure.




Central
Hudson filed a rate increase request with the PSC in July 2008.  A
final, amended, Order was issued by the PSC on June 26, 2009, for rates
beginning July 1, 2009.  The Order includes a $39.6 million and $13.8
million increase in electric and gas delivery rates, respectively, a 10.0%
allowed ROE and a common equity layer of 47%.  The impact of the
electric rate increase was moderated for customers for the July 1, 2009 to June
30, 2010 rate year with a $20 million electric bill credit recovered from net
regulatory electric liability balances which have been set aside for this
purpose.  Additionally, the Order approved electric and gas Revenue
Decoupling Mechanisms (“RDMs”) which should serve to prevent the significant
revenue shortfall such as that which occurred during the last three
years.  Although the PSC recognized Central Hudson’s efforts and
performance in terms of high quality of service, productivity improvements and
strong cost management, the PSC’s Order included less than full recovery for
certain elements of Central Hudson’s projected costs, which could result in
Central Hudson earning less than the 10.0% authorized ROE.  First, the
PSC disallowed portions of Central Hudson’s labor expense and insurance
costs.  Second, the approved rates reflected a $3 million “austerity”
adjustment that the PSC stated was necessary to reduce the impact on customers’
bills in light of the weakness in the financial markets and rising
unemployment.  As discussed in more detail under PSC Proceedings,
Central Hudson filed a Petition for Rehearing on certain of the disallowed
costs.  Although the outcome of this position cannot be predicted, it
is not expected to have a material impact on Central Hudson’s earnings or cash
flows.  Central Hudson also continues to experience relatively high
levels of uncollectible expense.  The uncollectible expense incurred
by the Company for the first nine months of 2009 was 50% higher than the same
period in 2008.  A significant portion of this expense is due to bad
debt write-offs above those included in rates which Management believes are due
to unfavorable economic conditions, particularly the high unemployment
rate.  This expense is expected to continue to have a direct impact on
Central Hudson’s earnings, the magnitude of which Management cannot
predict.  For the rate year ended June 30, 2009, the Company’s bad
debt write-offs exceeded the amount recovered through rates by $3.3
million.  The Company has received approval from the PSC to defer $0.5
million of this amount for future recovery.  A petition requesting
authority to defer the remaining $2.8 million was filed with the PSC on October
30, 2009.  If bad debt write-offs continue to exceed the amount
recovered through rates, and the Company believes the PSC’s criteria for
deferral have been met, Central Hudson intends to continue to file petitions
seeking deferral authority for such under recoveries.  See further
discussion of other such petitions under PSC Proceedings.  Central
Hudson’s Management is working to control its costs in a manner that will
minimize the impact that the cost disallowances, austerity adjustment and
uncollectible accounts have imposed on Central Hudson’s ability to earn its
10.0% authorized ROE.




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The
capital intensive nature of Central Hudson’s business and its obligation to
serve all customers in its franchise area require continuous access to capital
on reasonable terms.  Central Hudson has historically maintained a
strong capital structure and access to capital through committed and uncommitted
lines of credit.





GRIFFITH





Griffith
provides petroleum products and services to approximately 108,000 customers in a
market area comprised primarily of parts of Connecticut, Delaware, Washington,
D.C., Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Rhode Island,
Virginia, and West Virginia.  Griffith’s revenues, cash flows, and
earnings are derived from the sale and delivery of heating oil, gasoline, diesel
fuel, kerosene, and propane and from the installation and maintenance of
heating, ventilating, and air conditioning equipment.


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Below is
a breakdown of Griffith’s gross profit of $12.5 million and $12.2 million by
petroleum product and by service and installations for the three months ended
September 30, 2009 and 2008, respectively.




Griffith
Gross Profit by Product & Service Line


Chart 6


Below is
a breakdown of Griffith’s gross profit of $68.4 million and $61.1 million by
petroleum product and by service and installations for the nine months ended
September 30, 2009 and 2008, respectively.




Griffith
Gross Profit by Product & Service Line


Chart 7


Griffith’s
Management seeks to increase shareholder value primarily through increased
earnings as a result of continued improvements in operations and by providing
its free cash flow to CH Energy Group.  Management’s strategies to
achieve these goals include effectively managing costs, minimizing commodity
risk and expanding margins.


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Management
believes that Griffith’s strong brand name, effective cost management practices,
and reputation for high quality, dependable service, position it well for future
contributions to CH Energy Group’s earnings and cash flows.




During
2008, Management began a strategic review of Griffith in light of recent energy
price volatility and changes in customer behavior.  The review
included an evaluation of each of its products and markets to determine the best
strategy for Griffith to deliver long-term value to CH Energy Group
shareholders.  On November 4, 2009, the Company announced the sale of
approximately 43% of Griffith’s customer base at a gain.  These assets
are primarily located in Connecticut, Rhode Island and
Pennsylvania.  The sale is expected to close in December
2009.  With this sale, the Company announced its intention to resume
its prior acquisition strategy to expand as appropriate through selected
“tuck-in” acquisitions in the Mid-Atlantic region.  Management
believes this divestiture will reduce the impact of volatility in earnings and
cash flows that Griffith’s operations have on CH Energy Group.





OTHER BUSINESSES AND
INVESTMENTS





In
addition to Griffith, CHEC derives earnings through investments in renewable
energy supply, ethanol production, energy efficiency, and an energy sector
venture capital fund.  This business unit also includes the holding
company’s activities, which consist primarily of financing its subsidiaries and
business development.




CHEC’s
investment objectives are to increase earnings and cash flow with a heightened
focus on investments with stable and predictable income streams and cash
flows.  From a portfolio perspective, Management seeks to limit
earnings and cash flow volatility through diversification of its
investments.  The Company believes that renewable energy markets
provide opportunities that fit well with CHEC’s objectives.




CHEC is
investing in a project under which it will develop, construct, own and operate a
landfill gas to electric project in Auburn, NY.  The project will use
methane gas generated by the City of Auburn landfill to produce electricity and
sell to the City.  All of the required permits have been received,
allowing construction to begin in the third quarter of 2009.





CHEC’s
wholly-owned subsidiary, CH-Greentree, entered into an agreement in April 2009
to develop, construct and own a molecular gate system to be leased to Beacon
Landfill Gas Holdings (“Beacon”) and installed and operated at Beacon’s
currently operating landfill gas processing plant at the Greentree landfill
facility in western Pennsylvania.  The molecular gate will be used to
remove nitrogen from landfill gas produced by the Greentree facility thereby
increasing its energy content and allowing Beacon to sell more of its gas
output.  The term of the lease is seven years and construction was
substantially complete on June 30, 2009.  This investment is expected
to provide stable, predictable earnings and cash flow as the quarterly lease
payments are fixed for the next seven years and CH-Greentree does not have any
operational responsibilities that would impact earnings or cash
flows.


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OVERVIEW OF THIRD QUARTER
RESULTS





The
discussion below presents the change in earnings of CH Energy Group’s business
units in terms of earnings for each share of CH Energy Group’s Common
Stock.  Management believes this presentation is useful because these
business units are each wholly owned by CH Energy Group.  This
information is considered a non-GAAP financial measure and not an alternative to
earnings per share determined on a consolidated basis, which is the most
directly comparable GAAP measure.





Earnings
for CH Energy Group totaled $0.34 per share in the third quarter of 2009, versus
earnings of $0.18 per share in the same period of 2008. Year-to-date earnings
were $1.71 per share, as compared to $1.51 per share during the first nine
months of 2008.





Third
quarter 2009 results by business unit were as follows:





Central
Hudson





Central
Hudson's contribution to earnings per share was $0.55 per share, $0.18 per share
higher than the third quarter of 2008.  New electric and natural gas
delivery rates and the RDMs that took effect July 1, 2009 provided an increase
of $0.43 per share over the third quarter of 2008.  This increase
covered the increased operating expenses and negative impacts that both weather
and the weak economy had on sales in the third quarter of 2009 as compared to
2008.  Cooler summer weather compared to the same quarter of the prior
year resulted in a decrease in earnings of $0.08 per
share.  Management believes that the decrease in use per customer,
which reduced earnings $0.05 per share, and the increase in uncollectible
expense which reduced earnings by $0.05 per share are both indicative of the
weak economy.





Year-to-date,
Central Hudson has earned $1.39 per share compared to $1.35 per share posted for
the first nine months of 2008.  The positive effect on year-to-date
earnings of the rate orders that took effect July 1, 2009 and July 1, 2008, as
well as lower storm restoration expenses, was largely offset by higher expenses
during the first nine months of 2009 and the impact of lower sales volumes prior
to the implementation of the RDMs.





Griffith





Griffith
posted a loss of $0.22 per share in the third quarter of 2009, a $0.06 per share
improvement over the third quarter of 2008.  This quarterly loss is
expected due to the seasonal nature of Griffith’s fuel delivery
business.  The improvement in Griffith’s results over the same quarter
of the prior year was due largely to a reduction in operating
expenses.





Year-to-date,
Griffith has earned $0.28 per share compared to a loss per share of $0.08 posted
for the first nine months of 2008.  Griffith’s $0.36 per share
improvement in earnings was due primarily to increased margins on the sale of
petroleum products, colder winter weather and reduced operating expenses in the
first nine months of 2009 as compared to 2008, partially offset by a reduction
in sales volume as a result of customer conservation.


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Other
Businesses and Investments





CH Energy
Group (the holding company) and CHEC’s partnerships and other investments
contributed earnings of $0.01 per share toward corporate earnings in the third
quarter of 2009, a decrease of $0.08 per share from the same period in
2008.  This reduction in earnings is primarily the result of higher
income taxes and interest expense incurred by the holding company.





Year-to-date
earnings per share for these business units totaled $0.04 per share compared to
$0.24 per share posted for the first nine months of
2008.  Year-to-date results were impacted by an equipment repair that
necessitated taking the Lyonsdale facility off line for several weeks in the
second quarter of 2009.  The plant is back on line with an improved
capacity factor as a result of the repair.  Year-to-date earnings were
also reduced by $0.05 per share due to a reserve recorded in the first quarter
of 2009 related to an ethanol development project of CHEC.  The
reserve represents the full amount of the note receivable investment for
development expenditures and this project represented CHEC’s only current
early-stage development project.  Higher interest expense at the
holding company also contributed to the reduction in earnings for the first nine
months of 2009 as compared to 2008.


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PSC
PROCEEDINGS





ELECTRIC AND NATURAL GAS
RATE INCREASE


(Cases
08-E-0887 and 08-G-0888 - Proceeding on Motion of the PSC as to the Rates,
Charges, Rules and Regulations of Central Hudson Gas & Electric Corporation
for Electric and Gas Service)




Background:  On July
31, 2008, Central Hudson filed an electric and natural gas rate case with the
PSC to increase, effective July 1, 2009, electric and natural gas delivery rates
which have been in effect since July 1, 2008, the final term of a three-year
rate plan that took effect on July 1, 2006.





Final Order:  On
June 22, 2009, the PSC issued its Order Adopting Recommended Decision with
Modifications which was subsequently modified with an Errata Notice issued on
June 26, 2009 (“2009 Rate Order”).  Components of the 2009 Rate Order
include:


Ø
            Electric
      and gas delivery increases effective July 1, 2009 of $39.6 million and
      $13.8 million, respectively.  The electric rate increase will be
      moderated by a $20.0 million customer bill credit from an excess
      depreciation reserve.


Ø
            Common
      equity layer of 47% of permanent
capital


Ø
            Base
      return on equity (“ROE”) of 10.0%


Ø
            RDMs
      for both electric and gas delivery service.  While the primary
      purpose of the RDMs is to remove a disincentive for the Company to promote
      energy efficiency to its customers, they should also serve to prevent a
      significant revenue shortfall such as that which occurred during the three
      year period of the rate plan which ended on June 30,
  2009.


Ø
            An
      austerity expense savings imputation of $3.0 million ($2.4 million
      electric and $0.6 million gas, respectively).  The 2009 Rate
      Order required the Company to supplement its June 15 austerity filing to
      identify specific capital and expense reductions that will be used to
      implement its austerity program (which is further discussed below in Case
      09-M-0435).


Ø
            Continued
      funding for the full recovery of the Company’s current pension and OPEB
      costs and continues deferral authorization for pensions, OPEBs, research
      and development costs, stray voltage testing, MGP site remediation
      expenditures and electric and gas supply cost recovery and variable rate
      debt.


Ø
            New
      deferral authorizations for: fixed debt costs; the costs to bring electric
      lines into compliance with current height above ground requirements; and
      the recently enacted New York State Temporary
  Assessment.


Ø
            Continuation,
      with minor modifications, of the Company’s Electric Reliability, Gas
      Safety and Customer Service performance
  mechanisms


Ø
            Recovery
      through offset against a deferred liability account (non-cash) of the $3.3
      million in incremental storm restoration costs incurred from the December
      2008 ice storm (which is further discussed
  below).


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PETITION FOR
REHEARING


(Cases
08-E-0887 and 08-G-0888 - Proceeding on Motion of the PSC as to the Rates,
Charges, Rules and Regulations of Central Hudson Gas & Electric Corporation
for Electric and Gas Service)





Background:  On July
22, 2009, Central Hudson filed a Petition for Rehearing on certain portions of
the 2009 Rate Order.  In addition to a technical correction and
request for clarification on the application of carrying charges, the petition
sought rehearing on the following:





Ø
            The
      accounting treatment and level of expense associated with the cost of
      removal for gas main replacements.


Ø
            The
      disallowance of 50% of Central Hudson’s Directors and Officers
      insurance.


Ø
            Inadequate
      recovery of non-MGP environmental
expenses.


Ø
            Inconsistency
      of the carrying charge rate for RDMs relative to other comparable deferred
      items.





Central
Hudson pointed out that the impact of the above items results in Central Hudson
not having a reasonable opportunity to earn the allowed ROE approved in the 2009
Rate Order.





Potential
Impacts:  The Commission has not yet acted on this Petition and
no prediction can be made regarding the outcome to this proceeding at this time,
however Management does not expect this to have a material impact.





NEW ELECTRIC AND NATURAL GAS
RATE FILING REQUEST





Background:  On July
31, 2009, Central Hudson filed an electric and natural gas rate case with the
PSC seeking to increase, effective July 1, 2010 electric and natural gas
delivery rates, which have been in effect since July 1, 2009.





A summary
of the most significant components of the filing include:


Ø
            A
      proposed one-year increase of $15.2 million and $3.9 million of electric
      and natural gas delivery rates,
respectively.


Ø
            Common
      equity layer of 48% and a base return on equity (“ROE”) of
      10.0%.  The 10.0% ROE reflects the result of the Commission’s
      decision on the Company’s allowed ROE in the 2009 Rate
      Order.  Central Hudson reserves its rights to file an update to
      increase or reduce the requested rate of return should economic conditions
      change.  The current Rate Order permits a common equity layer of
      47% with an allowed base ROE of
10.0%.





The
filing is being made in order to align electric and natural gas delivery rates
with the projected costs of providing electric and gas service to our
customers.  Factors contributing to the need for an increase in rates
include the following:


Ø
            Higher
      operating costs


Ø
            Regulatory
      mandates


Ø
            Ongoing
      need for electric and natural gas system infrastructure
      improvements


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Ø
            Rising
      property taxes





The
filing also seeks to recover projected expenditures associated with the
following:


Ø
            MGP
      site remediation


Ø
            Stray
      voltage testing of Central Hudson owned and municipally owned electric
      facilities


Ø
            Distribution
      line tree trimming


Ø
            Enhanced
      electric transmission right of way management
  practices





On
September 28, 2009, a Procedural Ruling was issued by the Administrative Law
Judge (“ALJ”) adopting a case schedule.  PSC Staff and Intervenor
testimony is to be filed by November 17, 2009 with either rebuttal or a joint
proposal due on December 23, 2009.  From that point forward, either of
two procedural schedules will follow for litigated or settlement
tracks.  The litigated track, if no joint proposal is filed by
December 23, 2009, consists of evidentiary hearings beginning January 12, 2010,
Initial Briefs due by February 1, 2010 and Reply Briefs due March 4,
2010.  If a joint proposal is filed by December 23, 2009, the
settlement track includes supporting and opposing statements due January 13,
2010, evidentiary hearings beginning January 19, 2010, and Initial Briefs and
Reply Briefs due February 22 and March 8, 2010, respectively.  A PSC
Order establishing new rates is not expected until the second quarter of
2010.  No prediction can be made as to the final outcome of the rate
filing.





NEW YORK STATE TEMPORARY
ASSESSMENT


(Case
09-M-0311 - Implementation of Chapter 59 of the Laws of 2009 Establishing a
Temporary Annual Assessment Pursuant to Public Service Law §18-a(6)





Background:  On
April 7, 2009, NYS enacted the NYS Budget of 2009-2010, which in part requires
the PSC to collect a Temporary State Energy and Utility Service Conservation
Assessment (“Temporary State Assessment”) from April 4, 2009 to March 31,
2014.  On June 19, 2009, an Order was issued in the above proceeding
authorizing recovery by utilities of the revenues required for payments of the
Temporary State Assessment, including carrying charges, subject to
reconciliation over five years, July 1, 2009 through June 30,
2014.  The Temporary State Assessment imposes a charge of 2% of gross
intrastate operating revenues, less the amounts assessed for the PSC General
Assessment to be collected from customers in a separately stated surcharge on
customer bills effective July 1, 2009.  The Company submitted its
compliance filing in this proceeding on June 29, 2009.





DEVELOPMENT OF UTILITY
AUSTERITY PROGRAMS


(Case
09-M-0435 – Proceeding on the Motion of the Commission Regarding the Development
of Utility Austerity Programs)





Background:  On May
15, 2009, the PSC issued a Notice directing each utility to closely examine its
capital expenditures, operation and maintenance expenses and any other expense
area over which it has discretion, to identify costs that may be reduced without
impairing the ability to provide safe and adequate service.  The
Notice also directed each utility to report to the PSC by June 15, 2009
concerning actions taken by the utility since September 2008 to respond to the
need for austerity, the utility’s plans for austerity in the future, the
appropriate allocation of the austerity cost savings between customers and
shareholders, and the mechanisms proposed to deliver the customer portion of the
savings to customers as promptly as possible.


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Notable
Activity:





2009





Ø
            June
      15, 2009 – Central Hudson filed its response, describing the financial
      austerity conditions it had been operating under throughout the term of
      the 2006 Rate Order, and identifying capital costs it may avoid or defer
      to the next year and expense reductions that could be taken as further
      austerity measures without impairing our ability to provide safe and
      adequate service.


Ø
            June
      22, 2009 – The PSC incorporated $3 million in austerity reductions into
      Central Hudson’s rates that were approved in the 2009 Rate Order for rates
      beginning July 1, 2009.


Ø
            July
      7, 2009 – Central Hudson filed its required Supplemental Austerity filing
      for PSC approval.  The filing identified electric, gas and
      common capital reductions that equate to $980,000 of the $2.4 million
      electric and $360,000 of the $600,000 gas Economic Austerity Imputations
      established in the 2009 Rate Order.  To address the balance of
      the austerity imputation, Central Hudson proposed a total of $1.48 million
      of gas and electric expense reductions to several expense items including
      research and development activities; certain maintenance expenditures; and
      informational and institutional advertising.  Central Hudson
      also proposed executive salary freezes during 2010 and funding the
      allowance for the approved transmission enhanced infrastructure
      maintenance program through charges to its remaining electric excess
      depreciation reserve.  None of the measures proposed by the
      Company are expected to materially affect the Company’s ability to provide
      safe and adequate service in the rate
year.





Potential
Impacts:  The incorporation of the $3 million austerity
reduction into the 2009 Rate Order could result in Central Hudson earning less
than the 10.0% ROE allowed in the 2009 Rate Order.  No prediction can
be made regarding the outcome to this proceeding at this time.





OTHER
PSC PROCEEDINGS AND ADMINISTRATION INITIATIVES





CH Energy
Group and Central Hudson continue to monitor a number of generic and specific
regulatory proceedings.  Neither CH Energy Group nor Central Hudson
can predict the final outcome of New York State’s energy policies, or the
following PSC proceedings.


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ENERGY EFFICIENCY PORTFOLIO
STANDARD AND STATE ENERGY PLANNING


(Case
07-M-0548 – Proceeding on Motion of the PSC Regarding an Energy Efficiency
Portfolio Standard and Governor Paterson’s Executive Order issued April 9,
2008)




Background:  Governor
Paterson affirmed his support for the previous administration’s goal of
substantially reducing electricity usage.  In support of this goal,
the PSC is investigating various approaches to reduce customers’ demand for
energy and to provide utility incentives for meeting specified energy savings
targets.





Notable
Activity:





2008





Ø
            State
      Energy Plan


·
            Governor
      Paterson issued an Executive Order establishing a State Energy Planning
      Board and authorizing the creation and implementation of a State Energy
      Plan (“SEP”).


·
            Central
      Hudson submitted its own comments on the draft scope of the State Energy
      Plan and joined those submitted by the Energy Association of New York
      State Member Companies’ comments.  Central Hudson also provided
      briefing papers to the SEP working group on pressing issues facing Central
      Hudson for consideration in developing the
SEP.





Ø
            PSC


·
            Central
      Hudson has filed comments with the PSC supporting the opportunity to
      establish energy efficiency businesses, with corresponding opportunities
      to contribute to the state energy goal of reducing electricity consumption
      by 15% by 2015 and provide meaningful earnings for investors from energy
      efficiency services.


·
            The
      PSC established energy efficiency targets to be achieved by individual
      utilities through 2011 that included three utility administered fast track
      programs and five fast track programs to be administered by the New York
      State Energy Research and Development Authority
      (“NYSERDA”).  Central Hudson has filed its plans to implement
      its programs with the PSC.


·
            Effective
      October 1, 2008, the PSC ordered the creation of a gas System Benefit
      Charge and increased electric System Benefit Charges to invest in funding
      these energy efficiency programs.





2009


·
            On
      January 7, 2009, Governor Paterson outlined various strategies and policy
      goals in his State of the State address, including one of the most
      aggressive clean energy goals in the country, with a goal for New York to
      meet 45% of its electricity needs by 2015 (“45 x 15”) through improved
      energy efficiency and clean renewable energy production.  This would
      be accomplished by expanding the Renewable Portfolio Standard from 25% by
      2013 to 30% by 2015 and decreasing electric usage by 15% by
      2015.


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·
            A
      SEP Interim Report was issued for comment on March 31,
      2009.  Central Hudson filed comments on May 15, 2009 in support
      of policies and efforts with potential to promote economic development and
      job creation, foster private investment, increase the tax base, enhance
      energy reliability, lower customer bills and protect public health, safety
      and the environment.  The SEP schedule has been modified to
      provide for the issuance of a 2009 Draft SEP on August 10, with a Final
      2009 SEP to be issued in December of
2009.


·
            The
      PSC will continue to work on additional issues of the energy efficiency
      program design with participation by interested parties in various working
      groups that include utility performance incentives, on-bill financing,
      demand response and peak reduction and impacts on low-income and rental
      customers.





Potential Impacts:This PSC
proceeding could result in opportunities for increased earnings from incentives
associated with achieving energy efficiency targets or negative rate adjustments
if the 70% performance criterion is not met.  No prediction can be
made regarding the final outcome of this matter, however, any earnings
variations are not likely to be material.





REQUESTS FOR DEFERRAL OF
INCREMENTAL COSTS


(Case
09-M-0009 – Petition of Central Hudson Gas & Electric Corporation for
Authority to Defer Incremental Costs Related to the December 11, 2008 Ice
Storm)




Background and
Impact:  In December 2008, Central Hudson filed a petition with
the PSC seeking approval to defer certain incremental and material storm
restoration expenses resulting from a severe ice storm in December 2008 that
disrupted service to approximately 72,000 of Central Hudson’s customers. 
The initial petition sought PSC authorization to defer $3.1 million of
incremental expenses at December 31, 2008.  An updated schedule
showing total costs incurred at $3.3 million was provided to the PSC as of March
31, 2009.  The PSC authorized the deferral request and agreed that the
incremental storm costs would be included on the electric offset list for the
rate year in Central Hudson’s rate increase proceeding which was discussed
earlier in this section.





(Case
09-M-0140 – Petition of Central Hudson Gas & Electric Corporation for
Authority to Defer Bad Debt Net Write-Off Expense for the Year Ended December
31, 2008)




Background and
Impact:  In February 2009, Central Hudson filed a petition with
the PSC seeking approval to defer $1.28 million of incremental electric and
$541,000 of gas net bad debt write-off expense incurred during the twelve months
ended December 31, 2008 over the amounts provided for in rates during that
period.  In an Order issued August 24, 2009, the Commission granted
authority to defer the gas incremental bad debt write-off expense of $541,000,
but denied the Company’s deferral request for the electric incremental expense
on the basis that it did not meet the Commission’s materiality standard for
deferral.




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(Case
09-G-0139 – Petition of Central Hudson Gas & Electric Corporation for
Authority to Defer Gas Leak Repairs Expense for the Year Ended December 31,
2008)


Background and
Impact:  In February 2009, Central Hudson filed a petition with
the PSC seeking approval to defer $479,000 of incremental gas non-labor expense
related to leak repairs incurred during the twelve months ended December 31,
2008 over the amounts provided for in rates during that period.  In an
Order issued August 20, 2009, the Commission denied the Company’s request
concluding that the request did not meet the Commission’s requirement that an
item must be extraordinary in nature, in order to qualify for deferral
accounting treatment.





(Case
09-M-0788 – Petition of Central Hudson Gas & Electric Corporation for
Authority to Defer Gas Debt Net Write-Off Expense for the Twelve Months Ended
June 30, 2009)




Background:  In
October 2009, Central Hudson filed a petition with the PSC seeking approval to
defer $2.339 million of incremental electric and $447,000 of incremental gas net
bad debt write-off expense incurred during the twelve months ended June 30, 2009
(Rate Year 3 of the 2005 Rate Plan) over the amounts provided for in our rates
during that time period and over the gas deferral amount provided in Case
09-M-0140.





Potential Impacts:The $2.786
million of incremental gas and electric net bad debt write-off expenses were
reflected in Central Hudson’s earnings and cash flows in 2008 and
2009.  This PSC proceeding could result in deferral of these
incremental uncollectible expenses which would result in an increase in earnings
and upon future recovery, an increase in cash flows.  Central Hudson
believes it has made a strong demonstration in support of its deferral request
and given recent Commission decisions with positive outcomes regarding the ice
storm and the gas portion of the 2008 net bad debt deferral petition; however,
Management cannot predict the outcome of this filing.





ADVANCED METERING
INFRASTRUCTURE


(Case
09-M-0074 - Proceeding on Matter of Advanced Metering
Infrastructure)




Background:  On
February 13, 2009, the PSC issued an Order establishing minimum functional
requirements for Advanced Metering Infrastructure (“AMI”) in New York State and
creating a process for the development of a generic approach to the benefit/cost
analysis of AMI.  The February 13th
Order directs Central Hudson to file an AMI pilot program within 60
days.  The filing requirements set forth by the PSC in the Order were
designed to put utilities on track to potentially receive federal financial
assistance that may become available under the American Recovery and
Reinvestment Act of 2009’s (“ARRA”) Department of Energy (“DOE”) administered
program for Electricity Delivery and Energy Reliability (“EDER”).  The
DOE may provide grants to successful applicants under the EDER program in an
amount equal to not more than 50% of the costs of qualifying
investments.


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Notable
Activity:





2009


·
            On
      April 14, 2009 Central Hudson filed its AMI and Smart Grid Proposal with
      the PSC.


·
            On
      April 14, 2009, the PSC issued its “Proposed Framework for the
      Benefit-Cost Analysis of Advanced Metering Infrastructure”.  A
      Notice Seeking Comment on the proposal was also issued directing parties
      to file comments on the generic benefit-cost framework by June 15,
      2009.


·
            The
      Company filed comments on June 15,
2009.


·
            In
      an AMI / ARRA Order issued July 27, 2009, the Commission approved the
      Company’s project proposals, which allows the Company to demonstrate on
      application to the DOE, a ratepayer commitment, through cost recovery via
      a surcharge, for the portion of eligible project costs not covered by the
      DOE grant.  This PSC funding approval was necessary for the
      Company to proceed with its DOE
filing.


·
            On
      August 4, 2009, Central Hudson submitted its grant application with the
      DOE.


·
            On
      October 27, 2009, the DOE notified Central Hudson that the Company’s
      application submitted in response to the Smart Grid Investment Grant
      funding opportunity was not selected for
award.


·
            The
      Company is currently reviewing and reconsidering its AMI / Smart Grid
      position.  No prediction can be made regarding future steps at
      this time.





THE ARRA PROJECT
FUNDING


(Case
09-E-0310 – In the Matter of American Recovery and Reinvestment Act of 2009 –
Utility Filings for New York Economic Stimulus)




Background:  ARRA
includes a DOE administered program for EDER.  The sum of $4.5 billion
is appropriated by ARRA for the EDER program to be dispersed by DOE through a
competitive grant process.  Additional funds may also be available
through programs such as Transportation Electrification.





Notable
Activity:





2009


·
            The
      PSC on April 2, 2009 sent a letter to the state’s regulated utilities
      requesting a submittal of project lists from the utilities that are being
      considered for application for ARRA
funding.


·
            Regulated
      utilities, New York Power Authority (“NYPA”), Long Island Power Authority
      (“LIPA”), NYSERDA and NYISO, along with other parties have been discussing
      potential collaborative project filings, some of which are in
      development.


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·
            The
      ARRA funding in some cases only covers a portion of the project costs and
      therefore will require other funding sources which may include ratepayer
      funds for which PSC approval is
required.


·
            Central
      Hudson submitted its current project list to PSC on April 17, 2009 and
      filed its updated stimulus plans with the PSC on July 2,
    2009.


·
            In
      an AMI / ARRA Order issued July 27, 2009, the Commission approved the
      Company’s project proposals, which allows the Company to demonstrate on
      application to the DOE, a ratepayer commitment, through cost recovery via
      a surcharge, for the portion of eligible project costs not covered by the
      DOE grant.  This PSC funding approval was necessary for the
      Company to proceed with its DOE
filing.


·
            On
      August 4, 2009, Central Hudson submitted its grant application with the
      DOE.


·
            On
      October 27, 2009, the DOE notified Central Hudson that the Company’s
      application submitted in response to the Smart Grid Investment Grant
      funding opportunity was not selected for
award.


·
            The
      Company is currently reviewing and reconsidering its AMI / Smart Grid
      position.  No prediction can be made regarding future steps at
      this time.





CENTRAL HUDSON GAS &
ELECTRIC FINANCING PETITION


(Case
09-M-0308 – Petition of Central Hudson Gas & Electric Corporation for
Authority to enter into multi-year committed credit agreements and issue and
sell long-term debt)




Background:  On
March 26, 2009, Central Hudson filed a petition with the PSC seeking approval to
(a) enter into multi-year committed credit agreements to provide committed
funding to meet expected liquidity needs, in amounts not to exceed $175 million
in the aggregate and maturities not to exceed five years, and (b) approval to
issue and sell long-term debt, commencing immediately upon issuance of an order
regarding the petition, and from time to time through December 31, 2012, in an
amount not to exceed $250 million in the aggregate.





Notable
Activity:





2009


·
            Central
      Hudson filed its petition on March 26,
2009.


·
            An
      order approving the above requests was received on September 22,
      2009.





Impacts:  Central
Hudson’s ability to seek a higher level of committed credit will enable greater
liquidity to support construction forecasts, known seasonality, volatile energy
markets, adverse borrowing environments, and other unforeseen
events.  The approval to issue and sell $250 million of long-term debt
will support Central Hudson’s ability to finance its construction expenditures,
refund maturing long-term debt, and potentially refinance $116 million of
multi-modal long-term NYSERDA bonds, which are currently in auction rate
mode.


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CAPITAL
RESOURCES AND LIQUIDITY





The
growth of CH Energy Group's retained earnings in the nine months ended September
30, 2009, contributed to the increase in the book value per share of its Common
Stock from $33.17 at December 31, 2008, to $33.27 at September 30,
2009.  Common equity comprised 49.9% of total capital (including
short-term debt) at September 30, 2009, a decreasefrom 51.6% at December
31, 2008.  Book value per share at September 30, 2008 was $33.00
and the common equity ratio was 52.2%.





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





The
principal factors affecting CH Energy Group’s liquidity are the net cash flows
resulting from the operations of its subsidiaries, subsidiary capital
expenditures and investments, the external financing of its subsidiaries, and
the dividends CH Energy Group pays to its shareholders.





Central
Hudson’s cash flows from operating activities reflect principally its energy
deliveries and costs of operations.  Variations in the volume of
energy deliveries are primarily driven by factors external to Central Hudson,
such as weather and economic conditions, including the price of energy and the
resulting changes in customer usage.  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 and natural gas may affect the timing of cash flows but do not
directly impact net income, as these costs are fully recoverable through Central
Hudson’s electric and natural gas cost adjustment mechanisms.  Higher
energy prices also increase accounts receivable, which along with generally
unfavorable economic conditions, can have an impact on customers’ ability to pay
their bills on time, potentially resulting in a higher number of uncollectible
accounts and an unfavorable impact on cash flows and results of
operations.  Also, changes in energy prices and other factors may
cause customers to use more or less energy than projected in the current rate
plan.  Under the terms of the current rate plan, such variations are
deferred for future recovery from or refund to customers. If the deferral
amounts reach $4.0 million for electric delivery revenue and $2.0 million for
natural gas delivery, recovery or refund will begin, allowing recovery or
refunding of the balance over the subsequent twelve months. These trigger points
limit the cash impact of such sales variations, although the timing of these
cash flows may differ from those that would have been received from actual
sales.





Central
Hudson’s cash flows are also affected by capital expenditures, long-term
financing for its growing asset base, fluctuations in working capital primarily
caused by weather, energy prices, the level of customer accounts receivable, and
other regulatory deferral mechanisms that may result in cash being expended in
one period and recovered from customers in a subsequent period.




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CH ENERGY GROUP - CASH FLOW
SUMMARY





Changes
in CH Energy Group’s cash and cash equivalents resulting from operating,
investing, and financing activities are summarized in the following chart (In
Millions):





Nine
      Months Ended September 30,2009
            
            
            2008Net
      Cash Provided By/(Used In):Operating
      Activities
            
            $
            121.0
            
            
            $
            78.7Investing
      Activities
            
            
            (97.4
            )
            
            
            (67.2
            )Financing
      Activities
            
            
            8.8
            
            
            
            (11.5
            )Net
      change for the period
            
            
            32.4
            
            
            
            -Balance
      at beginning of period
            
            
            19.8
            
            
            
            11.3Balance
      at end of period
            
            $
            52.2
            
            
            $
            11.3





CH Energy
Group’s cash and cash equivalents increased by $32.4 million for the nine months
ended September 30, 2009 and remained flat for the nine months ended September
30, 2008.  For each of these periods, CH Energy Group’s working
capital needs were provided by cash from operations and supplemented seasonally
with short-term financing as needed.  Capital expenditures,
investments and dividends in both years, as well as acquisitions in 2008, were
partially funded with cash from operations in excess of expenses and working
capital needs.  The remainder of the funding for investing activities
was provided by long-term debt issued by Central Hudson and CH Energy Group and
supplemented in 2008 with proceeds from the sale of short-term
investments.





Net cash
provided by operations was $121.0 million and $78.7 million for the nine months
ended September 30, 2009 and 2008, respectively.  Cash provided by
sales exceeded the period’s expenses and working capital needs for each year,
particularly in 2009 when lower energy prices resulted in a significant return
of working capital.  In the third quarter of 2009, Central Hudson paid
$17.7 million to the PSC for a new tax surcharge instituted in April
2009.  This charge represented a full year assessment, however, only
$3.1 million of this surcharge has been collected from customers to
date.  The remainder, which is being collected over the next six
months, increased Central Hudson’s working capital needs in the current period,
requiring financing.  Central Hudson also paid $1.1million to the PSC
for the bi-annual general assessment, of which $0.2 million has been collected
to date.  In March 2010, Central Hudson will begin making bi-annual
installments of approximately $8.9 million for this surcharge and will collect
the amounts from customers on an on-going basis.





Net cash
used in investing activities was $97.4 million and $67.2 million in the nine
months ended September 30, 2009 and 2008, respectively.  Cash was used
primarily to fund investments in Central Hudson’s electric and natural gas
systems.  In June 2009, Central Hudson closed on the purchase of
certain real-estate in Kingston, NY resulting in an increase of approximately
$13 million to plant additions and a reduction to liabilities.  Other
increases in capital expenditures at Central Hudson in the current year relate
primarily to maintenance and proactive repairs to transmission and distribution
infrastructure.  In 2008, cash was also used for acquisitions made by
Griffith and was partially offset by proceeds from the liquidation of short-term
investments held by the holding company.


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Net cash
provided by (used in) financing activities was $8.8 million and ($11.5) million
for the nine months ended September 30, 2009 and 2008,
respectively.  Financing activities have consistently included
dividends of $25.6 million.  In 2008, the use of cash overdraft due to
increased interest rates at Central Hudson and the proceeds of short-term debt
at Griffith were used to supplement working capital needs and to pay dividends
in 2008.  Central Hudson’s and Griffith’s cash flows benefited from
lower energy prices in the first 9 months of 2009.  Cash from
operations in excess of expenses and working capital needs was used to repay
short-term borrowings in 2009 and redeem Central Hudson’s long-term debt of
$20.0 million at maturity in January 2009.  In addition, CH Energy
Group sold $50 million of 5-year notes in the second quarter of 2009 to provide
long-term debt financing for CHEC.  Central Hudson issued $24 million
of 30-year notes in September 2009, the proceeds of which were used primarily
for the repayment of short-term debt incurred as interim financing for capital
expenditures.





CENTRAL HUDSON - CASH FLOW
SUMMARY





Changes
in Central Hudson’s cash and cash equivalents resulting from operating,
investing, and financing activities are summarized in the following chart (In
Millions):





Nine
      Months Ended September 30,2009
            
            
            2008Net
      Cash Provided By/(Used In):Operating
      Activities
            
            $
            89.2
            
            
            $
            57.0Investing
      Activities
            
            
            (89.8
            )
            
            
            (59.4
            )Financing
      Activities
            
            
            19.4
            
            
            
            (1.0
            )Net
      change for the period
            
            
            18.8
            
            
            
            (3.4
            )Balance
      at beginning of period
            
            
            2.5
            
            
            
            3.6Balance
      at end of period
            
            $
            21.3
            
            
            $
            0.2





Central
Hudson’s cash and cash equivalents increased by $18.8 million and decreased by
$3.4 million for the nine months ended September 30, 2009 and 2008,
respectively.  For each of these periods, Central Hudson’s working
capital needs were provided by cash from operations and supplemented seasonally
with short-term financing as needed.  Cash from operations in excess
of expenses and working capital needs provided partial funding for capital
expenditures in both 2009 and 2008.  The remainder of the funding for
capital expenditures was provided by an equity investment from CH Energy Group
and long-term debt issued by Central Hudson.





Net cash
provided by operations was $89.2 million and $57.0 million for the nine months
ended September 30, 2009 and 2008, respectively.  Cash provided by
sales exceeded the period’s expenses and working capital needs in both periods,
particularly in 2009 when lower energy prices resulted in a significant return
of working capital.    In the third quarter of 2009, Central
Hudson paid $17.7 million to the PSC for a new tax surcharge instituted in April
2009.  This charge represented a full year assessment, however, only
$3.1 million of this surcharge has been collected from customers to
date.  The remainder, which is being collected over the next six
months, increased Central Hudson’s working capital needs in the current period,
requiring financing.  Central Hudson also paid $1.1 million to the PSC
for the bi-annual general assessment, of which $0.2 million has been collected
to date.  In March 2010, Central Hudson will begin making bi-annual
installments of approximately $8.9 million for this surcharge and will collect
the amounts from customers on an on-going basis.


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Net cash
used in investing activities of $89.8 million and $59.4 million in the nine
months ended September 30, 2009 and 2008, respectively, was primarily for
investments in its electric and natural gas systems.  In June 2009,
Central Hudson closed on the purchase of certain real-estate in Kingston, NY
resulting in an increase of approximately $13 million to plant additions and a
reduction to liabilities.  Other increases in capital expenditures at
Central Hudson in the current year relate primarily to maintenance and proactive
repairs to transmission and distribution infrastructure.





Net cash
provided by (used in) financing activities was $19.4 million and ($1.0) million
in the nine months ended September 30, 2009 and 2008,
respectively.  During these periods, Central Hudson retained its net
income to invest in its transmission and distribution systems.  In
2008, the repayment of $6.0 million of short term debt was partially offset by
the use of a temporary cash overdraft of $5.8 million, which was the preferred
financing mechanism due to increased interest rates on short-term
debt.  Central Hudson’s cash flow benefited from lower energy prices
in the first nine months of 2009.  Cash from operations in excess of
expenses and working capital needs were used to repay short-term borrowings in
2009 and redeem its long-term debt of $20.0 million at maturity in January
2009.  Additionally, an investment of $25.0 million from CH Energy
Group in April of 2009 and the proceeds from the issuance of $24 million of
30-year notes supplemented the funding of capital expenditures.





CAPITALIZATION – COMMON
STOCK REPURCHASE PROGRAM





On July
27, 2007, the Board of Directors of CH Energy Group extended and amended the
Common Stock Repurchase Program of the Company, which was originally authorized
on July 25, 2002 and further disclosed in the caption “Repurchase Program” of
Note 8 – “Capitalization – Common and Preferred Stock” to the Financial
Statements of the Corporations’ 10-K Annual Report.





No common
stock was repurchased during the nine months ended September 30,
2009.




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CAPITALIZATION – EQUITY
INVESTMENT





In April
2009, CH Energy Group invested $25 million in Central Hudson, which was recorded
as additional paid-in capital.  Central Hudson paid no common stock
dividends in the first nine months of 2009 and expects to maintain its current
equity ratio of 48%, excluding short-term debt.





CAPITALIZATION – ISSUANCE OF
TREASURY STOCK





Effective
January 26, 2009, CH Energy Group granted 2,930 restricted shares to certain
officers and key employees of Griffith.  Effective October 1, 2009, CH
Energy Group granted 14,375 restricted shares to a new CH Energy Group executive
officer.  These restricted shares granted were issued from CH Energy
Group’s treasury stock.





On May 1,
2009, performance shares earned as of December 31, 2008 for the award cycle with
a grant date of April 25, 2006 were issued to participants.  Those
recipients electing not to defer this compensation under the CH Energy Group
Directors and Executives Deferred Compensation Plan received shares issued from
CH Energy Group’s treasury stock.  A total of 4,560 shares were issued
from CH Energy Group’s treasury stock on May 1, 2009.  Additionally,
due to the retirement of one of Central Hudson’s executive officers on January
1, 2009, a pro-rated number of shares under the January 25, 2007 and January 24,
2008 grants were paid to this individual on July 2, 2009.  An
additional 294 shares were issued from CH Energy Group’s treasury stock on this
date in satisfaction of these awards.





For
further information regarding the above equity compensation, see Note 11 –
“Equity Based Compensation” of this Quarterly Report on Form
10-Q.  The Company intends to continue to utilize shares issued from
CH Energy Group’s treasury stock for the payout of future performance
awards.





CONTRACTUAL
OBLIGATIONS





Other
contractual obligations and commitments of CH Energy Group are disclosed in Note
12 – “Commitments and Contingencies” of this Quarterly Report on Form 10-Q under
the caption “Electric Purchase Commitments.”





Central
Hudson determines the amount it will contribute to its pension plan (the
“Retirement Plan”) based on several factors, including the value of plan assets
relative to plan liabilities, legislative requirements, regulatory
considerations, and available corporate resources.  The amount of the
Retirement Plan’s liabilities is affected by the discount rate used to determine
benefit obligations and the accrual of additional benefits.  Central
Hudson considers the provisions of the Pension Protection Act of 2006 in
determining its funding for the Retirement Plan for the near-term and future
periods.  Despite recent gains in the financial markets, Central
Hudson cannot predict the funding impact of these gains on the Plan because the
annual valuation driving contributions was performed as of October 1, 2008, the
Retirement Plan year-end and has not been updated for the current plan year at
this time.  Funding for the Retirement Plan totaled $14.6 million and
$12.5 million for the nine months ended September 30, 2009 and 2008,
respectively.  On October 15, 2009, Central Hudson made an additional
contribution of $8.0 million to the Retirement Plan.  Central Hudson
does not anticipate making any additional contributions to the Retirement Plan
in 2009.


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Employer
contributions for OPEB plans were $1.3 million during the nine months ended
September 30, 2009 and $4.2 million during the nine months ended September 30,
2008.  The determination of future funding depends on a number of
factors, including the discount rate, expected return on plan assets, medical
claims assumptions used, benefit changes and corporate
resources.  Funding for the remainder of 2009 is expected to be
approximately $2.2 million.





Adverse
conditions in the economy and financial markets over the past year,
significantly reduced the values of the assets held in the Retirement Plan and
the OPEB Plans, and had a negative impact on the funded status of the
plans.  If future market conditions do not improve sufficiently to
offset these changes, additional contributions will likely be required in future
years.  Management expects that such contributions will be
incorporated in Central Hudson’s rate making process over
time.  Central Hudson has investment policies for these plans, which
include asset allocation ranges designed to achieve a reasonable return over the
long-term, recognizing the impact of market volatility.  Management
cannot currently predict what impact the recent performance of the financial
markets may have on the expected rate of return on plan assets or on future
funding decisions.





FINANCING
PROGRAM





CH Energy
Group believes that it is well positioned with a strong balance sheet and strong
liquidity.  Significant capacity remains on CH Energy Group’s and
Central Hudson’s committed credit facilities.  Central Hudson’s strong
investment-grade credit ratings help facilitate access to long-term
debt.  However, Management can make no assurance in regards to the
continued availability of financing or the terms and costs.  With the
exception of the use of treasury shares for several restricted share grants and
performance share awards earned, no significant equity issuance is currently
planned for 2009.  CH Energy Group Common Stock has maintained a
market premium to its book value.





At
September 30, 2009, CH Energy Group and its subsidiaries maintained credit
facilities with JPMorgan Chase Bank, N.A., Bank of America, N.A., HSBC Bank USA,
N.A. and Key Bank National Association.  If these lenders are unable
to fulfill their commitment under these facilities, funding may not be available
as needed.





At
September 30, 2009, CH Energy Group, on a consolidated basis, had $41.0 million
of short-term debt and had cash and cash equivalents of $52.2
million.


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CH Energy
Group has a $150 million revolving credit facility with several commercial
banks.  As of September 30, 2009 and December 31, 2008, there were no
borrowings under this CH Energy Group revolving credit facility.  As
of September 30, 2008, under this facility $15.0 million was
outstanding.





Central
Hudson maintains a revolving credit facility with several commercial banks,
pursuant to PSC authorization, in the amount of $125 million, for a five-year
term ending January 2, 2012.  As of September 30, 2009 and December
31, 2008, there were no borrowings under this facility.  As of
September 30, 2008, Central Hudson’s outstanding loan balance under this
agreement was $15 million.





Central
Hudson also maintains certain uncommitted lines of credit that diversify its
sources and provide competitive options to minimize its cost of short-term
debt.  As of September 30, 2009, $17.0 million was outstanding under
these lines of credit.  As of December 31, 2008 and September 30,
2008, Central Hudson’s outstanding balance on these lines of credit, in
aggregate, was $25.5 million and $21.5 million, respectively.





Central
Hudson’s current senior unsecured debt rating/outlook is ‘A’/stable by both
Standard & Poor’s Rating Services (“Standard & Poor’s”) and Fitch
Ratings and ‘A3’/negative by Moody’s Investors Service (“Moody’s”).4  On
September 9, 2009, Moody’s downgraded Central Hudson’s senior unsecured debt and
issuer ratings to ‘A3’ from ‘A2’. Moody’s has stated that the downgrade was due
to weakness in the company’s financial performance through the year ended June
30, 2009.  Moody’s maintained the outlook at negative to reflect the
current weakness in financial metrics and the company’s ongoing need for rate
relief to support planned capital expenditures.  The downgrade is not
expected to have a material impact on Central Hudson’s financial
performance.





In
January 2008, Griffith established an uncommitted line of credit of up to $25
million with a commercial bank for the purpose of funding seasonal working
capital.  As of April 30, 2009, Griffith allowed its uncommitted line
of credit to expire.  As of December 31, 2008, there were borrowings
under this facility of $10.0 million. As of September 30, 2008, there were no
borrowings under this facility. Griffith may seek to replace the credit line
with credit from a commercial bank or an intercompany borrowing agreement with
CH Energy Group.





CH Energy
Group and Central Hudson believe they will be able to meet their reasonably
likely short-term and long-term cash requirements, assuming that Central
Hudson’s future rate plans reflect the costs of service, including a reasonable
return on invested capital.





On March
27, 2009, Central Hudson filed with the Public Service Commission of the State
of New York a Financing Petition seeking authorization to increase its
multi-year committed credit to $175 million and to issue up to $250 million of
long-term debt through December 31, 2012.  An order was issued on
September 22, 2009. The order authorizes Central Hudson to seek a higher level
of committed credit, which will enable greater liquidity to support construction
forecasts, known seasonality, volatile energy markets, adverse borrowing
environments, and other unforeseen events. Additionally, the approval to issue
and sell $250 million of long-term debt will support Central Hudson’s ability to
finance its construction expenditures, refund maturing long-term debt, and
potentially refinance $115.9 million of multi-modal long-term NYSERDA bonds,
which are currently in auction rate mode.  Central Hudson plans to
register a new series of bonds pursuant to the authority granted by the
PSC.






4 These
ratings reflect only the views of the rating agency issuing the rating, are not
recommendations to buy, sell, or hold securities of Central Hudson and may be
subject to revision or withdrawal at any time by the rating agency issuing the
rating.  Each rating should be evaluated independently of any other
rating.


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Central
Hudson has five debt series that were issued in conjunction with the sale of
tax-exempt pollution control revenue bonds by NYSERDA.  These NYSERDA
bonds, totaling $166 million, are insured by Ambac.  The current
underlying rating and outlook on these bonds and Central Hudson’s other senior
unsecured debt is ‘A’/stable by Standard & Poor’s and Fitch Ratings and
‘A3’/negative by Moody’s.5





Central
Hudson’s 1998 NYSERDA Series A Bonds, totaling $16.7 million, were re-marketed
on December 1, 2008.  Under the terms of the applicable indenture, the
bonds were converted to a fixed rate of 6.5%, which will continue until their
maturity in December 2028.





Central
Hudson’s 1999 NYSERDA Series A Bonds, totaling $33.4 million, have an interest
rate that is fixed to maturity in 2027 at 5.45%.





Central
Hudson’s 1999 NYSERDA Bonds, Series B, C, and D, totaling $115.9 million, are
multi-modal bonds that are currently in auction rate mode.  Beginning
in 1999 when the bonds were issued, the bonds’ interest rate has been reset
every 35 days in a dutch auction.  Auctions in the market for
municipal auction rate securities have experienced widespread failures since
early in 2008.  Generally, an auction failure occurs because there is
an insufficient level of demand to purchase the bonds and the bondholders who
want to sell must hold the bonds for the next interest rate
period.  Since February 2008, all auctions for Central Hudson’s three
series of auction rate bonds have failed.  As a consequence, the
interest rate paid to the bondholders has been set to the then prevailing
maximum rate defined in the trust indenture.  Central Hudson’s maximum
rate results in interest rates that are generally higher than expected results
from the auction process.  For the foreseeable future, Central Hudson
expects the interest rate to be set at the maximum rate, determined on the date
of each auction as 175% of the yield on an index of tax-exempt short-term debt,
or its approximate equivalent.  In the third quarter of 2009, the
average maximum rate applicable on the bonds was 0.65%.  In its
Orders, the PSC has authorized deferral accounting treatment for the interest
costs from Central Hudson’s three series of variable rate 1999 NYSERDA
Bonds.  As a result, variations in interest rates on these bonds are
deferred for future recovery from or refund to customers and Central Hudson does
not expect the auction failures to have any adverse impact on
earnings.  To mitigate the potential impact of unexpected increases in
short-term interest rates, Central Hudson purchases interest rate caps based on
an index for short-term tax-exempt debt.  Effective April 1, 2009,
Central Hudson entered into a one-year rate cap with Key Bank National
Association to protect against unexpected short-term interest rate
increases.  The cap is based on the monthly weighted average of an
index of tax-exempt variable rate debt, multiplied by 175% to align with the
maximum rate formula of the three series of variable rate 1999 NYSERDA
Bonds.  Central Hudson would receive a payout if the bonds reset at
rates above 4.375%.





__________________________________________


5 These
ratings reflect only the views of the rating agency issuing the rating, are not
recommendations to buy, sell, or hold securities of Central Hudson and may be
subject to revision or withdrawal at any time by the rating agency issuing the
rating.  Each rating should be evaluated independently of any other
rating.


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Central
Hudson is currently evaluating what actions, if any, it may take in the future
in connection with its 1999 NYSERDA Bonds, Series B, C and D. Potential actions
may include converting the debt from auction rate to another interest rate mode
or refinancing with taxable bonds.





In the
second quarter of 2009, CH Energy Group privately placed exempt from
registration under the Securities Act of 1933, $50 million of senior unsecured
notes.  The notes bear interest at the rate of 6.58% per annum and
mature on April 17, 2014.  CH Energy Group completed the sale of $35
million in principal amount of the notes on April 17, 2009, and $15 million in
principal amount on June 15, 2009.  CH Energy Group will use the
proceeds from the sale of the notes to repay short-term debt and for general
corporate purposes.





On
September 30, 2009, Central Hudson issued $24 million of 30-year, 5.80% Series F
notes. The proceeds from this issuance will be used for general corporate
purposes including the pay down of short-term debt outstanding, funding
construction expenditures and working capital requirements.  Central
Hudson has $20 million remaining on its Series F notes, but does not expect to
issue additional notes in 2009.





For
additional information related to CH Energy Group’s and Central Hudson’s
financing program, please see Note 7 – “Short-term Borrowing Arrangements”, Note
8 – “Capitalization – Common and Preferred Stock”, and Note 9 – “Capitalization
– Long-term Debt” to the Financial Statements of the Corporations’ 10-K Annual
Report.





EARNINGS
PER SHARE




The
following discussion and analyses include explanations of significant changes in
revenues and expenses between the quarters and nine month ended September 30,
2009, and September 30, 2008, for Central Hudson’s regulated electric and
natural gas businesses, Griffith, and the Other Businesses and
Investments.





The
discussions and tables below present the change in earnings of CH Energy Group’s
business units in terms of earnings for each share of CH Energy Group’s Common
Stock.  Management believes this presentation is useful because these
business units are each wholly owned by CH Energy Group.  This
information is considered a non-GAAP financial measure and not an alternative to
earnings per share determined on a consolidated basis, which is the most
directly comparable GAAP measure.  A reconciliation of each business
unit’s earnings per share to CH Energy Group’s earnings per share, determined on
a consolidated basis, is included in the table below.


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CH ENERGY GROUP
CONSOLIDATED





Earnings per Share
(Basic)


Three
      Months Ended September 30,2009
            
            
            2008
            
            
            ChangeCentral
      Hudson - Electric
            
            $
            0.62
            
            
            $
            0.49
            
            
            $
            0.13Central
      Hudson - Natural Gas
            
            
            (0.07
            )
            
            
            (0.12
            )
            
            
            0.05Griffith
            
            
            (0.22
            )
            
            
            (0.28
            )
            
            
            0.06Other
      Businesses and Investments
            
            
            0.01
            
            
            
            0.09
            
            
            
            (0.08
            )$
            0.34
            
            
            $
            0.18
            
            
            $
            0.16Nine
      Months Ended September 30,2009
            
            
            
            2008
            
            
            ChangeCentral
      Hudson - Electric
            
            $
            1.12
            
            
            $
            1.11
            
            
            $
            0.01Central
      Hudson - Natural Gas
            
            
            0.27
            
            
            
            0.24
            
            
            
            0.03Griffith
            
            
            0.28
            
            
            
            (0.08
            )
            
            
            0.36Other
      Businesses and Investments
            
            
            0.04
            
            
            
            0.24
            
            
            
            (0.20
            )$
            1.71
            
            
            $
            1.51
            
            
            $
            0.20





Earnings
for CH Energy Group totaled $0.34 per share in the third quarter of 2009, versus
earnings of $0.18 per share in the same period of 2008. Year-to-date earnings
were $1.71 per share, as compared to $1.51 per share during the first nine
months of 2008.





New
electric and natural gas delivery rates and the RDMs that took effect July 1,
2009 enable Central Hudson to better recover the costs incurred to provide safe
and reliable service to customers and provide an opportunity to achieve a higher
level of shareholder return.  Prior to July 1, 2009, Central Hudson’s
earnings were negatively impacted by actual sales volumes that were
significantly below the projected levels in the 2006 Rate
Order.  However, the favorable impacts of weather in the first quarter
of 2009 outweighed the lower use per customer in 2009 prior to the
implementation of the RDMs.


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Third
quarter 2009 results by business unit were as follows:





CENTRAL
HUDSON





Earnings per Share
(Basic)


Three
      Months Ended September 30,2009
            
            
            2008
            
            
            ChangeElectric
            
            $
            0.62
            
            
            $
            0.49
            
            
            $
            0.13Natural
      Gas
            
            
            (0.07
            )
            
            
            (0.12
            )
            
            
            0.05$
            0.55
            
            
            $
            0.37
            
            
            $
            0.18





Earnings
from Central Hudson's electric and natural gas operations increased $0.18 per
share in the three months ended September 30, 2009 compared to the same period
in 2008 due to the following:





Regulatory
      Mechanisms and Unusual Events:Uncollectible
      deferral
            
            $
            0.03Rate
      Orders
            
            
            0.43Weather
      impact on sales (including hedging)
            
            
            (0.08
            )Weather
      normalized sales
            
            
            (0.05
            )Higher
      uncollectible accounts
            
            
            (0.05
            )Higher
      depreciation
            
            
            (0.03
            )Higher
      property and other taxes
            
            
            (0.02
            )Lower
      tree trimming
            
            
            0.01Higher
      interest expense and carrying charges
            
            
            (0.01
            )Higher
      storm restoration expense
            
            
            (0.01
            )Other
            
            
            (0.04
            )$
            0.18


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Nine
      Months Ended September 30,2009
            
            
            2008
            
            
            ChangeElectric
            
            $
            1.12
            
            
            $
            1.11
            
            
            $
            0.01Natural
      Gas
            
            
            0.27
            
            
            
            0.24
            
            
            
            0.03$
            1.39
            
            
            $
            1.35
            
            
            $
            0.04





Central
Hudson’s earnings increased $0.04 per share in the first nine months of 2009
compared to the same period in 2008, due to the following:





Regulatory
      Mechanisms and Unusual Events:Uncollectible
      deferral
            
            $
            0.03Cable
      attachment rents in 2008
            
            
            (0.03
            )Rate
      Orders
            
            
            0.52Weather
      impact on sales (including hedging)
            
            
            (0.02
            )Weather
      normalized sales
            
            
            (0.13
            )Higher
      uncollectible accounts
            
            
            (0.15
            )Higher
      depreciation
            
            
            (0.10
            )Higher
      property and other taxes
            
            
            (0.05
            )Higher
      tree trimming
            
            
            (0.03
            )Higher
      interest expense and carrying charges
            
            
            (0.06
            )Lower
      storm restoration expense
            
            
            0.07Other
            
            
            (0.01
            )$
            0.04





Central
Hudson's contribution to earnings per share was $0.55 per share, $0.18 per share
higher than the third quarter of 2008.  New electric and natural gas
delivery rates and the RDMs that took effect July 1, 2009 provided an increase
of $0.43 per share over the third quarter of 2008.  This increase
covered the increased operating expenses and negative impacts that both weather
and the weak economy had on sales in the third quarter of 2009 as compared to
2008.  Cooler summer weather compared to the same quarter of the prior
year resulted in a decrease in earnings of $0.08 per
share.  Management believes that the decrease in use per customer,
which reduced earnings $0.05 per share, and the increase in uncollectible
expense which reduced earnings by $0.05 per share are both indicative of the
weak economy.





Year-to-date,
Central Hudson has earned $1.39 per share compared to $1.35 per share posted for
the first nine months of 2008.  The positive effect on year-to-date
earnings of the rate orders that took effect July 1, 2009 and July 1, 2008, as
well as lower storm restoration expenses, was largely offset by higher expenses
during the first nine months of 2009 and the impact of lower sales volumes prior
to the implementation of the RDMs.


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GRIFFITH





Earnings per Share
      (Basic)Three
      Months Ended September 30,2009
            
            
            2008
            
            
            Change$
            (0.22
            )
            
            $
            (0.28
            )
            
            $
            0.06





Griffith’s
earnings increased $0.06 per share in the three months ended September 30, 2009
compared to the same period in 2008 due to the following:





Margin
      on petroleum sales and services
            
            $
            0.03Weather
      normalized sales (including conservation)
            
            
            (0.05
            )Weather
      impact on sales (including hedging)
            
            
            0.01Operating
      expenses
            
            
            0.03Acquisitions(1)
            
            
            0.01Other
            
            
            0.03$
            0.06





Nine
      Months Ended September 30,2009
            
            
            2008
            
            
            Change$
            0.28
            
            
            $
            (0.08
            )
            
            $
            0.36





Griffith’s
earnings increased $0.36 per share in the first nine months of 2009 compared to
2008, due to the following:





Margin
      on petroleum sales and services
            
            $
            0.28Weather
      normalized sales (including conservation)
            
            
            (0.25
            )Weather
      impact on sales (including hedging)
            
            
            0.15Operating
      expenses
            
            
            0.08Acquisitions(1)
            
            
            0.03Other
            
            
            0.07$
            0.36





(1)
            For
      the purposes of the above charts, “Acquisitions” reflects the incremental
      affect of acquisitions made by Griffith in
2008.





Griffith
posted a loss of $0.22 per share in the third quarter of 2009, a $0.06 per share
improvement over the third quarter of 2008.  This quarterly loss is
expected due to the seasonal nature of Griffith’s fuel delivery
business.  The improvement in Griffith’s results over the same quarter
of the prior year was due largely to a reduction in operating
expenses.





Year-to-date,
Griffith has earned $0.28 per share compared to a loss per share of $0.08 posted
for the first nine months of 2008.  Griffith’s $0.36 per share
improvement in earnings was due primarily to increased margins on the sale of
petroleum products, colder winter weather and reduced operating expenses in the
first nine months of 2009 as compared to 2008, partially offset by a reduction
in sales volume as a result of customer conservation.




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OTHER BUSINESSES AND
INVESTMENTS





Earnings per Share
      (Basic)Three
      Months Ended September 30,2009
            
            
            2008
            
            
            Change$
            0.01
            
            
            $
            0.09
            
            
            $
            (0.08
            )





The
variation in earnings per share from CH Energy Group (the holding company) and
CHEC’s partnership and other investment interests in the three months ended
September 30, 2009 compared to the same period in 2008 is due to the
following:





Lyonsdale
      investment
            
            $
            0.01Holding
      company interest expense
            
            
            (0.03
            )Higher
      income taxes
            
            
            (0.03
            )Other
            
            
            (0.03
            )$
            (0.08
            )





Nine
      Months Ended September 30,2009
            
            
            2008
            
            
            Change$
            0.04
            
            
            $
            0.24
            
            
            $
            (0.20
            )





The
variation in earnings per share from CH Energy Group (the holding company) and
CHEC’s partnership and other investment interests in the first nine months of
2009 compared to the same period in 2008 is due to the following:





Buckeye
      investment
            
            $
            (0.05
            )Lyonsdale
      investment
            
            
            (0.04
            )Holding
      company interest expense
            
            
            (0.05
            )Higher
      income taxes
            
            
            (0.02
            )Other
            
            
            (0.04
            )$
            (0.20
            )





CH Energy
Group (the holding company) and CHEC’s partnerships and other investments
contributed earnings of $0.01 per share toward corporate earnings in the third
quarter of 2009, a decrease of $0.08 per share from the same period in
2008.  This reduction in earnings is primarily the result of higher
income taxes and interest expense incurred by the holding company.





Year-to-date
earnings per share for these business units totaled $0.04 per share compared to
$0.24 per share posted for the first nine months of
2008.  Year-to-date results were impacted by an equipment repair that
necessitated taking the Lyonsdale facility off line for several weeks in the
second quarter of 2009.  The plant is back on line with an improved
capacity factor as a result of the repair.  Year-to-date earnings were
also reduced by $0.05 per share due to a reserve recorded in the first quarter
of 2009 related to an ethanol development project of CHEC.  The
reserve represents the full amount of the note receivable investment for
development expenditures and this project represented CHEC’s only current
early-stage development project.  Higher interest expense at the
holding company also contributed to the reduction in earnings for the first nine
months of 2009 as compared to 2008.


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RESULTS
OF OPERATIONS





CENTRAL
HUDSON





The
following discussions and analyses include explanations of significant changes
in revenues and expenses between the three and nine months ended September 30,
2009 and the three and nine months ended September 30, 2008 for Central Hudson’s
regulated electric and natural gas businesses.





Income Statement Variances(Dollars
      In Thousands)Three
      Months Ended
            
            
            Nine
      Months EndedSeptember
      30, 2009
            
            
            September
      30, 2009Over/(Under)
      same period
            
            
            Over/(Under)
      same periodin
      2008
            
            
            in
      2008Amount
            
            
            Percent
            
            
            Amount
            
            
            PercentOperating
      Revenues
            
            $
            (45,846
            )
            
            
            (23
            )%
            
            $
            (69,469
            )
            
            
            (11
            )%Operating
      Expenses:Purchased
      electricity, fuel andnatural gas
            
            
            (63,003
            )
            
            
            (49
            )%
            
            
            (93,458
            )
            
            
            (24
            )%Depreciation
      and amortization
            
            
            449
            
            
            
            6
            %
            
            
            1,633
            
            
            
            7
            %Other
      operating expenses
            
            
            11,479
            
            
            
            24
            %
            
            
            18,919
            
            
            
            13
            %Total
      Operating Expenses
            
            
            (51,075
            )
            
            
            (28
            )%
            
            
            (72,906
            )
            
            
            (13
            )%Operating
      Income
            
            
            5,229
            
            
            
            33
            %
            
            
            3,437
            
            
            
            7
            %Other
      Income, net
            
            
            (590
            )
            
            
            (55
            )%
            
            
            (2,306
            )
            
            
            (60
            )%Interest
      Charges
            
            
            (92
            )
            
            
            (1
            )%
            
            
            (336
            )
            
            
            (2
            )%Income
      Before Income Taxes
            
            
            4,731
            
            
            
            45
            %
            
            
            1,467
            
            
            
            4
            %Income
      Taxes
            
            
            1,987
            
            
            
            46
            %
            
            
            850
            
            
            
            6
            %Net
      Income
            
            $
            2,744
            
            
            
            45
            %
            
            $
            617
            
            
            
            3
            %





The
following discusses variations and the primary drivers of the changes in
operating revenues, operating expenses, volumes delivered, other income,
interest charges, and income taxes for Central Hudson’s regulated electric and
natural gas businesses.





Delivery
Volumes





Delivery
volumes for Central Hudson vary in response to weather conditions and customer
behavior.  Electric deliveries peak in the summer and deliveries of
natural gas used for heating purposes peak in the winter.  Delivery
volumes also vary as customers respond to the price of the particular energy
product and changes in local economic conditions.


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The
following chart reflects the change in the level of electric and natural gas
deliveries for Central Hudson in the three and nine months ended September 30,
2009, compared to the same period in 2008.  Deliveries of electricity
and natural gas to residential and commercial customers have historically
contributed the most to Central Hudson's earnings.  Effective July 1,
2009, Central Hudson’s delivery rate structure includes a revenue decoupling
mechanism which provides the ability to record revenues equal to those
forecasted in the development of current rates for most of Central Hudson’s
customers.  As a result, fluctuations in actual delivery volumes do
not have a significant impact on the Company’s earnings.  Industrial
sales and interruptible sales have a negligible impact on earnings.





Actual DeliveriesThree
      Months Ended
            
            
            Nine
      Months EndedSeptember
      30, 2009
            
            
            September
      30, 2009Increase/(Decrease)
      from
            
            
            Increase/(Decrease)
      fromsame
      period in 2008
            
            
            same
      period in 2008Electric
            
            
            Natural
      Gas
            
            
            Electric
            
            
            Natural
      GasResidential
            
            
            (10
            )%
            
            
            4
            %
            
            
            (4
            )%
            
            
            2
            %Commercial
            
            
            (7
            )%
            
            
            3
            %
            
            
            (5
            )%
            
            
            3
            %Industrial
      and other(1)
            
            
            (11
            )%
            
            
            (15
            )%
            
            
            (9
            )%
            
            
            (15
            )%Total
      Deliveries
            
            
            (9
            )%
            
            
            (3
            )%
            
            
            (5
            )%
            
            
            (1
            )%





(1)
            Includes
      interruptible natural gas
deliveries.





Weather Normalized
    DeliveriesThree
      Months Ended
            
            
            Nine
      Months EndedSeptember
      30, 2009
            
            
            September
      30, 2009Increase/(Decrease)
      from
            
            
            Increase/(Decrease)
      fromsame
      period in 2008
            
            
            same
      period in 2008Electric
            
            
            Natural
      Gas
            
            
            Electric
            
            
            Natural
      GasResidential
            
            
            (3
            )%
            
            
            1
            %
            
            
            (2
            )%
            
            
            (1
            )%Commercial
            
            
            (5
            )%
            
            
            1
            %
            
            
            (4
            )%
            
            
            1
            %Industrial
      and other (2)
            
            
            (11
            )%
            
            
            (15
            )%
            
            
            (9
            )%
            
            
            (15
            )%Total
      Deliveries
            
            
            (6
            )%
            
            
            (4
            )%
            
            
            (4
            )%
            
            
            (3
            )%





(2)
            Excludes
      interruptible natural gas
deliveries.


Note:
            Due
      to a warming trend in actual weather over the past 30 years, Central
      Hudson developed linear trend normal weather values for its electric and
      natural gas businesses.  This trend analysis has resulted in
      approximately 330 and 300 fewer heating degree days compared to a rolling
      30-year average for electric and natural gas, respectively.  In
      the third quarter, Central Hudson began using a 10-year average consistent
      with the weather normalization calculation reflected in the 2009 Rate
      Order.  The 10-year average calculation resulted in
      approximately 270 and 232 fewer heating degree days compared to a rolling
      30-year average for electric and natural gas,
  respectively.




Electric
deliveries to residential customers during the three and nine months ended
September 30, 2009 were negatively impacted by lower use per customer, as well
as the cooler than normal weather, compared to the same periods in
2008.




Natural
gas deliveries to residential customers increased for both the three and nine
months ended September 30, 2009 as compared to 2008.  Use per customer
increased slightly for the three months ended September 30, 2009 as compared to
the same period of 2008, however on a year-to-date basis our use per customer is
still down from the same period in the prior year.  The cooler than
normal weather in the three and nine month period ended September 30, 2009,
favorably impacted deliveries to residential customers and outweighed the
unfavorable impacts of lower use per customer for the nine month period ended
September 30, 2009 as compared to 2008.




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Revenues





Central
Hudson’s revenues consist of two major categories: those which offset specific
expenses in the current period (matching revenues), and those that impact
earnings.  Matching revenues recover Central Hudson's actual costs for
particular expenses. Any difference between these revenues and the actual
expenses incurred is deferred for future recovery from or refund to customers
and therefore does not impact earnings.





Change in Central Hudson
      Revenues(In
      Thousands)Three
      Months Ended September 30, 2009Increase/(Decrease)
      from same period in 2008Electric
            
            
            Natural
      Gas
            
            
            TotalRevenues
      with Matching Expense Offsets:(1)Energy
      cost adjustment
            
            $
            (54,476
            )
            
            $
            (4,973
            )
            
            $
            (59,449
            )Sales
      to others for resale
            
            
            (920
            )
            
            
            (2,853
            )
            
            
            (3,773
            )Other
      revenues with matching offsets
            
            
            8,893
            
            
            
            574
            
            
            
            9,467Subtotal
            
            
            (46,503
            )
            
            
            (7,252
            )
            
            
            (53,755
            )Revenues
      Impacting Earnings:Customer
      sales
            
            
            1,244
            
            
            
            1,330
            
            
            
            2,574RDM
      and other regulatory mechanisms
            
            
            5,557
            
            
            
            (103
            )
            
            
            5,454Finance
      charges
            
            
            (118
            )
            
            
            33
            
            
            
            (85
            )Weather-hedging
      contracts
            
            
            (438
            )
            
            
            -
            
            
            
            (438
            )Other
      revenues
            
            
            (58
            )
            
            
            462
            
            
            
            404Subtotal
            
            
            6,187
            
            
            
            1,722
            
            
            
            7,909Total
            
            $
            (40,316
            )
            
            $
            (5,530
            )
            
            $
            (45,846
            )Nine
      Months Ended September 30, 2009Increase/(Decrease)
      from same period in 2008Electric
            
            
            Natural
      Gas
            
            
            TotalRevenues
      with Matching Expense Offsets:(1)Energy
      cost adjustment
            
            $
            (84,995
            )
            
            $
            (7,924
            )
            
            $
            (92,919
            )Sales
      to others for resale
            
            
            (379
            )
            
            
            (789
            )
            
            
            (1,168
            )Other
      revenues with matching offsets
            
            
            14,530
            
            
            
            1,374
            
            
            
            15,904Subtotal
            
            
            (70,844
            )
            
            
            (7,339
            )
            
            
            (78,183
            )Revenues
      Impacting Earnings:Customer
      sales
            
            
            2,069
            
            
            
            1,668
            
            
            
            3,737RDM
      and other regulatory mechanisms
            
            
            4,563
            
            
            
            136
            
            
            
            4,699Pole
      attachments and other rents
            
            
            (639
            )
            
            
            -
            
            
            
            (639
            )Finance
      charges
            
            
            110
            
            
            
            189
            
            
            
            299Other
      revenues
            
            
            117
            
            
            
            501
            
            
            
            618Subtotal
            
            
            6,220
            
            
            
            2,494
            
            
            
            8,714Total
            
            $
            (64,624
            )
            
            $
            (4,845
            )
            
            $
            (69,469
            )





(1)
            Revenues
      with matching offsets do not affect earnings since they offset related
      costs, the most significant being energy cost adjustment revenues, which
      provide for the recovery of purchased electricity and natural gas
      costs.  Other related costs are pensions, OPEB, and the cost of
      special programs authorized by the PSC, which are funded with certain
      available credits.  Changes in revenues from electric sales to
      other utilities also do not affect earnings since any related profits or
      losses are returned or charged, respectively, to customers.  For
      natural gas sales to other entities for resale, 85% of such profits are
      returned to customers.


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Electric
revenues decreased in the three and nine months ended September 30, 2009, as
compared to the same periods in 2008, due to lower energy cost adjustment
revenues resulting from both lower wholesale prices and lower delivery
volumes.  These decreases were partially offset by an increase in
other revenues with matching expense offsets resulting from an increase in rates
related to increased pension costs, New York State (“NYS”) energy efficiency
programs and a new tax surcharge implemented by the PSC. The reasons for the
increase in revenues with matching expense offsets are discussed in more detail
under operating expenses.  The decrease in energy cost adjustment
revenues was also partially offset by the impact of the increase in delivery
rates on customer sales and the RDM, both of which became effective July 1,
2009.





Natural
gas revenues decreased for the three and nine months ended September 30, 2009,
as compared to the same period in 2008, primarily due to a decrease in energy
cost adjustment revenues driven by lower net gas costs, as well as lower
revenues from gas sales to others for resale.  These decreases were
partially offset by the impact of the increase in delivery rates on customer
sales which became effective in the third quarter of 2009.  An
increase in other revenues with matching offsets resulting from increased rates
for pension, energy efficiency programs and the new tax surcharge also offset
the decrease in energy cost adjustment revenues for the nine months ended
September 30, 2009.




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Operating
Expenses





The most
significant elements of Central Hudson’s operating expenses are purchased
electricity and purchased natural gas; however, changes in these costs do not
affect earnings since they are offset by changes in related revenues recovered
through Central Hudson’s energy cost adjustment
mechanisms.  Additionally, there are other costs that are matched to
revenues largely from customer billings, notably the cost of NYS energy
efficiency programs, PSC tax surcharge, pensions and OPEBs.





Total
utility operating expenses decreased 28% and 13% for the three and nine months
ended September 30, 2009, compared to the same periods in 2008.  The
following summarizes the change in operating expenses:





Change in Central Hudson Operating
      Expenses(In
      Thousands)Three
      Months Ended
            
            
            Nine
      Months EndedSeptember
      30, 2009
            
            
            September
      30, 2009Increase
      / (Decrease) from
            
            
            Increase
      / (Decrease) fromsame
      period in 2008
            
            
            same
      period in 2008Expenses
      Currently Matched to Revenues:(1)Purchased
      electricity
            
            $
            (55,396
            )
            
            $
            (85,374
            )Purchased
      natural gas
            
            
            (7,826
            )
            
            
            (8,713
            )Pension
            
            
            4,016
            
            
            
            3,754PSC
      tax surcharge
            
            
            3,084
            
            
            
            3,084NYS
      energy programs
            
            
            2,624
            
            
            
            8,574Other
      matched expenses
            
            
            (257
            )
            
            
            492Subtotal
            
            
            (53,755
            )
            
            
            (78,183
            )Other
      Expense Variations:Tree
      trimming
            
            
            (357
            )
            
            
            677Uncollectible
      expense
            
            
            1,117
            
            
            
            3,180Uncollectible
      deferral
            
            
            (541
            )
            
            
            (541
            )Purchased
      natural gas incentive arrangements
            
            
            219
            
            
            
            629Storm
      restoration expenses
            
            
            265
            
            
            
            (1,848
            )Depreciation
      and amortization
            
            
            449
            
            
            
            1,633Other
      expenses
            
            
            1,528
            
            
            
            1,547Subtotal
            
            
            2,680
            
            
            
            5,277Total
      Decrease in Operating Expenses
            
            $
            (51,075
            )
            
            $
            (72,906
            )





(1)
            Includes
      expenses that, in accordance with the 2006 Rate Order and the 2009 Rate
      Order, are adjusted in the current period to equal the revenues earned for
      the applicable expenses.





In
addition to the required adjustment to match revenues collected from customers,
the variation in purchased electric and natural gas expense in the first three
and nine months of 2009 reflects the effects of lower wholesale prices for
electricity and natural gas, as well as lower volumes delivered to electric
customers.  The increase in pensions is due to an increase in the
level of expenses recorded with a corresponding increase in revenues resulting
from the increase in delivery rates that became effective July 1,
2009.  The increase in the PSC tax surcharge is due to a new tax
surcharge instituted by the PSC in April 2009.  Effective July 1,
2009, the surcharge is being collected from customers and is expected to total
approximately $18 million per year.  The increase in NYS energy
program expenses relates to the costs of energy efficiency programs under
the Energy Efficiency Portfolio Standard which began in October 2008, as well
as, higher spending levels associated with other energy programs as authorized
by the 2006 Rate Order.


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The
decrease in storm restoration costs for the first nine months of 2009 as
compared to 2008 was the result of lower and less severe storm activity this
year.Uncollectible
expense increased for the three and nine months ended September 30, 2009 as
compared to the same periods in 2008 which management believes is a result of
the unfavorable economic conditions, particularly the rise in unemployment
rates.





Other
Income





Other
income and deductions for Central Hudson for the three and nine months ended
September 30, 2009, decreased $0.6 million and $2.3 million, respectively,
compared to the same periods in 2008, primarily due to a decrease in regulatory
carrying charges due from customers related to pension costs and regulatory
adjustments resulting from changes in interest costs on Central Hudson’s
variable rate long-term debt.  The latter adjustment offsets the
decrease in interest on the variable rate debt, as discussed under the caption
“Interest Charges.”





Interest
Charges





Central
Hudson’s interest charges for the three and nine months ended September 30,
2009, as compared to the same periods in 2008, decreased $0.1 million and $0.3
million, respectively.  Increases resulting from higher outstanding
debt balances and increased carrying charges due to customers were offset
primarily by a decrease in interest rates on variable rate notes and short-term
borrowings.  The issuance of $30 million medium-term notes in November
2008 to finance capital improvements, and the redemption of $20 million
medium-term notes in January 2009 resulted in a net increase in debt outstanding
during the first three and nine months ended September 30, 2009, as compared to
the same periods in 2008.  Lower working capital requirements as a
result of decreasing energy prices at the end of 2008 and through the beginning
of 2009 allowed Central Hudson to absorb the redemption of the long-term debt at
its maturity in January 2009 without refinancing and to repay short-term
borrowings, thereby, reducing its interest expense.  The increase in
carrying charges due to customers was primarily related to an increase in the
underlying reserve balance for other post-retirement benefits for the nine
months ended September 30, 2009 and carrying charges beginning July 1, 2009 on
the net regulatory electric liability set aside for future customer benefit for
the three and nine months ended September 30, 2009.


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Income
Taxes





Income
taxes for Central Hudson increased $2.0 million and $0.9 million for the three
and nine months ended September 30, 2009 when compared to the same periods in
2008 primarily due to an increase in pre-tax book income.





CH ENERGY
GROUP





In
addition to the impacts of Central Hudson discussed above, CH Energy Group’s
sales volumes, revenues and operating expenses, income taxes and other income
were impacted by Griffith and the other businesses described
below.  The results of Griffith and the other businesses described
below exclude inter-company interest income and expense which are eliminated in
consolidation.





Income Statement Variances(Dollars
      In Thousands)Three
      Months Ended
            
            
            Nine
      Months EndedSeptember
      30, 2009
            
            
            September
      30, 2009Over/(Under)
      same period
            
            
            Over/(Under)
      same periodin
      2008
            
            
            in
      2008Amount
            
            
            Percent
            
            
            Amount
            
            
            PercentOperating
      Revenues
            
            $
            (87,142
            )
            
            
            (29)
            %
            
            $
            (231,884
            )
            
            
            (23)
            %Operating
      Expenses:Purchased
      electricity, fuel, natural gas and petroleum
            
            
            (104,872
            )
            
            
            (49)
            %
            
            
            (262,529
            )
            
            
            (36)
            %Depreciation
      and amortization
            
            
            564
            
            
            
            6
            %
            
            
            1,839
            
            
            
            6
            %Other
      operating expenses
            
            
            10,268
            
            
            
            15
            %
            
            
            17,181
            
            
            
            8
            %Total
      Operating Expenses
            
            
            (94,040
            )
            
            
            (32)
            %
            
            
            (243,509
            )
            
            
            (25)
            %Operating
      Income
            
            
            6,898
            
            
            
            74
            %
            
            
            11,625
            
            
            
            22
            %Other
      Income, net
            
            
            (1,662
            )
            
            
            (117)
            %
            
            
            (5,061
            )
            
            
            (108)
            %Interest
      Charges
            
            
            655
            
            
            
            10
            %
            
            
            624
            
            
            
            3
            %Income
      before income taxes, non-controlling interest and preferred dividends of
      subsidiaries
            
            
            4,581
            
            
            
            104
            %
            
            
            5,940
            
            
            
            15
            %Income
      Taxes
            
            
            2,134
            
            
            
            179
            %
            
            
            3,050
            
            
            
            22
            %Net
      Income
            
            
            2,447
            
            
            
            77
            %
            
            
            2,890
            
            
            
            12
            %Net
      loss attributable to non-controlling interest
            
            
            (20
            )
            
            
            (6)
            %
            
            
            (270
            )
            
            
            (32)
            %Net
      income attributable to CH Energy Group
            
            $
            2,467
            
            
            
            86
            %
            
            $
            3,160
            
            
            
            13
            %


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GRIFFITH





Sales
Volumes





Delivery
and sales volumes for Griffith vary in response to weather conditions and
customer behavior.  Deliveries of petroleum products used for heating
purposes peak in the winter.  Sales also vary as customers respond to
the price of the particular energy product and changes in local economic
conditions.





Changes
in sales volumes of petroleum products, including the impact of acquisitions,
are set forth below.





Actual DeliveriesThree
      Months Ended
            
            
            Nine
      Months EndedSeptember
      30, 2009
            
            
            September
      30, 2009%
      Change
              from
      same period in 2008
            
            
            2009
              Volumes
      as % of Total Volume
            
            
            %
      Change
              from
      same period in 2008
            
            
            2009
              Volumes
      as % of Total VolumeHeating
      OilBase
      company volume(1)
            
            
            12
            %
            
            
            23
            %
            
            
            3
            %
            
            
            50
            %Acquisitions
      volume(2)
            
            
            (1)
            %
            
            
            1
            %
            
            
            1
            %
            
            
            3
            %Total
      Heating Oil
            
            
            11
            %
            
            
            24
            %
            
            
            4
            %
            
            
            53
            %Motor
      FuelsBase
      company volume
            
            
            (14)
            %
            
            
            75
            %
            
            
            (17)
            %
            
            
            45
            %Acquisitions
      volume
            
            
            -
            %
            
            
            -
            %
            
            
            -
            %
            
            
            -
            %Total
      Motor Fuels
            
            
            (14)
            %
            
            
            75
            %
            
            
            (17)
            %
            
            
            45
            %Propane
      and OtherBase
      company volume
            
            
            (40)
            %
            
            
            1
            %
            
            
            1
            %
            
            
            2
            %Acquisitions
      volume
            
            
            -
            %
            
            
            -
            %
            
            
            -
            %
            
            
            -
            %Total
      Propane and Other
            
            
            (40)
            %
            
            
            1
            %
            
            
            1
            %
            
            
            2
            %TotalBase
      company volume
            
            
            (9)
            %
            
            
            99
            %
            
            
            (8)
            %
            
            
            97
            %Acquisitions
      volume
            
            
            (1)
            %
            
            
            1
            %
            
            
            1
            %
            
            
            3
            %Total
            
            
            (10)
            %
            
            
            100
            %
            
            
            (7)
            %
            
            
            100
            %





(1)
            For
      the purposes of this chart, “Base company” means Griffith as constituted
      at January 1, 2008 (i.e., without any impact from acquisitions made by
      Griffith in 2008).


(2)
            For
      the purposes of this chart, “Acquisitions” represent the incremental
      effect of acquisitions made by Griffith in
2008.




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Weather Normalized
    DeliveriesThree
      Months Ended
            
            
            Nine
      Months EndedSeptember
      30, 2009
            
            
            September
      30, 2009%
      Change
              from
      same period in 2008
            
            
            2009
              Volumes
      as % of Total Volume
            
            
            %
      Change
              from
      same period in 2008
            
            
            2009
              Volumes
      as % of Total VolumeHeating
      OilBase
      company volume(1)
            
            
            4
            %
            
            
            22
            %
            
            
            (10)
            %
            
            
            49
            %Acquisitions
      volume(2)
            
            
            (1)
            %
            
            
            1
            %
            
            
            1
            %
            
            
            2
            %Total
      Heating Oil
            
            
            3
            %
            
            
            23
            %
            
            
            (9)
            %
            
            
            51
            %Motor
      FuelsBase
      company volume
            
            
            (14)
            %
            
            
            76
            %
            
            
            (17)
            %
            
            
            47
            %Acquisitions
      volume
            
            
            -
            %
            
            
            -
            %
            
            
            -
            %
            
            
            -
            %Total
      Motor Fuels
            
            
            (14)
            %
            
            
            76
            %
            
            
            (17)
            %
            
            
            47
            %Propane
      and OtherBase
      company volume
            
            
            (47)
            %
            
            
            1
            %
            
            
            (11)
            %
            
            
            2
            %Acquisitions
      volume
            
            
            -
            %
            
            
            -
            %
            
            
            1
            %
            
            
            -
            %Total
      Propane and Other
            
            
            (47)
            %
            
            
            1
            %
            
            
            (10)
            %
            
            
            2
            %TotalBase
      company volume
            
            
            (11)
            %
            
            
            99
            %
            
            
            (13)
            %
            
            
            98
            %Acquisitions
      volume
            
            
            -
            %
            
            
            1
            %
            
            
            -
            %
            
            
            2
            %Total
            
            
            (11)
            %
            
            
            100
            %
            
            
            (13)
            %
            
            
            100
            %





(1)
            For
      the purposes of this chart, "Base company" means Griffith as constituted
      at January 1, 2008 (i.e. without any impact from acquisitions made by
      Griffith in 2008).


(2)
            For
      the purposes of this chart, "Acquisitions" represent the incremental
      effect of acquisitions made by Griffith in
2008.


Note:
            Due
      to a warming trend in actual weather over the past 30 years, Griffith has
      developed a trend normal weather value.  This trend analysis has
      resulted in approximately 670 and 150 less heating degree days as compared
      to a standard 30-year average for Griffith's customers in the Northeast
      and Mid-Atlantic regions, respectively.  The above chart of
      weather normalized deliveries was determined using Griffith's trend normal
      weather value.





Sales of
petroleum products decreased 10% and 7% in the three and nine months ended
September 30, 2009 compared to the same periods in 2008.  The decrease
was due primarily to a significant decrease in the sale of motor fuels related
to the downturn in the economy and continued reduced consumption per residential
heating oil customer.  This decrease was partially offset by an
increase in the sale of heating oil due to colder weather in 2009 compared to
2008.  This increase was due to weather that was 16% colder in the
first nine months of 2009 in comparison to 2008 as measured by heating degree
days.  Degree-day variation is adjusted for the delay between the time
the actual weather occurs, and the time of product delivery.




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Revenues





Change in Griffith Revenues(In
      Thousands)Three
      Months Ended
            
            
            Nine
      Months EndedSeptember
      30, 2009
            
            
            September
      30, 2009Increase
      / (Decrease) from
              same
      period in 2008
            
            
            Increase
      / (Decrease) from
              same
      period in 2008Heating
      OilBase
      company(1)
            
            $
            (6,441
            )
            
            $
            (54,750
            )Acquisitions(2)
            
            
            (355
            )
            
            
            (786
            )Total
      Heating Oil
            
            $
            (6,796
            )
            
            $
            (55,536
            )Motor
      FuelsBase
      company
            
            $
            (33,603
            )
            
            $
            (104,600
            )Acquisitions
            
            
            (86
            )
            
            
            (160
            )Total
      Motor Fuels
            
            $
            (33,689
            )
            
            $
            (104,760
            )Service
      RevenuesBase
      company
            
            $
            (248
            )
            
            $
            (46
            )Acquisitions
            
            
            90
            
            
            
            784Total
      Service Revenues
            
            $
            (158
            )
            
            $
            738OtherPropane
            
            $
            (635
            )
            
            $
            (909
            )Weather-hedging
      contracts
            
            
            -
            
            
            
            (230
            )Other
            
            
            (254
            )
            
            
            54Total
      Other
            
            $
            (889
            )
            
            $
            (1,085
            )Total
      Revenues
            
            $
            (41,532
            )
            
            $
            (160,643
            )





(1)
            For
      the purposes of this chart, “Base company” means Griffith as constituted
      at January 1, 2008 (i.e., without any impact from acquisitions made by
      Griffith in 2008).


(2)
            For
      the purposes of this chart, “Acquisitions” represents the incremental
      effect of acquisitions made by Griffith in
2008.





Revenues,
net of the effect of weather hedging contracts, decreased in the three and nine
months ended September 30, 2009 compared to the same periods in 2008, due
primarily to a decrease in the selling price for both motor fuels and heating
oil and a decline in sales volume for motor fuels.





Operating
Expenses





For the
three months ended September 30, 2009, operating expenses decreased $43.1
million, or 42%, from $103.5 million in 2008 to $60.4 million in
2009.  The cost of petroleum products decreased $41.7 million, or 51%,
due to lower wholesale market prices and reduced sales volumes.





Other
operating expenses decreased $1.4 million for the three months ended September
30, 2009 due primarily to reduced operating expenses associated with reduced
sales volumes.


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For the
nine months ended September 30, 2009, operating expenses decreased $169.9
million, or 42%, from $403.6 million in 2008 to $233.7 million in
2009.  The cost of petroleum products decreased $167.8 million, or
50%, due primarily to lower wholesale market prices and reduced sales
volumes.





Other
operating expenses decreased $2.1 million for the nine months ended September
30, 2009 due primarily to reduced operating expenses associated with reduced
sales volumes.





OTHER BUSINESSES AND
INVESTMENTS





Revenues
and Operating Expenses





The
operating results of Lyonsdale and CH-Greentree are consolidated in the
Consolidated Financial Statements of CH Energy Group.  These results
for the three months ended September 30, 2009 compared to the same period in
2008 reflect an increase in operating revenues of $0.2 million and essentially
no change in operating expenses with a net increase in CH Energy Group’s net
income of $0.2 million.  This is primarily due to the inclusion of
CH-Greentree revenues and the increased capacity at Lyonsdale resulting from the
equipment repairs completed in the second quarter of 2009.CH-Greentreebecame operational in
the third quarter of 2009.  Results for the nine months ended
September 30, 2009 compared to the same period in 2008 reflect a decrease in
operating revenues of $1.8 million and decreased total operating expenses of
$1.0 million with a net decrease in CH Energy Group’s net income of $0.4
million.  This decrease is primarily attributable to the outage for
equipment repairs at Lyonsdale in the second quarter of 2009.





Other
Income and Interest Charges





Other
income and deductions and interest charges for the balance of CH Energy Group,
primarily the holding company and CHEC’s investments in partnerships and other
investments (other than Griffith), decreased $1.6 million and $4.1 million for
the three and nine months ended September 30, 2009, when compared to the same
periods in 2008.  The decrease for the three months ended September
30, 2009 is due to an increase to interest expense on the private placement of
debt at the holding company in the second quarter of 2009 and lower earnings at
the partnerships.  The results for the nine months ended September 30,
2009 also include the reserve of $1.3 million recorded in the first quarter of
2009 for the full amount of an outstanding loan to Buckeye Biopower,
LLC.





CH ENERGY GROUP – INCOME
TAXES





Income
taxes for CH Energy Group increased $2.1 million and $3.1 million for the three
and nine months ended September 30, 2009, respectively, when compared to the
same periods in 2008 due primarily to an increase in pre-tax book income at
Central Hudson and Griffith.


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COMMON
STOCK DIVIDENDS





CH Energy
Group’s ability to pay dividends may be affected by the ability of its
subsidiaries to pay dividends. The Federal Power Act limits the payment of
dividends by Central Hudson to its retained earnings.  More
restrictive is the PSC’s limit on the dividends Central Hudson may pay to CH
Energy Group which is 100% of the average annual income available for common
stock, calculated on a two-year rolling average basis.  Based on this
calculation as of September 30, 2009, Central Hudson would be able to pay a
maximum of $28.3 million in dividends to CH Energy Group without violating the
restriction by the PSC.  Central Hudson’s dividend would be reduced to
75% of its average annual income in the event of a downgrade of its senior debt
rating below “BBB+” by more than one rating agency if the stated reason for the
downgrade is related to CH Energy Group or any of Central Hudson’s
affiliates.  Further restrictions are imposed for any downgrades below
this level.  Central Hudson’s current senior unsecured debt
rating/outlook is ‘A’/stable by both Standard & Poor’s Rating Services
(“Standard & Poor’s”) and Fitch Ratings and ‘A3’/negative by Moody’s
Investors Service (“Moody’s”).6  CH Energy
Group’s other subsidiaries do not have express restrictions on their ability to
pay 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 CH
Energy Group's dividend payments.  On September 30, 2009, the Board of
Directors of CH Energy Group declared a quarterly dividend of $0.54 per share,
payable November 2, 2009, to shareholders of record as of October 13,
2009.





__________________________________________


6 These
ratings reflect only the views of the rating agency issuing the rating, are not
recommendations to buy, sell, or hold securities of Central Hudson and may be
subject to revision or withdrawal at any time by the rating agency issuing the
rating.  Each rating should be evaluated independently of any other
rating.


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OTHER
MATTERS





CHANGES IN ACCOUNTING
STANDARDS





See Note
1 – “Summary of Significant Accounting Policies” and Note 3 – “New Accounting
Standards and Other FASB Projects” for discussion of relevant changes, which
discussion is incorporated by reference herein.





CLIMATE





While
there is growing consensus that some form of global climate change program will
be adopted at the federal level, it is too early to determine what impact such
program will have on CH Energy Group.  It should be noted, however, that
the Company's calculated CO2 emission
levels are relatively small, primarily because the Company does not generate
electricity in significant quantities.  Therefore, federally mandated
greenhouse gas reductions or limits on CO2 emissions
are not expected to have a material impact on the Company’s financial position
or results of operations.  However, the Company can make no prediction
as to the outcome of this matter.





FORWARD-LOOKING
STATEMENTS





Statements
included in this Quarterly Report on Form 10-Q and any 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 Exchange Act.  Forward-looking
statements may be identified by words including “anticipates,” “intends,”
“estimates,” “believes,” “projects,” “expects,” “plans,” “assumes,” “seeks,” and
similar expressions.  Forward-looking statements including, without
limitation, those relating to CH Energy Group’s and Central Hudson’s 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: deviations from normal seasonal weather and
storm activity; fuel prices; plant capacity factors; energy supply and demand;
potential future acquisitions; legislative, regulatory, and competitive
developments; interest rates; access to capital; market risks; corn and ethanol
prices; 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.  CH Energy Group and Central Hudson undertake no obligation
to update publicly any forward-looking statements, whether as a result of new
information, future events, or otherwise.


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





ITEM3–
            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.  2009 has continued to be a challenging
time in the financial markets with volatility of commodity prices and interest
rates.  The practices employed by CH Energy Group and Central Hudson
to mitigate these risks discussed in the Corporations’ 10-K Annual Report
continue to operate effectively.  For related discussion on this
activity, see, in the Financial Statements of the Corporations’ 10-K Annual
Report, Note 14 – “Accounting for Derivative Instruments and Hedging Activities”
and Item 7 – “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” under the sub-caption “Capital Resources and
Liquidity,” and Note 9 – Capitalization - Long-Term Debt and Item 7A –
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” under the sub-caption “Financing Program” of this Quarterly Report
on Form 10-Q.





ITEM 4–
            CONTROLS AND
      PROCEDURES





The Chief
Executive Officer and Chief Financial Officer of CH 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 the evaluation, concluded that, as of the end of the period covered by
this Quarterly Report on Form 10-Q, the Corporations’ controls and procedures
are effective.





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


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PART
II – OTHER INFORMATION





ITEM 1
      -
            LEGAL
      PROCEEDINGS





For
information about developments regarding certain legal proceedings, see Item 3
(“Legal Proceedings”) of the Corporations’ 10-K Annual Report, and Note 12 –
“Commitments and Contingencies” of that 10-K and/or Note 12 – “Commitments and
Contingencies” of this Quarterly Report on Form 10-Q.





CENTRAL
HUDSON:


Former
Manufactured Gas Plant Facilities


Little
Britain Road


Newburgh
Consolidated Iron Works


Asbestos
Litigation





ITEM 1A
      -
            RISK
      FACTORS





For a
discussion identifying 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.





Central
Hudson’s Rates Limit its Ability to Recover Increased Costs from its
Customers





Description
and Sources of Risk:  Central
Hudson’s retail rates are regulated by the PSC.  Rates generally may
not be changed during their respective terms.  Therefore, rates cannot
be modified for higher expenses than those assumed in the current rates, absent
circumstances such as an increase in expenses that meet the PSC’s threshold
requirements for filing for approval of deferral accounting.  Central
Hudson is operating under a single year rate plan approved by the PSC effective
July 1, 2009.  The following could unfavorably impact Central Hudson’s
financial results:





o
            Higher
      expenses than reflected in current rates.  Higher expenses could
      result from, among other things, increases in state and local taxes, storm
      restoration expense, and/or other expense components such as labor, health
      care benefits and/or higher levels of uncollectible receivables from
      customers.





o
            Higher
      electric and natural gas capital project costs resulting from escalation
      of material and equipment prices, as well as potential delays in the
      siting and legislative and/or regulatory approval requirements associated
      with these projects.





o
            A
      determination by the PSC that the cost to place a project in service is
      above a level which is deemed
prudent.


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o
            Penalties
      imposed by the PSC for the failure to achieve performance metrics
      established in rate proceedings.





Potential
Impacts: Central Hudson
could have lower earnings and/or reduced cash flows if cost management and/or
regulatory relief are not sufficient to alleviate the impact of higher
costs.





The
Profitability of CHEC’s Investments in Ethanol Projects May Be Adversely
Impacted by Commodity Price Changes or the Lack of Capital Available to Project
Developers to Complete New Projects





Description and
Sources of Risk:  CHEC’s management believes that increases in
wholesale corn prices and/or natural gas prices and/or decreases in ethanol
prices and/or distillers grains are caused by a variety of factors, including,
but not limited to the following:





o
            Actions
      by the federal government that reduce the demand for, or increase the
      supply of, ethanol.  Such actions could include, but are not
      limited to, a reduction in the required level of ethanol blending or weak
      enforcement of existing requirements, decreases in tax credits to refiners
      and/or reductions in tariffs on imported
  ethanol.





o
            Imbalances
      in the supply of and demand for corn.  This could be caused by,
      among other things (1) drought or other acts of nature, (2) increased
      construction of new ethanol production facilities, (3) governmental
      actions that discourage raising corn for use in ethanol production (such
      as providing tax credits for corn grown for human consumption) or (4)
      changes in agricultural markets, technology or
  regulations.





o
            Volatility
      in domestic and/or foreign markets.





Potential
Impacts:Prolonged
periods of high corn and/or natural gas prices and/or depressed ethanol and/or
distillers grain prices could result in reduced net margins and have a material
adverse impact on the earnings of Cornhusker Holdings that could, in turn, lead
to an impairment of CHEC’s investment in the company.





Additionally,
the adverse conditions described above could reduce cash flows of Cornhusker
Holdings which, in turn, could lead to loan defaults.  CHEC holds
subordinated notes totaling $10.2 million, including interest, and has an equity
investment of $2.2 million in Cornhusker as of September 30,
2009.  During the nine months ended September 30, 2009, CHEC accrued
$0.7 million of interest income associated with these notes.  In
response to the continuation of lower than expected crush margins, Management
stopped accruing interest on the subordinated debt and will record such interest
on the cash basis until the current outstanding balance of interest has been
paid.  CHEC held subordinated notes totaling $9.5 million, including
interest, and had an equity investment of $3.0 million in Cornhusker as of
December 31, 2008.  Cornhusker Energy Lexington, LLC (“CEL”)
re-negotiated the deadline in its senior note agreement for completing the
expansion of plant capacity and output to December 31,
2009.  Management expects the expansion of the plant’s capacity to be
completed by that date, but believes the output required under the terms of the
note agreement may not be achieved until the first quarter of
2010.  If the expanded output is not achieved by December, 31, 2009
(and following any cure period as provided for under the terms of the
agreement), CEL may request a waiver to extend the deadline, and if CEL is
unable to obtain a waiver by December 31, 2009, the senior note holder may have
the right to accelerate all amounts due under the senior note.


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CHEC also
has an outstanding loan to Buckeye Biopower, LLC (“Buckeye”) in the amount of
$1.2 million for the development of a 110 million gallon per year corn ethanol
plant.  During the first quarter of 2009, a reserve was established
for the full outstanding loan balance.  If circumstances do not change
sufficiently to allow for repayment, this could adversely impact CHEC’s ability
to ultimately collect the $1.2 million of cash that is due under the terms of
the loan agreement.  CHEC has notified the developers that the loan is
past due and has demanded payment.  Buckeye has not yet obtained
financing to develop the project.





ITEM 6-
            EXHIBITS





Incorporated
herein by reference to the Exhibit Index for this Quarterly Report on Form
10-Q, which is located immediately after the signature pages to this
report.


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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/
      Kimberly J. WrightKimberly
      J. WrightVice
      President - Accounting and ControllerCENTRAL
      HUDSON GAS & ELECTRIC CORPORATION(Co-Registrant)By:
            /s/
      Kimberly J. WrightKimberly
      J. WrightController





Dated:
November 9, 2009


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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 Description10(iii)(1)
            
            Employment
      Agreement, dated October 1, 2009, between CH Energy Group, Inc. and John
      Gould.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.






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