FORM 10-Q

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


(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, 1998
                                                        OR
[ ]  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...................................1-3268

                    CENTRAL HUDSON GAS & ELECTRIC CORPORATION
         ----------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

           NEW YORK                                        14-0555980        
-------------------------------                       -------------------
(State or other jurisdiction of                        (I.R.S. Employer      
incorporation or organization)                         Identification No.) 
                                                                        
284 SOUTH AVENUE, POUGHKEEPSIE  NEW YORK                  12601-4879         
----------------------------------------              --------------------
(Address of principal executive offices)                  (Zip Code)         
                                                 
Registrant's telephone number, including area code (914) 452-2000
                                                   --------------

         Indicate by check mark whether the Registrant (1) has 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
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes  X    No
                                              ---      ---
         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock as of the latest  practicable  date.  Common stock,  par
value $5.00 per share; 16,911,387 shares outstanding as of September 30, 1998.



<PAGE>



                    CENTRAL HUDSON GAS & ELECTRIC CORPORATION

               FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998

                                      INDEX




       PART I - FINANCIAL INFORMATION                               PAGE

Item 1 - Consolidated Financial Statements

         Consolidated Statement of Income -
          Three Months Ended September 30, 1998 and 1997              1

         Consolidated Statement of Income -
          Nine Months Ended September 30, 1998 and 1997               3

         Consolidated Balance Sheet - September 30, 1998
          and December 31, 1997                                       5

         Consolidated Statement of Cash Flows -
          Nine Months Ended September 30, 1998 and 1997               8

         Notes to Consolidated Financial Statements                  11

Item 2 - Management's Discussion and Analysis of
          Financial Condition and Results of
          Operations                                                 14


        PART II - OTHER INFORMATION

Item 1 - Legal Proceedings                                           26

Item 4 - Submission of Matters to a Vote of
          Security Holders                                           27

Item 6 - Exhibits and Reports on Form 8-K                            27

Signatures                                                           29



<PAGE>



                         PART I - FINANCIAL INFORMATION

                   ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS

                    CENTRAL HUDSON GAS & ELECTRIC CORPORATION
                        CONSOLIDATED STATEMENT OF INCOME
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                        For the 3 Months Ended
                                                             September 30,
                                                          1998            1997  
                                                       ---------        --------
                                                         (Thousands of Dollars)
<S>                                                   <C>                <C>      
Operating Revenues
 Electric..............................               $  108,262         $ 105,575
 Gas...................................                   10,569            13,520
                                                       ---------          --------
  Total - own territory................                  118,831           119,095
 Sales to other utilities..............                    6,892             4,412
                                                       ---------         ---------
                                                         125,723           123,507
                                                       ---------          --------
Operating Expenses
 Operation:
  Fuel used in electric generation.....                   25,856            19,569
  Purchased electricity................                   10,906            12,514
  Purchased natural gas................                    4,479             8,012
  Other expenses of operation..........                   24,467            23,997
 Maintenance...........................                    6,766             6,821
 Depreciation and amortization.........                   11,413            10,904
 Taxes, other than income tax..........                   15,538            16,328
 Federal income tax....................                    7,948             7,451
                                                       ---------          --------
                                                         107,373           105,596
                                                       ---------          --------

Operating Income.......................                   18,350            17,911
                                                       ---------          --------

Other Income and Deductions
 Allowance for equity funds
  used during construction.............                       95               114
 Federal income tax....................                      159               199
 Other - net...........................                    1,947             1,706
                                                       ---------          --------
                                                           2,201             2,019
                                                       ---------          --------
Income Before Interest Charges.........                   20,551            19,930
                                                       ---------          --------
</TABLE>


                                      - 1 -

<PAGE>


                    CENTRAL HUDSON GAS & ELECTRIC CORPORATION
                        CONSOLIDATED STATEMENT OF INCOME
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                            For the 3 Months Ended
                                                                September 30,
                                                       1998                     1997  
                                                     --------                 --------
                                                   (Thousands, Except for Per Share Amounts)

<S>                                                       <C>                     <C>  
Interest Charges
 Interest on mortgage bonds............                   3,559                   3,559
 Interest on other long-term debt......                   2,174                   2,203
 Other interest........................                     896                     644
 Allowance for borrowed funds
  used during construction.............                    (115)                    (71)
 Amortization of expense on debt.......                     227                     227
                                                      ---------                --------

                                                          6,741                   6,562
                                                      ---------                --------


Net Income.............................                  13,810                  13,368

Dividends Declared on Cumulative
 Preferred Stock.......................                     807                     807
                                                      ---------                --------
Income Available for Common Stock......                  13,003                  12,561
Dividends Declared on
 Common Stock..........................                   9,129                   9,290
                                                      ---------                --------

Balance Retained in the Business.......              $    3,874               $   3,271
                                                      =========                ========


Common Stock:
 Average Shares Outstanding (000s).....                  16,961                  17,408

 Earnings Per Share on Average Shares
 Outstanding...........................                   $.77                    $.72

 Dividends Declared....................                   $.54                    $.535
</TABLE>

                 See Notes to Consolidated Financial Statements.

                                      - 2 -

<PAGE>



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

<TABLE>
<CAPTION>
                                                            For the 9 Months Ended
                                                                September 30,
                                                       1998                     1997  
                                                    ---------                 --------
                                                           (Thousands of Dollars)
<S>                                                <C>                       <C>      
Operating Revenues
 Electric..............................            $  299,893                $ 301,347
 Gas...................................                62,740                   80,265
                                                    ---------                 --------
  Total - own territory................               362,633                  381,612
 Sales to other utilities..............                19,078                   12,375
                                                    ---------                 --------
                                                      381,711                  393,987
                                                    ---------                 --------
Operating Expenses
 Operation:
  Fuel used in electric generation.....                62,731                   47,776
  Purchased electricity................                33,556                   39,981
  Purchased natural gas................                30,523                   46,407
  Other expenses of operation..........                72,600                   73,630
 Maintenance...........................                19,101                   19,698
 Depreciation and amortization.........                34,075                   32,712
 Taxes, other than income tax..........                48,075                   49,767
 Federal income tax....................                24,294                   25,462
                                                    ---------                 --------
                                                      324,955                  335,433
                                                    ---------                ---------

Operating Income.......................                56,756                   58,554
                                                    ---------                 --------

Other Income and Deductions
 Allowance for equity funds
  used during construction.............                   284                      297
 Federal income tax....................                   733                      558
 Other - net...........................                 5,447                    5,586
                                                    ---------                 --------
                                                        6,464                    6,441
                                                    ---------                 --------

Income Before Interest Charges.........                63,220                   64,995
                                                    ---------                 --------


</TABLE>







                                                       - 3 -

<PAGE>



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

<TABLE>
<CAPTION>
                                                              For the 9 Months Ended
                                                                   September 30,
                                                          1998                     1997  
                                                        --------                 --------
                                                    (Thousands, Except for Per Share Amounts)

<S>                                                         <C>                     <C>   
Interest Charges
 Interest on mortgage bonds............                     10,678                  10,678
 Interest on other long-term debt......                      6,524                   6,584
 Other interest........................                      2,667                   1,923
 Allowance for borrowed funds
  used during construction.............                       (346)                   (185)
 Amortization of expense on debt.......                        679                     679
                                                         ---------                --------

                                                            20,202                  19,679
                                                         ---------                --------


Net Income.............................                     43,018                  45,316

Dividends Declared on Cumulative
 Preferred Stock.......................                      2,422                   2,422
                                                         ---------                --------
Income Available for Common Stock......                     40,596                  42,894
Dividends Declared on
 Common Stock..........................                     27,462                  27,894
                                                         ---------                --------

Balance Retained in the Business.......                 $   13,134               $  15,000
                                                         =========                ========


Common Stock:
 Average Shares Outstanding (000s).....                     17,084                  17,472

 Earnings Per Share on Average Shares
   Outstanding.........................                      $2.38                   $2.46

 Dividends Declared....................                      $1.615                  $1.60
</TABLE>

                 See Notes to Consolidated Financial Statements.

                                      - 4 -

<PAGE>



                    CENTRAL HUDSON GAS & ELECTRIC CORPORATION
                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION> 
                                               September 30,             December 31,
                                                   1998                     1997
                                               ------------              -----------
                                               (Unaudited)                (Audited) 
                                                        (Thousands of Dollars)
          ASSETS
<S>                                              <C>                      <C>       
Utility Plant
 Electric.......................                 $1,204,463               $1,193,735
 Gas............................                    155,482                  151,222
 Common.........................                     94,364                   91,522
 Nuclear fuel...................                     42,319                   37,262
                                                  ---------                ---------
                                                  1,496,628                1,473,741
 Less: Accumulated depreciation.                    589,607                  560,304
       Nuclear fuel amortization                     34,619                   33,059
                                                  ---------                ---------
                                                    872,402                  880,378
 Construction work in progress..                     58,159                   52,413
                                                  ---------                ---------
   Net Utility Plant............                    930,561                  932,791
                                                  ---------                ---------

Investments and Other Assets
 Prefunded Pension Costs........                     36,047                   23,536
 Other..........................                     16,885                   14,958
                                                  ---------                ---------
   Total Investments and
    Other Assets................                     52,932                   38,494
                                                  ---------                ---------

Current Assets
 Cash and cash equivalents......                     23,407                    9,054
 Accounts receivable from
  customers-net of allowance for
  doubtful accounts.............                     40,448                   49,643
 Accrued unbilled utility
  revenues......................                      9,460                   16,229
 Other receivables..............                      1,153                    2,073
 Fuel, materials and supplies,
  at average cost...............                     25,175                   24,100
 Special deposits and
  prepayments...................                     19,246                   14,210
                                                  ---------                ---------
   Total Current Assets.........                    118,889                  115,309
                                                  ---------                ---------

Deferred Charges
 Regulatory assets..............                    129,503                  139,236
 Unamortized debt expense.......                      4,761                    5,002
 Other..........................                     23,402                   21,258
                                                  ---------                ---------
   Total Deferred Charges.......                    157,666                  165,496
                                                  ---------                ---------

Total Assets....................                 $1,260,048               $1,252,090
                                                  =========                =========
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                      - 5 -

<PAGE>



                    CENTRAL HUDSON GAS & ELECTRIC CORPORATION
                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                              September 30,             December 31,
                                                                  1998                      1997
                                                              -----------               -------------
                                                              (Unaudited)                 (Audited) 
                                                                       (Thousands of Dollars)

                   LIABILITIES and CAPITALIZATION
<S>                                                          <C>                          <C>     

Capitalization
 Common Stock Equity
  Common stock, 30,000,000 shares
  authorized; shares issued
  ($5 par value):
  1998 - 17,554,987
  1997 - 17,554,987............                               $   87,775                  $   87,775
 Paid-in capital...............                                  284,465                     284,465
 Retained earnings.............                                  133,674                     120,540
 Reacquired capital stock......                                  (25,086)                     (9,398)
 Capital stock expense.........                                   (6,222)                     (6,278)
                                                               ---------                   ---------
   Total Common Stock Equity...                                  474,606                     477,104
                                                               ---------                   ---------

 Cumulative Preferred Stock
  Not subject to mandatory
   redemption..................                                   21,030                      21,030
  Subject to mandatory
   redemption..................                                   35,000                      35,000
                                                               ---------                   ---------
    Total Cumulative Preferred
     Stock.....................                                   56,030                      56,030
                                                               ---------                   ---------

 Long-term Debt................                                  356,790                     361,829
                                                               ---------                   ---------

    Total Capitalization.......                                  887,426                     894,963
                                                               ---------                   ---------

Current Liabilities
 Current maturities
  of long-term debt............                                   21,696                       1,317
 Accounts payable..............                                   18,693                      24,368
 Accrued taxes and interest....                                   15,197                       3,240
 Dividends payable.............                                    9,936                      10,052
 Accrued vacation..............                                    4,400                       4,339
 Customer deposits.............                                    4,102                       4,001
 Other.........................                                    6,304                       6,545
                                                               ---------                   ---------
   Total Current Liabilities...                                   80,328                      53,862
                                                               ---------                   ---------

</TABLE>


                                                       - 6 -

<PAGE>




                    CENTRAL HUDSON GAS & ELECTRIC CORPORATION
                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                            September 30,              December 31,
                                                                1998                       1997
                                                            ------------               -------------
                                                             (Unaudited)                 (Audited) 
                                                                       (Thousands of Dollars)
<S>                                                            <C>                         <C>   
                   LIABILITIES and CAPITALIZATION

Deferred Credits and Other
 Liabilities
 Regulatory liabilities........                                   73,889                      81,271
 Operating reserves............                                    5,240                       6,582
 Other.........................                                   10,168                      10,019
                                                               ---------                   ---------
   Total Deferred Credits and
    Other Liabilities..........                                   89,297                      97,872
                                                               ---------                   ---------

Accumulated Deferred Income Tax                                  202,997                     205,393
                                                               ---------                   ---------

Total Capitalization and
 Liabilities...................                               $1,260,048                  $1,252,090
                                                               =========                   =========

</TABLE>






                 See Notes to Consolidated Financial Statements.

                                      - 7 -

<PAGE>




                 See Notes to Consolidated Financial Statements.


                    CENTRAL HUDSON GAS & ELECTRIC CORPORATION
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                               For the 9 Months Ended
                                                                    September 30,
                                                                1998                   1997  
                                                              -------                 -------
                                                                    (Thousands of Dollars)
<S>                                                           <C>                    <C>   
Operating Activities
  Net Income..........................                        $ 43,018               $ 45,316

  Adjustments to reconcile net income
   to net cash provided by (used in)
   operating activities:

    Depreciation, amortization and
      nuclear fuel amortization.......                          36,503                 36,101
    Deferred income taxes, net........                          (1,195)                 4,637
    Allowance for equity funds used
      during construction.............                            (284)                  (297)
    Nine Mile 2 Plant deferred
      finance charges, net............                          (3,642)                (3,642)
    Provision for uncollectibles......                           2,125                  2,475
    Accrued pension costs.............                          (8,106)                (6,420)
    Deferred gas costs................                            (489)                 4,081
    Deferred gas refunds..............                          (1,465)                 2,183
    Other - net.......................                            (616)                (2,601)

  Changes in current assets and 
   liabilities, net:

    Accounts receivable and unbilled
     revenues.................                                  14,759                 11,196
    Fuel, materials and supplies......                          (1,075)                 2,167
    Special deposits and prepayments..                          (5,036)                (2,920)
    Accounts payable..................                          (5,675)               (10,106)
    Accrued taxes and interest........                          11,957                 14,643
    Other current liabilities.........                             (79)                (1,126)
                                                               -------                -------

  Net cash provided by operating
   activities.........................                          80,700                 95,687
                                                               -------               --------
</TABLE>




                                      - 8 -

<PAGE>



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

                                                      For the 9 Months Ended
                                                            September 30,
                                                         1998         1997 
                                                        ------        -----   
                                                       (Thousands of Dollars)

Investing Activities
  Additions to plant..................               (34,082)          (28,035)
  Allowance for equity funds used
   during construction................                   284               297
                                                     -------           -------
  Net additions to plant..............               (33,798)          (27,738)
  Nine Mile 2 Plant decommissioning
   trust fund.........................                  (651)             (651)
  Other - net.........................                (1,479)             (499)
                                                     --------          --------
  Net cash used in investing
   activities.........................               (35,928)          (28,888)
                                                     -------           -------

Financing Activities
   Proceeds from issuance of
     long-term debt...................                16,502             1,169
   Repayments of short-term debt......                    -            (15,600)
   Retirement and redemption of
    long-term debt....................                (1,233)             (438)
   Dividends paid on cumulative
    preferred and common stock........               (30,000)          (30,331)
   Reacquired capital stock...........               (15,688)           (6,066)
                                                    ---------          --------
   Net cash used in financing
    activities........................               (30,419)          (51,266)
                                                    --------           --------















                                                       - 9 -

<PAGE>



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

                                                        For the 9 Months Ended
                                                              September 30,
                                                           1998        1997
                                                         -------      --------
                                                        (Thousands of Dollars)

Net Change in Cash and Cash
 Equivalents ...................................          14,353          15,533

Cash and Cash Equivalents -
 Beginning of Year .............................           9,054           4,235
                                                         -------         -------

Cash and Cash Equivalents -
 End of Period .................................         $23,407         $19,768
                                                         =======         =======

Supplemental Disclosure of
 Cash Flow Information
   Interest paid (net of amounts
    capitalized) ...............................         $13,100         $13,365

   Federal income tax paid .....................          17,900          14,111
                                                         =======         =======












                 See Notes to Consolidated Financial Statements.


                                     - 10 -

<PAGE>



                    CENTRAL HUDSON GAS & ELECTRIC CORPORATION
                   Notes to Consolidated Financial Statements

NOTE 1 - GENERAL

The  accompanying  consolidated  financial  statements  of Central  Hudson Gas &
  Electric  Corporation (herein "the Company") are unaudited but, in the opinion
  of  management,   reflect   adjustments   (which   include  normal   recurring
  adjustments)  necessary  for a fair  statement  of the results for the interim
  periods presented.  These condensed unaudited quarterly consolidated financial
  statements  do not  contain  the  detail or  footnote  disclosures  concerning
  accounting  policies  and other  matters  which  would be  included  in annual
  consolidated  financial  statements  and,  accordingly,   should  be  read  in
  conjunction with the audited Consolidated  Financial Statements (including the
  notes thereto)  included in the Company's Annual Report, on Form 10-K, for the
  year ended December 31, 1997 (Company's 10-K Report).

Due to the seasonal nature of the Company's  operations,  financial  results for
  interim  periods are not  necessarily  indicative of trends for a twelve-month
  period.

NOTE 2 - REGULATORY MATTERS

Amended Settlement Agreement Order

Reference is made to the Amended and Restated Settlement Agreement, as described
  in  Item  7  under  the  caption   "Competition/Deregulation"  and  Note  1  -
  "Regulatory Matters" to the Consolidated Financial Statements of the Company's
  10-K Report,  regarding  the  Company's  plan for  transition to a competitive
  generation and energy  services  market (Amended  Settlement  Agreement).  The
  Company has  received  the final Order  dated June 30,  1998,  from the Public
  Service  Commission of the State of New York (PSC) confirming the February 19,
  1998 (Order) of the PSC adopting the terms of the Amended Settlement Agreement
  subject to  modifications  and conditions  therein,  which  modifications  and
  conditions were approved by the PSC on February 4, 1998.  These  modifications
  and  conditions  include the  following:  a) the PSC reserved its authority to
  require  an auction  and  transfer  of the  Company's  fossil-fueled  electric
  generating  assets prior to June 30,  2001,  if such  accelerated  auction and
  transfer is found by the PSC to be in the public  interest (at  September  30,
  1998, the net book value of the Company's fossil generating assets represented
  approximately  19% of net utility plant); b) the PSC directed the PSC Staff to
  provide  assurance that the Company does not incur imprudent

                                     - 11 -

<PAGE>




  generation  costs  which  could be avoided  by  divestiture  of  fossil-fueled
  electric  generating  assets prior to June 30, 2001; c) "Strandable  costs" of
  the Company, as defined in the Amended Settlement Agreement, were clarified to
  be those  "production  expenditures  of the  Company  made in  fulfilling  its
  obligation to serve and provide safe,  reliable  electric service to customers
  within its franchise  territory  which are not expected to be recoverable in a
  competitive  electricity  market";  d) the PSC added a provision  dealing with
  mergers and  acquisitions;  namely,  pursuant to a petition  filed  jointly or
  individually by the Company,  the Company will have the flexibility to retain,
  on a cumulative  basis,  all savings  associated with an acquisition or merger
  with  another  utility  for a period of five years from the date of closing of
  any merger or  acquisition  up to the amount of the  acquisition  premium paid
  over the  lesser  of book  value or fair  market  value of  assets  merged  or
  acquired,  and savings in excess of the recovery  will be disposed of by order
  of the PSC.

Impact of Amended Settlement Agreement on Accounting Policies

The Amended  Settlement  Agreement  creates  certain  changes  to the  Company's
  accounting  policies.  The Company's  accounting policies conform to generally
  accepted accounting principles, which, for regulated public utilities, include
  Statement  of  Financial  Accounting  Standards  No. 71,  "Accounting  for the
  Effects of Certain Types of  Regulation"  (SFAS 71) as issued by the Financial
  Accounting  Standards Board (FASB).  Under SFAS 71, regulated  companies defer
  costs and credits on the balance  sheet as regulatory  assets and  liabilities
  when it is  probable  that  those  costs and  credits  will be  allowed in the
  rate-making  process in a period different from when they otherwise would have
  been reflected in income. These deferred regulatory assets and liabilities are
  then reflected in the income statement in the period in which the same amounts
  are  reflected in rates.  If some portion of an  enterprise's  operations  are
  regulated and meet the  appropriate  criteria,  SFAS 71 is applied only to the
  regulated portion of the enterprise's operations.

Upon  approval  of the  Amended  Settlement  Agreement  by the PSC,  the Company
  applied the provisions of Statement of Financial Accounting Standards No. 101,
  "Regulated  Enterprises  Accounting for the  Discontinuation of Application of
  FASB Statement No. 71" (SFAS 101) to the fossil-fueled  generating  portion of
  its  business.  Therefore,  on  February  4,  1998  the  Company  discontinued
  application  of  SFAS  71 to  its  fossil-fueled  generating  portion  of  its
  business.  Because the Amended  Settlement  Agreement includes a provision for
  future  recovery of costs,  the  application of SFAS 101 to the  fossil-fueled

                                     - 12 -

<PAGE>





  generating portion of the Company's business did not have a significant effect
  on the  Company's  financial  position  or  results of  operations  as of such
  discontinuance. Certain regulatory assets and liabilities have been created as
  a result of transactions  relating to the Company's  fossil-fueled  generating
  assets.  At September 30, 1998,  net  regulatory  assets  associated  with the
  fossil-fueled  generating  assets  totaled $6.7  million.  The Company did not
  charge against income any of these net regulatory  assets because  recovery of
  such assets is considered probable under the Amended Settlement Agreement.

Statement  of  Financial  Accounting  Standards  No.  121,  "Accounting  for the
  Impairment of Long-Lived  Assets and for Long-Lived  Assets to be Disposed Of"
  (SFAS 121),  requires that long-lived assets be reviewed for impairment if the
  carrying  value of the asset may not be  recoverable.  SFAS 121 also  requires
  that  long-lived  assets to be disposed of be carried at the lower of net book
  value or fair value,  and amends SFAS 71 to require that regulatory  assets be
  charged against earnings if recovery of such assets is no longer probable. The
  Company  will not  recognize an  impairment  of its  fossil-fueled  generating
  assets  because the  estimated  cash flows from  operations,  the sale of such
  generating  assets,  and  stranded  cost  recovery  provisions  of the Amended
  Settlement  Agreement are not expected to be less than the net carrying amount
  of such generating assets.

Formation of Holding Company

Reference  is made to the  caption  "Amended  Settlement  Agreement"  of Note 1,
  "Regulatory  Matters,"  to  the  Consolidated   Financial  Statements  of  the
  Company's 10-K Report and to the Company's Form 8-K, dated January 7, 1998, in
  which a proposed new holding  company  structure for the Company was disclosed
  in the context of the PSC's Competitive  Opportunities  Proceeding.  Effective
  April 24, 1998, the Company formed a wholly-owned  subsidiary  named CH Energy
  Group, Inc., which, upon a one-for-one share exchange, will become the holding
  company owner of Central  Hudson Gas & Electric  Corporation.  The Company has
  received  approval  from  the  Federal  Energy  Regulatory   Commission,   the
  Securities and Exchange Commission, the Nuclear Regulatory Commission and at a
  Special Meeting of Shareholders,  on September 25, 1998, shareholder approval.
  Results of the shareholder vote, approving the holding company  restructuring,
  were  reported  on Form  8-K  dated  October  9,  1998.  The  holding  company
  restructuring will be delayed until some time during the first half of 1999 in
  order for the  Company  to  coordinate  closely  with such  restructuring  the
  transfer of up to $100
                                     - 13 -

<PAGE>


  million in equity (as  authorized  by the PSC under  said  Amended  Settlement
  Agreement referred to above under the subcaption "Amended Settlement Agreement
  Order") from the Corporation to unregulated business ventures.  Initially, the
  holding company will be comprised of Central Hudson Gas & Electric Corporation
  and its existing  subsidiaries as described under the subcaption  "Affiliates"
  under the caption "Other Matters" of Item 1 of the Company's 10-K Report, with
  the exception of Phoenix Development Company,  Inc. which will remain a wholly
  owned  subsidiary of Central  Hudson Gas & Electric  Corporation.  The holding
  company may also establish other subsidiaries over time.

NOTE 3 - NEW ACCOUNTING STANDARDS - SEGMENT DISCLOSURES

In June 1997, the FASB issued  Statement of Financial  Accounting  Standards No.
  131,  "Disclosures  about Segments of an Enterprise  and Related  Information"
  (SFAS 131).  This Statement  establishes  standards for reporting  information
  about operating segments in annual and interim financial  statements.  It also
  establishes  standards for related  disclosures  about  products and services,
  geographic areas and major  customers.  In compliance with the requirements of
  this  Statement,  the Company will adopt SFAS 131 in its financial  statements
  for the year ended  December  31,  1998.  The Company does not expect that the
  adoption  of  SFAS  131  will  have a  significant  impact  on  the  reporting
  requirements of the Company.

NOTE 4 - COMMITMENTS AND CONTINGENCIES

The Company faces a number of contingencies which arise during the normal course
  of  business  and  which  have  been  discussed  in  Note  9,"Commitments  and
  Contingencies", to the Consolidated Financial Statements of the Company's 10-K
  Report.  Except  for that  which  is  disclosed  in Part II of this  Quarterly
  Report,  on Form 10-Q, for the quarterly  period ended September 30, 1998, and
  all documents  previously filed with the Securities and Exchange Commission in
  1998, there have been no material changes in the subject matters  discussed in
  said Note 9.

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

CAPITAL RESOURCES AND LIQUIDITY

The growth of retained  earnings in the first nine months of 1998 contributed to
  the  increase in the book value of common  stock from  $27.61 at December  31,
  1997 to $28.06 at  September  30,  1998;  however,  the  common  equity  ratio
  decreased  from 53.2% at

                                     - 14 -

<PAGE>



  December 31, 1997 to 52.2% at September 30, 1998,  due to the combined  effect
  of the  repurchase  of common  stock which  exceeded  the increase in retained
  earnings and the issuance of $15 million Medium Term Notes as discussed below.

For the nine months ended  September 30, 1998, the Company  repurchased  368,400
  shares  of its  common  stock  for $15.7  million  under its stock  repurchase
  program (See Note 6,  "Capitalization-  Capital  Stock",  to the  Consolidated
  Financial Statements of the Company's 10-K Report).

For the nine months ended September 30, 1998, cash  expenditures  related to the
  construction  program of the  Company  amounted to $33.5  million.  The amount
  shown on the Consolidated Statement of Cash Flows for "Net additions to Plant"
  of $33.8  million  includes the debt portion of $346,000 of the  Allowance for
  Funds Used During  Construction  ("AFDC", as such term is described in Note 1,
  "Regulatory  Matters",  to  the  Consolidated   Financial  Statements  of  the
  Company's  10-K Report).  The cash  requirements  for such  expenditures  were
  funded from internal sources.

The Company has $52 million of committed short-term credit facilities available.
  In order to diversify  its sources of  short-term  financing,  the Company has
  also entered into short-term credit facilities with several  commercial banks.
  At September 30, 1998, the Company had no short-term debt  outstanding and had
  investments in short-term securities in the amount of $31.1 million at the end
  of September 1998.  Authorization from the PSC limits the short-term borrowing
  amount the Company may have  outstanding,  at any time,  to $52 million in the
  aggregate.

Pursuant to Article XXI of the  Company's  First  Mortgage Bond  Indenture,  the
  Company deposited $722,226 on March 24, 1998 with the Indenture Trustee.  Such
  Article  requires  the  deposit  of the amount by which  depreciation  exceeds
  property  additions in each calendar year, less property additions made in the
  subsequent  calendar  year,  up to the date of  deposit  which must be made no
  later  than  March  31 of  each  year.  Such  deposit  may be  withdrawn  at a
  subsequent date to fund redemptions of outstanding mortgage bonds.

As described  in  Note  7,"Capitalization-Long-Term  Debt",  to the Consolidated
  Financial Statements of the Company's 10-K Report, the Company's interest rate
  cap  agreement  expired in April 1998. On April 1, 1998,  the Company  entered
  into an interest rate cap agreement with a bank, which agreement expires March
  31,  2000.  Under  this  agreement,  in  the  event  a  nationally  recognized
  tax-

                                     - 15 -

<PAGE>




  exempt bond interest rate index exceeds 5%, the Company will receive a payment
  from such bank equal to the amount by which the actual  interest  costs on its
  variable  rate 1985 and 1987 New York State Energy  Research  and  Development
  Authority  Bonds  exceeds  5% per  annum.  This  agreement  has the  effect of
  limiting the interest the Company must pay on such bonds (on a $115.9  million
  notional amount) to the lesser of their actual rate or 5% per annum.

On May 5, 1998,  Moody's Investor  Service,  Inc.  upgraded the Company's senior
  secured  debt rating  from "A3" to "A2".  The  Company's  other  service  debt
  ratings are "A" from  Standard and Poor's  Corporation,  Duff & Phelps  Credit
  Rating Co. and Fitch/IBCA.

On September 8, 1998, the Company  issued and sold 5.93% Medium Term Notes under
  its Medium Term Note Program. The principal amount of the notes is $15 million
  and matures on  September  10,  2001.  The net  proceeds  to the Company  were
  $14,947,500 or 99.65%.

The Company  intends  to  refinance  its  8.375%  series  NYSERDA  bonds  ($16.7
  million)on or soon after their call date on December 1, 1998 at a lower cost.

EARNINGS PER SHARE

Earnings per share of common stock were $.77 for the third  quarter of 1998,  as
  compared to $.72 for the third  quarter of 1997,  an increase of 7%.  Earnings
  per share of common stock were $2.38 for the nine months ended  September  30,
  1998,  as compared to $2.46 for the nine months  ended  September  30, 1997, a
  decrease of 3%.

The increase in earnings per share for the quarter ended  September 30, 1998, as
  compared to the same period in 1997,  resulted  primarily  from the  increased
  electric and gas net  operating  revenues  largely due to  increased  electric
  sales to residential,  commercial and industrial  customers and also, sales to
  other utilities.  These increases were partially  offset by the  non-recurring
  provision for the non-recoverable  portion of a purchased power contract.  The
  increase  in gas net  operating  revenues  results  primarily  from  favorable
  reconciling  adjustments to gas costs  collected  from  customers  through the
  company's gas cost adjustment.  Also contributing to the increased earnings is
  the combined  effect of decreased  property taxes and decreased  payroll taxes
  and the favorable  impact of the Company's  common stock  repurchase  program.
  Offsetting these


                                     - 16 -

<PAGE>


  increases were  increased  operation and  maintenance  costs in 1998 resulting
  from increased output of the Company's electric  generating plants and the net
  effect of various other items, including increased depreciation expense on the
  Company's plant and equipment.

The decrease in per share earnings for the nine months ended September 30, 1998,
  as compared to the same period in 1997,  resulted  largely  from a decrease in
  electric net  operating  revenues due  primarily  to the  non-recurring  final
  provision for the non-recoverable  portion of a purchased power contract. Also
  impacting  this decrease was the net effect of various other items,  including
  increased  depreciation  expense on the Company's  plant and equipment and the
  favorable impact of the Company's common stock repurchase program.

                                     - 17 -

<PAGE>



RESULTS OF OPERATIONS

The following  table reports the variation in the results of operations  for the
  three months and the nine months ended September 30, 1998 compared to the same
  periods for 1997:

<TABLE>
<CAPTION>
                                                   3 MONTHS ENDED SEPTEMBER 30, 
                                                                            INCREASE
                                             1998              1997        (DECREASE)
                                             ----              ----        ----------
                                                       (Thousands of Dollars)
<S>                                        <C>               <C>              <C>  
Operating Revenues...............          $125,723          $123,507         $  2,216
Operating Expenses...............           107,373           105,596            1,777
                                            -------           -------          -------
Operating Income.................            18,350            17,911              439
Other Income.....................             2,201             2,019              182
                                            -------           -------          -------
Income before Interest Charges...            20,551            19,930              621
Interest Charges.................             6,741             6,562              179
                                            -------           -------          -------
Net Income.......................            13,810            13,368              442
Dividends Declared on Cumulative
 Preferred Stock.................               807               807             -   
                                            -------           -------          -------
Income Available for Common Stock          $ 13,003          $ 12,561         $    442
                                            =======           =======          =======
</TABLE>


<TABLE>
<CAPTION>
                                                   9 MONTHS ENDED SEPTEMBER 30, 
                                                                            INCREASE
                                             1998              1997        (DECREASE)
                                             ----              ----        ----------
                                                      (Thousands of Dollars)
<S>                                        <C>               <C>              <C>  

Operating Revenues...............          $381,711          $393,987         $(12,276)
Operating Expenses...............           324,955           335,433          (10,478)
                                            -------           -------          -------
Operating Income.................            56,756            58,554           (1,798)
Other Income.....................             6,464             6,441               23
                                            -------           -------          -------
Income before Interest Charges...            63,220            64,995           (1,775)
Interest Charges.................            20,202            19,679              523
                                            -------          --------          -------
Net Income.......................            43,018            45,316           (2,298)
Dividends Declared on Cumulative
 Preferred Stock.................             2,422             2,422             -   
                                            -------           -------          -------
Income Available for Common Stock          $ 40,596          $ 42,894         $ (2,298)
                                            =======           =======          =======
</TABLE>

                                     - 18 -

<PAGE>



OPERATING REVENUES

Operating revenues  increased $2.2 million (2%) for the third quarter of 1998 as
  compared to the third quarter of 1997 and decreased $12.3 million (3%) for the
  nine months ended September 30, 1998. Details of these revenue changes by

 electric and gas departments are as follows:

                                   INCREASE (DECREASE) FROM PRIOR PERIOD
                                THIRD QUARTER               NINE MONTHS    
                              Electric       Gas       Electric         Gas 
                             ---------    ---------    ---------    ---------- 
                                          (Thousands of Dollars)

Customer Sales ...........    $  4,842     $ (3,228)*    $  3,199     $(10,794)*
Sales to Other
 Utilities ...............       2,484           (4)        6,191          512
Fuel and Gas Cost
 Adjustment ..............         468           28         1,577       (8,325)
Deferred Revenues ........      (2,445)         256        (5,170)       1,648
Miscellaneous** ..........        (178)          (7)       (1,060)         (54)
                              --------     --------      --------     --------
                              $  5,171     $ (2,955)     $  4,737     $(17,013)
                              ========     ========      ========     ========

 *Both firm and interruptible revenues.
**Includes  revenues  from  delivery  service  of  electric  for  retail  access
  customers, transportation of customer-owned gas and sales to customers outside
  the Company's service territory.

SALES

The Company's sales vary seasonally in response to weather.  Generally  electric
  revenues peak in the summer and gas revenues peak in the winter.

Total kilowatt-hour  sales of electricity within the Company's service territory
  increased  6%,  while firm sales of natural  gas  decreased  9%, for the third
  quarter of 1998 as compared to the third quarter of 1997.  For the nine months
  ended  September  30,  1998,  electric  sales  increased 2% and firm gas sales
  decreased  11%  compared to the same  period last year.  Changes in sales from
  last  year by major  customer  classifications,  including  interruptible  gas
  sales,   are  set  forth  below.   Also  indicated  are  changes   related  to
  transportation of customer-owned gas:

                                     - 19 -



<PAGE>

                                       INCREASE (DECREASE) FROM PRIOR PERIOD 
                                        THIRD QUARTER          NINE MONTHS   
                                       Electric     Gas        Electric   Gas 
                                       --------     ---        --------   ----  
 Residential .........................     7        (9)%           1      (10)%
 Commercial ..........................     6         --            3       (8)
 Industrial ..........................     6       (52)             1     (28)
 Interruptible .......................   N/A       (47)           N/A     (44)
 Transportation of
  Customer-owned
  Gas ................................   N/A          1           N/A       5

Delivery service of electric retail access  customers first began in the quarter
   ended  March  31,  1998.  The  related  volume  was .9% and .4% of total  own
   territory  sales for the quarter and for the nine months ended  September 30,
   1998, respectively.

Sales of  electricity  to  residential  customers  in the third  quarter of 1998
   increased 7%  primarily  from an increase in usage per  customer.  Commercial
   sales in the third quarter of 1998  increased 6% as compared to last year due
   to the  combined  effect  of a 3%  increase  in usage per  customer  and a 3%
   increase in the number of customers.  Electric sales to industrial  customers
   increased  6% in the third  quarter of 1998 due  primarily  to an increase in
   usage by a large industrial customer.

For the nine  months  ended   September  30,  1998,   sales  of  electricity  to
   residential  customers increased 1% due to an increase in usage per customer.
   Sales to commercial customers increased 3% due to the combined effect of a 2%
   increase  in the  number  of  customers  and a 1%  increase  in the usage per
   customer.  Electric  sales  to  industrial  customers  increased  1% for such
   nine-month period.

Sales of gas to residential customers for the third quarter of 1998 decreased 9%
   due to the net  effect  of a 10%  decrease  in usage  per  customer  and a 1%
   increase in the number of customers. Sales of gas to commercial customers for
   the  third  quarter  of 1998  remained  flat  due to the net  effect  of a 4%
   increase in the number of customers  and a 4% decrease in usage per customer.
   Firm gas sales to industrial customers decreased 52% for the third quarter of
   1998 when  compared to the same period in 1997,  due  primarily  to decreased
   usage by a large  industrial  customer  and the  conversion  of a  number  of
   industrial customers to gas transportation service.

For the nine months ended September 30, 1998,  residential  gas sales  decreased
   10% due to a decrease in usage per customer.


                                     - 20 -

<PAGE>

Commercial  gas sales  decreased  8% due to the  net effect of a 11% decrease in
  usage per  customer  and a 3%  increase in the number of  customers.  Firm gas
  sales to  industrial  customers  for the nine months ended  September 30, 1998
  decreased  28% due  largely  to a  decrease  in  usage  by a large  industrial
  customer  and the  conversion  of a  number  of  industrial  customers  to gas
  transportation service.

Interruptible  gas sales  decreased 47% in the third quarter of 1998 and 44% for
   the nine months ended September 30, 1998, due largely to a decrease in boiler
   gas usage for electric generation.

Transportation  gas volumes  increased 1% for the third quarter and increased 5%
   for the nine months ended September 30, 1998, due primarily to the conversion
   of a number of industrial customers to gas transportation service.


                                      -21 -

<PAGE>


OPERATING EXPENSES

Thefollowing  table  reports the  variation  in the  operating  expenses for the
   three months and nine months ended  September  30, 1998  compared to the same
   periods for the prior year:

                         INCREASE (DECREASE) FROM PRIOR PERIOD
                            THIRD QUARTER              NINE MONTHS   
                           ---------------             -----------   
                         Amount       Percent      Amount      Percent 
                         ------       -------      ------      -------
                                       (Dollars in Thousands)
Operating Expenses
 Fuel and Purchased
  Electricity ........   $  4,679        15 %     $  8,530          10%
 Purchased Natural Gas     (3,533)        (44)     (15,884)        (34)
 Other Expenses of
  Operation ..........        470           2       (1,030)         (1)
 Maintenance .........        (55)         (1)        (597)         (3)
 Depreciation and
  Amortization .......        509           5        1,363           4
 Taxes, Other than
  Federal Income Tax .       (790)         (5)      (1,692)         (3)
 Federal Income Tax ..        497           7       (1,168)         (5)
                         --------    --------     --------    --------
      Total ..........   $  1,777           2%    $(10,478)         (3)%
                         ========    ========     ========    ========

Fuel and purchased  electricity costs increased $4.7 million (15%) for the third
   quarter of 1998 and $8.5 million  (10%) for the nine months  ended  September
   30,  1998,  resulting  from the  combined  effect  of higher  electric  sales
   (including  sales to other utilities) and the  non-recurring  final provision
   for the  non-recoverable  portion of a purchased  power  contract.  Purchased
   natural gas costs  decreased $3.5 million (44%) for the third quarter of 1998
   resulting  primarily from lower  interruptible  gas sales for usage as boiler
   fuel.  Also  contributing  to this  decrease  was the  favorable  reconciling
   adjustments to gas costs  collected from customers  through the Company's gas
   cost  adjustment.  Purchased  natural gas costs decreased $15.9 million (34%)
   for the nine months ended  September 30, 1998  resulting  primarily  from the
   combined effect of lower  interruptible gas sales for usage as boiler fuel, a
   decrease in the  restoration  of deferred gas costs  related to the Company's
   gas cost  adjustment  and a reduction in the base cost of gas resulting  from
   decreased own territory firm sales.

COMMON STOCK DIVIDENDS

Reference is made to the caption  "Common  Stock  Dividends and Price Ranges" on
   Page 37 of Item 7 to the Company's 10-K 

                                     - 22 -

<PAGE>


Report, and which is incorporated  by  reference  in  Part  II,  Item 5 of said 
  Report, for a discussion of the Company's dividend policies.  On September 25,
  1998, the Board of Directors of the Company  declared a quarterly  dividend of
  $.54 per  share,  payable  November  2, 1998 to  shareholders  of record as of
  October 9, 1998,  representing an increase of $.005, or 1%, over the $.535 per
  share level established one year ago.

OTHER MATTERS

FORWARD-LOOKING STATEMENTS
This quarterly  report on Form 10-Q and the documents  incorporated by reference
   may  contain  statements  which,  to the extent they are not  recitations  of
   historical fact,  constitute "forward- looking statements" within the meaning
   of  the  Securities  Litigation  Reform  Act  of  1995  (Reform  Act).  These
   statements  will  contain  words such as  "believes",  "expects",  "intends",
   "plans",  and other similar words.  All such  forward-looking  statements are
   intended to be subject to the safe harbor  protection  provided by the Reform
   Act. A number of  important  factors  affecting  the  Company's  business and
   financial  results could cause actual results to differ materially from those
   stated in the  forward-looking  statements.  Those factors  include  weather,
   energy supply and demand,  developments  in the  legislative,  regulatory and
   competitive  environment,  electric and gas industry  restructuring  and cost
   recovery and certain  environmental  matters as well as such other factors as
   set forth in the  Company's  Annual  Report  on Form 10-K for the year  ended
   December 31, 1997 and all documents  subsequently  filed with the  Securities
   and Exchange Commission.

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


THE YEAR 2000 ISSUE

Overview

Thedate  change  in the year  2000  has the  potential  to  disrupt  the  proper
   functioning of computer  programs and embedded  system chips which employ two
   digit year  representation and may be unable to distinguish  between the year
   1900 and the year  2000.  This  problem  is  believed  to be  widespread  and
   expensive to correct throughout the economy.

The Company has established  its "Year 2000 Project" ("Project") to analyze and,
   if  necessary,  correct this  problem as it 


                                     - 23 -

<PAGE>


  relates to all effected  Company  operations.  The Project is a  high-priority
  undertaking,  encompassing all aspects of the Company's operations.  A Project
  Committee  comprised  of  Company  officers  reports  directly  to  the  Chief
  Executive  Officer on a monthly  basis on the status of its  efforts to assess
  and remediate mission critical and business  critical systems.  The Project is
  currently on schedule and  completion  is expected by July 1999.  In addition,
  the  Company is  coordinating  its  efforts  with  industry  organizations  to
  remediate potential problems on the electric  transmission grid and interstate
  gas pipeline system.

Scope & Status

The Company's Year 2000 Project began in 1995.  Project  Teams were  established
   for each major area of operations to address  computer  hardware and software
   operating  systems  and  infrastructure,  information  systems  applications,
   telecommunication   services,  digital  systems  and  devices  with  embedded
   processors.  In addition,  contacts were  established with major suppliers to
   assess their Year 2000 compliance status.

As of September 30, 1998, the inventory and assessment of  substantially  all of
   the Company mission  critical and business  critical systems and programs has
   been completed. Mission critical are those systems with a potential to affect
   the delivery of  electricity  and natural gas to the customer,  the safety of
   individuals and the integrity of the environment.  Business  critical systems
   are  those  with the  potential  to  affect  the  financial  and  operational
   infrastructure of the Company.

Remediation,  testing and  implementation of modifications to Company systems to
   achieve  Year 2000  compliant  status for  critical  systems are on schedule.
   Evaluation  of the Year 2000  compliant  status of key  suppliers  is also on
   schedule.  An  independent  review  of the  Company's  Year 2000  project  is
   scheduled for completion by June 30, 1999.

Risks
Given the  complexity  of Year 2000 issues in the gas and electric  industry and
   related  industries,  even the most comprehensive  program cannot assure that
   unforeseen  problems will not occur.  Therefore  contingency  plans are under
   development.  The  Company is unable at this time to  determine  whether  any
   unforeseen  impacts could have a material  effect on the Company's  financial
   condition.


                                     - 24 -

<PAGE>



Costs
The total cost of the Company's  Year 2000  Project,  which is  estimated  at $3
   million, is not expected to have a material effect on the Company's financial
   position.



                                     - 25 -

<PAGE>





                           PART II - OTHER INFORMATION


Item 1.  Legal Proceedings

         Asbestos  Litigation.  For a discussion of lawsuits against the Company
involving  asbestos,  see  Note  9 -  "Commitments  and  Contingencies",  to the
Consolidated Financial Statements of the Company's 10-K Report under the caption
"Asbestos Litigation".

         Since 1987,  the Company has been  involved as a defendant in the "mass
tort" asbestos  litigation in the United States District Courts for the Southern
and Eastern  Districts of New York and the New York State Supreme Court,  County
of New York.  This  litigation  involves  thousands of plaintiffs who seek large
amounts of compensatory and punitive damages from numerous defendants for deaths
and injuries allegedly caused by exposure to asbestos. As of September 30, 1998,
the  Company  has  been a  defendant  in  approximately  1,475  such  individual
lawsuits.  Many of these  lawsuits  have been disposed of without any payment by
the Company,  or for  immaterial  amounts.  As of September  30, 1998,  542 such
individual lawsuits were pending against the Company. While the amounts demanded
in all the  remaining  lawsuits  total  several  billions of dollars,  it is the
Company's opinion, based on its experience in such litigation and on information
and relevant  circumstances  known to it at this time,  that these lawsuits will
not have a material adverse effect on the Company's financial position. However,
if the Company were  ultimately  held liable under these  lawsuits and insurance
coverage  were not  available,  the cost thereof  could have a material  adverse
effect (a  reasonable  estimate  of which  cannot  be made at this  time) on the
financial  condition  of the Company if the  Company  could not recover all or a
substantial portion thereof in rates. The Company's insurance does not extend to
punitive damages.

         Former Manufactured Gas Plant Facilities.  Reference is made to Note 9,
"Commitments and Contingencies", to the Consolidated Financial Statements of the
Company's  10-K  Report,  under  the  caption  "Former  Manufactured  Gas  Plant
Facilities",  and to the  similar  caption in Part II,  Item 1 of the  Company's
Quarterly  Report,  on Form 10-Q, for the quarterly  period ended June 30, 1998,
for a description  of a lawsuit  filed by the City of Newburgh,  New York (City)
against the Company involving one of the Company's former manufactured gas plant
facilities.

         The cost to the  Company  of  constructing  a  clarifier  at the City's
sewage  treatment plant and related  activities,  as described in said Quarterly
Report, is now estimated to be



                                     - 26 -

<PAGE>



approximately  $2.9  million.  A trial  date for the  issues  remaining  in this
litigation has now been set by the Court for November 30, 1998.

Item 4. Submission of Matters to a Vote of Security Holders

         Reference is made to the Company's  Current Report,  on Form 8-K, dated
October 9, 1998,  for a discussion  of the results of the matter  submitted to a
vote of the  holders  of the  Company's  Common  Stock at a special  meeting  of
shareholders held on September 25, 1998.

Item 6.   Exhibits and Reports on Form 8-K

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

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

(12)                                Statement Showing  Computation  of the Ratio
                                    of Earnings to Fixed  Charges and the  Ratio
                                    of Earnings to Combined  Fixed  Charges  and
                                    Preferred Stock Dividends

(27)                                Financial Data  Schedule, pursuant  to  Item
                                    601(c) of Regulation S-K.

         (b)  Reports on Form 8-K.  During the period  covered by this Report on
Form 10-Q, the Company filed the following Current Reports on Form 8-K:

                  (i)      A Report,  dated  October  9,  1998,  describing  the
                           results  of the  matter  submitted  to a vote  of the
                           holders of the  Company's  Common  Stock at a special
                           meeting of shareholders held on September 25, 1998.

                  (ii)     A Report,  dated  July 24,  1998,  as amended by Form
                           8-K/A   Amendment  No.  1,  dated  August  14,  1998,
                           describing  (a)  the  Order  of the  PSC  issued  and
                           effective June 30, 1998, explaining in greater detail
                           the   Abbreviated   Order  of  the  PSC,  issued  and
                           effective  February 19, 1998, which February 19, 1998
                           Order modified and, as modified, approved the Amended
                           and Restated Settlement  Agreement,

                                     - 27 -

<PAGE>





                           dated  January  2,  1998,   entered  into  among  the
                           Company,  the PSC  Staff  and  others  as part of the
                           PSC's "Competitive Opportunities" proceeding, (b) the
                           Order,  dated June 24,  1998,  of the Federal  Energy
                           Regulatory Commission  conditionally  authorizing the
                           establishment  of an Independent  System  Operator by
                           the member  systems of the New York Power  Pool,  and
                           (c)  effective   August  1,  1998,  Paul  J.  Ganci's
                           appointment  by the  Company's  Board of Directors as
                           President and Chief Executive Officer.  John E. Mack,
                           III,   formerly  Chairman  of  the  Board  and  Chief
                           Executive  Officer,  continues  as  Chairman  of  the
                           Board.



                                     - 28 -

<PAGE>


                                   SIGNATURES

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

                                     CENTRAL HUDSON GAS & ELECTRIC CORPORATION
                                                       (Registrant)


                                     By:  (SGD.) DONNA S. DOYLE  
                                          -------------------------------------
                                                 Donna S. Doyle
                                                    Controller
                                           Authorized Officer and Chief
                                                Accounting Officer

Dated: November 6, 1998



                                      -29-