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.....................................June 30, 2006

                                       OR

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

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

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

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

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

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

      Yes |X|  No |_|

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

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

<PAGE>

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

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

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

      Yes |_| No |X|

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

      Yes |_| No |X|

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

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

<PAGE>

                  FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

                                      INDEX

      PART I - FINANCIAL INFORMATION                                     PAGE
                                                                         ----

Item 1 - Consolidated Financial Statements (Unaudited)

           CH ENERGY GROUP, INC.
           Consolidated Statement of Income -                              1
            Three Months Ended June 30, 2006, and 2005

           Consolidated Statement of Income -                              2
            Six Months Ended June 30, 2006, and 2005

           Consolidated Statement of Comprehensive Income -                3
            Three Months Ended June 30, 2006, and 2005

           Consolidated Statement of Comprehensive Income -                3
            Six Months Ended June 30, 2006, and 2005

           Consolidated Balance Sheet - June 30, 2006,                     4
            December 31, 2005, and June 30, 2005

           Consolidated Statement of Cash Flows -                          6
            Six Months Ended June 30, 2006, and 2005

           CENTRAL HUDSON GAS & ELECTRIC CORPORATION
           Consolidated Statement of Income -                              7
            Three Months Ended June 30, 2006, and 2005

           Consolidated Statement of Income -                              8
            Six Months Ended June 30, 2006, and 2005

           Consolidated Statement of Comprehensive Income -                9
            Three Months Ended June 30, 2006, and 2005

           Consolidated Statement of Comprehensive Income -                9
            Six Months Ended June 30, 2006, and 2005

           Consolidated Balance Sheet - June 30, 2006,                    10
            December 31, 2005, and June 30, 2005

           Consolidated Statement of Cash Flows -                         12
            Six Months Ended June 30, 2006, and 2005

           Notes to Consolidated Financial Statements (Unaudited)         13

<PAGE>

                                      INDEX

      PART I - FINANCIAL INFORMATION                                     PAGE
                                                                         ----

Item 2 - Management's Discussion and Analysis of                          42
              Financial Condition and Results of Operations

Item 3 - Quantitative and Qualitative Disclosures                         64
              about Market Risk

Item 4 - Controls and Procedures                                          64

         PART II - OTHER INFORMATION

Item 1 - Legal Proceedings                                                65

Item 1A - Risk Factors                                                    66

Item 4 - Submission of Matters to a Vote of Security Holders              68

Item 6 - Exhibits                                                         68

Signatures                                                                69

Exhibit Index                                                             70

Certifications                                                            71

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

Filing Format

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

<PAGE>

                         PART I - FINANCIAL INFORMATION

                   Item I - Consolidated Financial Statements

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

<TABLE>
<CAPTION>
                                                                                               For the 3 Months Ended June 30,
                                                                                                  2006                2005
                                                                                               ----------         ----------
                                                                                                   (Thousands of Dollars)
<S>                                                                                            <C>                <C>
Operating Revenues
  Electric ................................................................................    $  107,930         $  106,620
  Natural gas .............................................................................        36,458             31,142
  Competitive business subsidiaries .......................................................        69,503             51,808
                                                                                               ----------         ----------
      Total Operating Revenues ............................................................       213,891            189,570
                                                                                               ----------         ----------

Operating Expenses
  Operation:
    Purchased electricity and fuel used in
       electric generation ................................................................        63,609             64,283
    Purchased natural gas .................................................................        25,329             20,773
    Purchased petroleum ...................................................................        55,512             39,869
    Other expenses of operation - regulated activities ....................................        29,985             24,129
    Other expenses of operation - competitive business subsidiaries .......................        15,023             12,184
  Depreciation and amortization ...........................................................         9,124              9,102
  Taxes, other than income tax ............................................................         8,517              8,850
                                                                                               ----------         ----------
      Total Operating Expense .............................................................       207,099            179,190
                                                                                               ----------         ----------

Operating Income ..........................................................................         6,792             10,380
                                                                                               ----------         ----------

Other Income and Deductions
  Interest on regulatory assets and investment income .....................................         2,909              2,353
  Other - net .............................................................................         1,597               (324)
                                                                                               ----------         ----------
      Total Other Income ..................................................................         4,506              2,029
                                                                                               ----------         ----------

Interest Charges
  Interest on long-term debt ..............................................................         4,071              3,519
  Interest on regulatory liabilities and other interest ...................................           946                262
                                                                                               ----------         ----------
      Total Interest Charges ..............................................................         5,017              3,781
                                                                                               ----------         ----------

Income before income taxes, preferred dividends of subsidiary and minority interest .......         6,281              8,628

Income taxes ..............................................................................         2,099              1,853

Minority Interest .........................................................................          (128)                --
                                                                                               ----------         ----------

Income before preferred dividends of subsidiary ...........................................         4,310              6,775
Cumulative preferred stock dividends of subsidiary ........................................           242                242
                                                                                               ----------         ----------

Net Income ................................................................................         4,068              6,533
Dividends Declared on Common Stock ........................................................         8,512              8,511
                                                                                               ----------         ----------

Balance Retained in the Business ..........................................................       ($4,444)           ($1,978)
                                                                                               ==========         ==========

Common Stock:
    Average Shares Outstanding - Basic ....................................................        15,762             15,762
                               - Diluted ..................................................        15,775             15,769

    Earnings Per Share - Basic ............................................................    $     0.26         $     0.41
                       - Diluted ..........................................................    $     0.26         $     0.41

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

                 See Notes to Consolidated Financial Statements


                                     - 1 -
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                               For the 6 Months Ended June 30,
                                                                                                   2006              2005
                                                                                                ----------        ----------
                                                                                                   (Thousands of Dollars)
<S>                                                                                             <C>               <C>
Operating Revenues
  Electric .................................................................................    $  243,977        $  233,277
  Natural gas ..............................................................................       107,267            94,571
  Competitive business subsidiaries ........................................................       179,879           147,809
                                                                                                ----------        ----------
      Total Operating Revenues .............................................................       531,123           475,657
                                                                                                ----------        ----------

Operating Expenses
  Operation:
    Purchased electricity and fuel used in
       electric generation .................................................................       149,449           142,704
    Purchased natural gas ..................................................................        77,056            63,977
    Purchased petroleum ....................................................................       140,370           111,263
    Other expenses of operation - regulated activities .....................................        58,480            48,859
    Other expenses of operation - competitive business subsidiaries ........................        30,693            26,707
  Depreciation and amortization ............................................................        18,077            18,189
  Taxes, other than income tax .............................................................        16,121            16,765
                                                                                                ----------        ----------
      Total Operating Expense ..............................................................       490,246           428,464
                                                                                                ----------        ----------

Operating Income ...........................................................................        40,877            47,193
                                                                                                ----------        ----------

Other Income
  Interest on regulatory assets and investment income ......................................         5,603             4,720
  Other - net ..............................................................................         1,110              (846)
                                                                                                ----------        ----------
      Total Other Income ...................................................................         6,713             3,874
                                                                                                ----------        ----------

Interest Charges
  Interest on long-term debt ...............................................................         8,024             6,766
  Interest on regulatory liabilities and other interest ....................................         1,983             1,318
                                                                                                ----------        ----------
      Total Interest Charges ...............................................................        10,007             8,084
                                                                                                ----------        ----------

Income before income taxes, preferred dividends of subsidiary and minority interest ........        37,583            42,983

Income Taxes ...............................................................................        14,858            15,625

Minority Interest ..........................................................................          (128)               --
                                                                                                ----------        ----------

Income before preferred dividends of subsidiary ............................................        22,853            27,358
Cumulative preferred stock dividends of subsidiary .........................................           485               485
                                                                                                ----------        ----------

Net Income .................................................................................        22,368            26,873
Dividends Declared on Common Stock .........................................................        17,023            17,023
                                                                                                ----------        ----------

Balance Retained in the Business ...........................................................    $    5,345        $    9,850
                                                                                                ==========        ==========

Common Stock:
    Average Shares Outstanding - Basic .....................................................        15,762            15,762
                               - Diluted ...................................................        15,776            15,770

    Earnings Per Share - Basic .............................................................    $     1.42        $     1.70
                       - Diluted ...........................................................    $     1.41        $     1.70

    Dividends Declared Per Share ...........................................................    $     1.08        $     1.08
</TABLE>

                 See Notes to Consolidated Financial Statements


                                     - 2 -
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                            For the 3 Months Ended June 30,
                                                                                                2006               2005
                                                                                             ----------        ----------
                                                                                                 (Thousands of Dollars)
<S>                                                                                          <C>               <C>
Net Income .............................................................................     $    4,068        $    6,533

Other Comprehensive Income:

Net unrealized gains (losses) net of tax and net income realization:
      FAS 133 Designated Cash Flow Hedges - net of tax of $(4) and $39 .................              6               (59)
      Investments - net of tax of $0 and $(53) .........................................             --                80
                                                                                             ----------        ----------

Other comprehensive income (loss) ......................................................              6                21
                                                                                             ----------        ----------

Comprehensive Income ...................................................................     $    4,074        $    6,554
                                                                                             ==========        ==========

<CAPTION>
                                                                                            For the 6 Months Ended June 30,
                                                                                                2006               2005
                                                                                             ----------        ----------
                                                                                                 (Thousands of Dollars)
<S>                                                                                          <C>               <C>
Net Income .............................................................................     $   22,368        $   26,873

Other Comprehensive Income:

Net unrealized gains (losses) net of tax and net income realization:
      FAS 133 Designated Cash Flow Hedges - net of tax of $(10) and $0 .................             17                (1)
      Investments - net of tax of $(83) and $(168) .....................................            126               251
                                                                                             ----------        ----------

Other comprehensive income (loss) ......................................................            143               250
                                                                                             ----------        ----------

Comprehensive Income ...................................................................     $   22,511        $   27,123
                                                                                             ==========        ==========
</TABLE>

                 See Notes to Consolidated Financial Statements


                                     - 3 -
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                     June 30,         December 31,         June 30,
                                       ASSETS                                          2006               2005               2005
                                                                                    ----------        ------------        ----------
                                                                                                  (Thousands of Dollars)
<S>                                                                                 <C>                <C>                <C>
Utility Plant
       Electric ...........................................................         $  748,419         $  739,775         $  709,483
       Natural gas ........................................................            231,934            226,859            219,423
       Common .............................................................            109,800            107,581            105,618
                                                                                    ----------         ----------         ----------
                                                                                     1,090,153          1,074,215          1,034,524

       Less:  Accumulated depreciation ....................................            342,116            333,164            325,583
                                                                                    ----------         ----------         ----------
                                                                                       748,037            741,051            708,941

       Construction work in progress ......................................             49,434             38,460             51,704
                                                                                    ----------         ----------         ----------
               Net Utility Plant ..........................................            797,471            779,511            760,645
                                                                                    ----------         ----------         ----------

Other Property and Plant - net ............................................             33,810             23,138             22,207
                                                                                    ----------         ----------         ----------

Current Assets
       Cash and cash equivalents ..........................................             36,968             49,410             64,670
       Short-term investments - available-for-sale securities .............             40,200             42,100             49,299
       Accounts receivable -
             net of allowance for doubtful accounts of
             $5.2 million, $4.6 million, and $4.7 million,
             respectively .................................................             70,795             97,462             74,583
       Accrued unbilled utility revenues ..................................              5,563              9,334              5,432
       Other receivables ..................................................              5,871              6,326              4,716
       Fuel and materials and supplies - at average cost ..................             29,239             28,350             19,518
       Regulatory assets ..................................................             18,719             30,764             12,638
       Prepaid income taxes ...............................................                 --              1,166                 --
       Fair value of derivative instruments ...............................                  9                 --              1,034
       Special deposits and prepayments ...................................             27,422             23,184             14,619
       Accumulated deferred income tax ....................................             15,335              8,836             12,570
                                                                                    ----------         ----------         ----------
                Total Current Assets ......................................            250,121            296,932            259,079
                                                                                    ----------         ----------         ----------

Deferred Charges and Other Assets
       Regulatory assets - pension plan ...................................            115,564             97,073            101,389
       Intangible asset - pension plan ....................................             20,217             20,217             22,291
       Goodwill ...........................................................             52,198             51,333             50,873
       Other intangible assets - net ......................................             27,831             28,368             28,014
       Regulatory assets ..................................................             60,198             52,353             44,463
       Unamortized debt expense ...........................................              3,816              3,973              3,866
       Partnership interests ..............................................             12,504              7,350             13,470
       Other ..............................................................             20,204             19,258             10,186
                                                                                    ----------         ----------         ----------
                Total Deferred Charges and Other Assets ...................            312,532            279,925            274,552
                                                                                    ----------         ----------         ----------

                          Total Assets ....................................         $1,393,934         $1,379,506         $1,316,483
                                                                                    ==========         ==========         ==========
</TABLE>

                 See Notes to Consolidated Financial Statements


                                     - 4 -
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                      June 30,        December 31,        June 30,
                    CAPITALIZATION AND LIABILITIES                                      2006              2005              2005
                                                                                    -----------       ------------      -----------
                                                                                                (Thousands of Dollars)
<S>                                                                                 <C>               <C>               <C>
Capitalization
        Common Stock Equity:
             Common stock, 30,000,000 shares authorized:
               15,762,000 shares outstanding, 16,862,087 shares issued,
               $0.10 par value ...............................................      $     1,686       $     1,686       $     1,686
        Paid-in capital ......................................................          351,230           351,230           351,230
        Retained earnings ....................................................          203,362           198,017           197,622
        Treasury stock (1,100,087 shares) ....................................          (46,252)          (46,252)          (46,252)
        Accumulated comprehensive income (loss) ..............................             (377)             (520)             (392)
        Capital stock expense ................................................             (328)             (328)             (328)
                                                                                    -----------       -----------       -----------
                Total Common Stock Equity ....................................          509,321           503,833           503,566
                                                                                    -----------       -----------       -----------

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

        Long-term debt .......................................................          310,887           343,886           319,884
                                                                                    -----------       -----------       -----------
                Total Capitalization .........................................          841,235           868,746           844,477
                                                                                    -----------       -----------       -----------

Current Liabilities
        Current maturities of long-term debt .................................           33,000                --                --
        Notes payable ........................................................           33,500            30,000            13,000
        Accounts payable .....................................................           32,236            54,926            37,311
        Accrued interest .....................................................            5,594             5,156             5,096
        Dividends payable ....................................................            8,754             8,754             8,754
        Accrued vacation and payroll .........................................            5,936             5,845             5,760
        Customer deposits ....................................................            7,324             7,101             6,744
        Regulatory liabilities ...............................................               --               373             3,041
        Fair value of derivative instruments .................................            2,245               335                --
        Accrued environmental remediation costs ..............................            4,000                --                --
        Accrued income taxes .................................................            4,735                --             3,437
        Deferred revenues ....................................................            9,416             9,717             5,538
        Other ................................................................            9,972            11,964            10,978
                                                                                    -----------       -----------       -----------
                Total Current Liabilities ....................................          156,712           134,171            99,659
                                                                                    -----------       -----------       -----------

Deferred Credits and Other Liabilities
        Regulatory liabilities ...............................................          153,156           156,808           151,534
        Operating reserves ...................................................            6,756             6,216             6,674
        Accrued environmental remediation costs ..............................           18,529            22,772            22,629
        Accrued other post-employment benefit costs ..........................           27,694            24,945            22,856
        Accrued pension costs ................................................           32,854            18,806            28,969
        Other ................................................................           14,025            13,258            11,542
                                                                                    -----------       -----------       -----------
                Total Deferred Credits and Other Liabilities .................          253,014           242,805           244,204
                                                                                    -----------       -----------       -----------

Minority Interest ............................................................            1,494                --                --
                                                                                    -----------       -----------       -----------

Accumulated Deferred Income Tax ..............................................          141,479           133,784           128,143
                                                                                    -----------       -----------       -----------

Commitments and Contingencies (Note 11)

                         Total Capitalization and Liabilities ................      $ 1,393,934       $ 1,379,506       $ 1,316,483
                                                                                    ===========       ===========       ===========
</TABLE>

                 See Notes to Consolidated Financial Statements


                                     - 5 -
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                         For the 6 Months Ended
                                                                                                                 June 30,
                                                                                                          2006               2005
                                                                                                      -----------       -----------
Operating Activities:                                                                                     (Thousands of Dollars)
<S>                                                                                                   <C>               <C>
    Net Income .................................................................................      $    22,368       $    26,873

       Adjustments to reconcile net income to net cash provided by (used in)
          operating activities:
             Depreciation and amortization .....................................................           18,077            18,189
             Deferred income taxes - net .......................................................            3,492             4,648
             Provision for uncollectibles ......................................................            3,000             1,572
             Accrued/deferred pension costs ....................................................           (6,884)           (7,323)
             Minority interest .................................................................             (128)               --
             Gain on sale of property and plant ................................................             (697)               --

          Changes in operating assets and liabilities - net of business acquisitions:
             Accounts receivable, unbilled revenues and other receivables ......................           29,397            (7,386)
             Fuel, materials and supplies ......................................................             (811)            1,985
             Special deposits and prepayments ..................................................           (6,903)            6,148
             Accounts payable ..................................................................          (22,864)           (6,107)
             Accrued taxes and interest ........................................................            5,174             3,904
             Deferred natural gas and electric costs ...........................................           13,834             5,471
             Customer benefit fund .............................................................           (6,412)           (2,852)
             Other - net .......................................................................           (5,476)              576
                                                                                                      -----------       -----------

       Net Cash Provided By Operating Activities ...............................................           45,167            45,698
                                                                                                      -----------       -----------

Investing Activities:

       Purchase of short-term investments ......................................................          (21,000)          (19,500)
       Proceeds from sale of short-term investments ............................................           22,900            18,900
       Additions to utility plant and other property and plant .................................          (30,614)          (28,718)
       Proceeds from sale of property and plant ................................................              765                --
       Issuance of notes receivable ............................................................             (315)           (2,970)
       Acquisitions made by competitive business subsidiaries ..................................          (12,843)           (1,124)
       Other - net .............................................................................           (2,947)           (1,999)
                                                                                                      -----------       -----------

       Net Cash Used in Investing Activities ...................................................          (44,054)          (35,411)
                                                                                                      -----------       -----------

Financing Activities:

       Redemption of preferred stock ...........................................................               --                (3)
       Net borrowings of short-term debt .......................................................            3,500             1,000
       Dividends paid on common stock ..........................................................          (17,023)          (17,023)
       Debt issuance costs .....................................................................              (32)               (8)
                                                                                                      -----------       -----------

       Net Cash Used in Financing Activities ...................................................          (13,555)          (16,034)
                                                                                                      -----------       -----------

Net Change in Cash and Cash Equivalents ........................................................          (12,442)           (5,747)

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

Cash and Cash Equivalents - End of Period ......................................................      $    36,968       $    64,670
                                                                                                      ===========       ===========

Supplemental Disclosure of Cash Flow Information

       Interest paid ...........................................................................      $     9,986       $     7,841

       Federal and State income tax paid .......................................................      $     5,733       $     8,843
</TABLE>

                 See Notes to Consolidated Financial Statements


                                     - 6 -
<PAGE>

                    CENTRAL HUDSON GAS & ELECTRIC CORPORATION
                        CONSOLIDATED STATEMENT OF INCOME
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                    For the 3 Months Ended June 30,
                                                                                        2006                2005
                                                                                    -----------         -----------
                                                                                         (Thousands of Dollars)
<S>                                                                                 <C>                 <C>
Operating Revenues
  Electric .................................................................        $   107,930         $   106,620
  Natural gas ..............................................................             36,458              31,142
                                                                                    -----------         -----------
      Total Operating Revenues .............................................            144,388             137,762
                                                                                    -----------         -----------

Operating Expenses
  Operation:
    Purchased electricity and fuel used in electric generation .............             62,970              64,283
    Purchased natural gas ..................................................             25,329              20,773
    Other expenses of operation ............................................             29,985              24,129
  Depreciation and amortization ............................................              7,462               7,502
  Taxes, other than income tax .............................................              8,431               8,768
                                                                                    -----------         -----------
      Total Operating Expenses .............................................            134,177             125,455
                                                                                    -----------         -----------

Operating Income ...........................................................             10,211              12,307
                                                                                    -----------         -----------

Other Income and Deductions
  Interest on regulatory assets and other interest income ..................              2,121               1,534
  Other - net ..............................................................               (214)                (10)
                                                                                    -----------         -----------
      Total Other Income ...................................................              1,907               1,524
                                                                                    -----------         -----------

Interest Charges
  Interest on long-term debt ...............................................              4,071               3,519
  Interest on regulatory liabilities and other interest ....................                945                 262
                                                                                    -----------         -----------
      Total Interest Charges ...............................................              5,016               3,781
                                                                                    -----------         -----------

Income before income taxes .................................................              7,102              10,050

Income taxes ...............................................................              2,979               3,938
                                                                                    -----------         -----------

Net Income .................................................................              4,123               6,112

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

Income Available for Common Stock ..........................................        $     3,881         $     5,870
                                                                                    ===========         ===========
</TABLE>

                 See Notes to Consolidated Financial Statements


                                     - 7 -
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                         For the 6 Months Ended June 30,
                                                                                             2006                2005
                                                                                         -----------         -----------
                                                                                             (Thousands of Dollars)
<S>                                                                                      <C>                 <C>
Operating Revenues
  Electric ......................................................................        $   243,977         $   233,277
  Natural gas ...................................................................            107,267              94,571
                                                                                         -----------         -----------
      Total Operating Revenues ..................................................            351,244             327,848
                                                                                         -----------         -----------

Operating Expenses
  Operation:
    Purchased electricity and fuel used in electric generation ..................            148,810             142,704
    Purchased natural gas .......................................................             77,056              63,977
    Other expenses of operation .................................................             58,480              48,859
  Depreciation and amortization .................................................             14,917              15,004
  Taxes, other than income tax ..................................................             15,958              16,598
                                                                                         -----------         -----------
      Total Operating Expenses ..................................................            315,221             287,142
                                                                                         -----------         -----------

Operating Income ................................................................             36,023              40,706
                                                                                         -----------         -----------

Other Income and Deductions
  Interest on regulatory assets and other interest income .......................              4,050               3,416
  Other - net ...................................................................               (333)               (668)
                                                                                         -----------         -----------
      Total Other Income ........................................................              3,717               2,748
                                                                                         -----------         -----------

Interest Charges
  Interest on long-term debt ....................................................              8,024               6,766
  Interest on regulatory liabilities and other interest .........................              1,983               1,318
                                                                                         -----------         -----------
      Total Interest Charges ....................................................             10,007               8,084
                                                                                         -----------         -----------

Income Before Income Taxes ......................................................             29,733              35,370

Income Taxes ....................................................................             12,556              14,268
                                                                                         -----------         -----------

Net Income ......................................................................             17,177              21,102

Dividends Declared on Cumulative Preferred Stock ................................                485                 485
                                                                                         -----------         -----------

Income Available for Common Stock ...............................................        $    16,692         $    20,617
                                                                                         ===========         ===========
</TABLE>

                 See Notes to Consolidated Financial Statements


                                     - 8 -
<PAGE>

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

<TABLE>
<CAPTION>
                                                                        For the 3 Months Ended June 30,
                                                                          2006                   2005
                                                                       -----------           -----------
                                                                            (Thousands of Dollars)
<S>                                                                    <C>                   <C>
Net Income .................................................           $     4,123           $     6,112

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

Comprehensive Income .......................................           $     4,123           $     6,112
                                                                       ===========           ===========

<CAPTION>
                                                                         For the 6 Months Ended June 30,
                                                                          2006                   2005
                                                                       -----------           -----------
                                                                            (Thousands of Dollars)
<S>                                                                    <C>                   <C>
Net Income .................................................           $    17,177           $    21,102

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

Comprehensive Income .......................................           $    17,177           $    21,102
                                                                       ===========           ===========
</TABLE>

                 See Notes to Consolidated Financial Statements


                                     - 9 -
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                     June 30,         December 31,         June 30,
                             ASSETS                                                    2006               2005               2005
                                                                                    ----------        ------------        ----------
                                                                                                (Thousands of Dollars)
<S>                                                                                 <C>                <C>                <C>
Utility Plant
       Electric ...........................................................         $  748,419         $  739,775         $  709,483
       Natural gas ........................................................            231,934            226,859            219,423
       Common .............................................................            109,800            107,581            105,618
                                                                                    ----------         ----------         ----------
                                                                                     1,090,153          1,074,215          1,034,524

       Less:  Accumulated depreciation ....................................            342,116            333,164            325,583
                                                                                    ----------         ----------         ----------
                                                                                       748,037            741,051            708,941

       Construction work in progress ......................................             49,434             38,460             51,704
                                                                                    ----------         ----------         ----------
               Net Utility Plant ..........................................            797,471            779,511            760,645
                                                                                    ----------         ----------         ----------

Other Property and Plant - net ............................................                722                723                725
                                                                                    ----------         ----------         ----------

Current Assets
       Cash and cash equivalents ..........................................              1,738              4,232              3,417
       Accounts receivable -
             net of allowance for doubtful accounts of $3.8 million,
             $3.4 million, and $4.3 million, respectively .................             41,722             61,055             49,342
       Accrued unbilled utility revenues ..................................              5,563              9,334              5,432
       Other receivables ..................................................              3,190              2,868              2,448
       Fuel and materials and supplies - at average cost ..................             23,163             23,411             15,834
       Regulatory assets ..................................................             18,719             30,764             12,638
       Fair value of derivative instruments ...............................                 --                 --              1,034
       Special deposits and prepayments ...................................             22,838             16,168             11,839
       Accumulated deferred income tax ....................................             14,379              7,997             11,740
                                                                                    ----------         ----------         ----------
                Total Current Assets ......................................            131,312            155,829            113,724
                                                                                    ----------         ----------         ----------

Deferred Charges and Other Assets
       Regulatory assets - pension plan ...................................            115,564             97,073            101,389
       Intangible asset - pension plan ....................................             20,217             20,217             22,291
       Regulatory assets ..................................................             60,198             52,353             44,463
       Unamortized debt expense ...........................................              3,816              3,973              3,866
       Other ..............................................................             12,651             11,653              9,841
                                                                                    ----------         ----------         ----------
                Total Deferred Charges and Other Assets ...................            212,446            185,269            181,850
                                                                                    ----------         ----------         ----------

                          Total Assets ....................................         $1,141,951         $1,121,332         $1,056,944
                                                                                    ==========         ==========         ==========
</TABLE>

                 See Notes to Consolidated Financial Statements


                                     - 10 -
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                    June 30,         December 31,         June 30,
                     CAPITALIZATION AND LIABILITIES                                   2006               2005               2005
                                                                                  -----------        ------------       -----------
                                                                                                (Thousands of Dollars)
<S>                                                                               <C>                <C>                <C>
Capitalization
        Common Stock Equity:
             Common stock, 30,000,000 shares authorized;
               16,862,087 shares issued and outstanding ($5 par value) ....       $    84,311        $    84,311        $    84,311
        Paid-in capital ...................................................           174,980            174,980            174,980
        Retained earnings .................................................            51,501             43,309             29,262
        Capital stock expense .............................................            (4,961)            (4,961)            (4,961)
                                                                                  -----------        -----------        -----------
                Total Common Stock Equity .................................           305,831            297,639            283,592
                                                                                  -----------        -----------        -----------

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

        Long-term Debt ....................................................           310,887            343,886            319,884
                                                                                  -----------        -----------        -----------
                Total Capitalization ......................................           637,745            662,552            624,503
                                                                                  -----------        -----------        -----------

Current Liabilities
        Current maturities of long-term debt ..............................            33,000                 --                 --
        Notes Payable .....................................................            33,500             30,000             13,000
        Accounts payable ..................................................            24,526             40,884             31,301
        Accrued interest ..................................................             5,594              5,156              5,096
        Dividends payable - preferred stock ...............................               242                242                242
        Accrued vacation and payroll ......................................             4,759              4,566              4,400
        Customer deposits .................................................             7,165              6,932              6,603
        Regulatory liabilities ............................................                --                373              3,041
        Fair value of derivative instruments ..............................             1,983                315                 --
        Accrued income taxes ..............................................             3,825                324              2,642
        Accrued environmental remediation costs ...........................             4,000                 --                 --
        Other .............................................................             5,470              6,895              6,209
                                                                                  -----------        -----------        -----------
                Total Current Liabilities .................................           124,064             95,687             72,534
                                                                                  -----------        -----------        -----------

Deferred Credits and Other Liabilities
        Regulatory liabilities ............................................           153,156            156,808            151,534
        Operating reserves ................................................             5,512              5,137              5,586
        Accrued environmental remediation costs ...........................            15,500             19,500             19,500
        Accrued other post-employment benefit costs .......................            27,694             24,945             22,856
        Accrued pension costs .............................................            32,854             18,806             28,969
        Other .............................................................            11,862             11,094              9,350
                                                                                  -----------        -----------        -----------
                Total Deferred Credits and Other Liabilities ..............           246,578            236,290            237,795
                                                                                  -----------        -----------        -----------

Accumulated Deferred Income Tax ...........................................           133,564            126,803            122,112
                                                                                  -----------        -----------        -----------

Commitments and  Contingencies (Note 11)

                Total Capitalization and Liabilities ......................       $ 1,141,951        $ 1,121,332        $ 1,056,944
                                                                                  ===========        ===========        ===========
</TABLE>

                 See Notes to Consolidated Financial Statements


                                     - 11 -
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                               For the 6 Months Ended
                                                                                                       June 30,
                                                                                               2006               2005
                                                                                            -----------       -----------
Operating Activities:                                                                           (Thousands of Dollars)
<S>                                                                                         <C>               <C>
    Net Income .......................................................................      $    17,177       $    21,102

       Adjustments to reconcile net income to net cash provided by (used in)
          operating activities:
             Depreciation and amortization ...........................................           14,917            15,004
             Deferred income taxes - net .............................................            2,675             3,764
             Provision for uncollectibles ............................................            2,507             1,210
             Accrued/deferred pension costs ..........................................           (6,884)           (7,323)

       Changes in operating assets and liabilities - net:
             Accounts receivable, unbilled revenues and other receivables ............           20,276            (9,550)
             Fuel, materials and supplies ............................................              248             1,373
             Special deposits and prepayments ........................................           (6,670)            8,515
             Accounts payable ........................................................          (16,358)           (1,650)
             Accrued taxes and interest ..............................................            3,939             3,109
             Deferred natural gas and electric costs .................................           13,834             5,471
             Customer benefit fund ...................................................           (6,412)           (2,852)
             Other - net .............................................................           (5,881)            2,143
                                                                                            -----------       -----------

       Net Cash Provided by Operating Activities .....................................           33,368            40,316
                                                                                            -----------       -----------

Investing Activities:

       Additions to plant ............................................................          (29,314)          (27,629)
       Other - net ...................................................................           (1,031)           (1,001)
                                                                                            -----------       -----------

       Net Cash Used in Investing Activities .........................................          (30,345)          (28,630)
                                                                                            -----------       -----------

Financing Activities:

       Redemption of preferred stock .................................................               --                (3)
       Net borrowings of short-term debt .............................................            3,500             1,000
       Dividends paid on cumulative preferred stock ..................................             (485)             (485)
       Dividends paid to parent - Energy Group .......................................           (8,500)          (17,000)
       Debt issuance costs ...........................................................              (32)               (8)
                                                                                            -----------       -----------

       Net Cash Used In Financing Activities .........................................           (5,517)          (16,496)
                                                                                            -----------       -----------

Net Change in Cash and Cash Equivalents ..............................................           (2,494)           (4,810)

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

Cash and Cash Equivalents - End of Period ............................................      $     1,738       $     3,417
                                                                                            ===========       ===========

Supplemental Disclosure of Cash Flow Information

       Interest paid .................................................................      $     8,117       $     6,325

       Federal and State income tax paid .............................................      $     6,626       $     8,875
</TABLE>

                 See Notes to Consolidated Financial Statements


                                     - 12 -
<PAGE>

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

NOTE 1 - GENERAL

Basis of Presentation

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

Unaudited Consolidated Financial Statements

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

      On April 12, 2006, CHEC purchased a 75% interest in Lyonsdale Biomass, LLC
("Lyonsdale"). Lyonsdale owns and operates a 19-megawatt, wood-fired, biomass
electric generating plant. The financial statements of Lyonsdale for the period
of April 12, 2006, through June 30, 2006, have been fully consolidated into the
financial statements of Energy Group. The minority interest shown on Energy
Group's Consolidated Financial Statements represents the other owner's
proportionate share of the income and equity of Lyonsdale.

      Energy Group's and Central Hudson's balance sheets as of June 30, 2005,
are not required to be included in this Quarterly Report on Form 10-Q; however,
these balance sheets are included for supplemental analysis purposes.

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


                                       13
<PAGE>

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

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

Revision in the Classification of Certain Securities

      In connection with the preparation of the Quarterly Report on Form 10-Q
for the period ended March 31, 2006, and the classification of Auction Rate
Securities and Variable Rate Demand Notes, Energy Group concluded that it was
appropriate to classify these securities in Energy Group's Consolidated Balance
Sheet as "short-term investments - available-for-sale securities." Previously,
these investments had been classified as "cash and cash equivalents." These
securities are described in greater detail in Note 5 - "Short-Term Investments"
of this Quarterly Report on Form 10-Q. As a result of this revision in
classification, Energy Group has also made corresponding adjustments to its
Consolidated Statement of Cash Flows for all periods presented to reflect the
gross purchases and liquidation of these available-for-sale securities as
investing activities rather than as a component of cash and cash equivalents.
This revision in classification has no impact on previously reported total
current assets, total assets, working capital position, results of operations,
or financial covenants and does not affect previously reported cash flows from
operating or financing activities. The Consolidated Financial Statements of
Central Hudson were not affected by this revision in classification.

      The impact on net cash from investing activities for the six months ended
June 30, 2005, was a decrease of $0.6 million for activity relating to these
investments. The revision in classification for prior period Consolidated
Balance Sheets resulted in a decrease to cash and cash equivalents and the
reporting of short-term investments in the amount of $42.1 million and $49.3
million at December 31, 2005, and June 30, 2005, respectively.

Accounting for Derivative Instruments and Hedging Activities

Regulated Electric and Natural Gas Businesses

      Reference is made to the caption "Accounting for Derivative Instruments
and Hedging Activities" of Note 1 - "Summary of Significant Accounting Policies"
to the Consolidated Financial Statements of the Corporations' 10-K Annual
Report. At June 30, 2006, the total fair value of open Central Hudson
derivatives, which hedge electric and natural gas commodity purchases, was a net
unrealized loss of $2.0 million. This compares to a fair value at December 31,
2005, of ($315,000), a net unrealized loss, and a fair value of $1.0 million at
June 30, 2005, a net unrealized gain. At June 30, 2006, Central Hudson had open
derivative contracts hedging approximately 20.8% of its projected electricity
requirements for the period July 2006 through December 2006 and 1.0% of its
projected natural gas requirements for the period


                                       14
<PAGE>

November 2006 through March 2007. Central Hudson recorded actual net losses of
$1.5 million for the quarter ended June 30, 2006, as compared to a net gain of
$433,000 for the same period in 2005. Comparative amounts for the six months
ended June 30, 2006, and 2005, were net losses of $5.7 million and $287,000,
respectively.

      Realized gains and losses, in addition to unrealized gains and losses,
serve to either decrease or increase actual energy costs and are deferred for
return to or recovery from customers under Central Hudson's electric and natural
gas energy cost adjustment clauses as authorized by the New York State Public
Service Commission ("PSC") and in accordance with the provisions of Statement of
Financial Accounting Standard ("SFAS") No. 71, titled Accounting for the Effects
of Certain Types of Regulation ("SFAS 71"). Central Hudson also entered into
weather derivative contracts to hedge the effect of weather on sales of
electricity and natural gas. The periods covered were the three months of the
heating seasons ended March 31, 2006, and 2005, and the three months of the
cooling season ended August 31, 2005. A weather-hedging contract was not in
effect for the three months ended June 30, 2006, but a contract is in place for
the months of July and August 2006. In June 2005, an estimated liability of $1.2
million was accrued related to the 2005 cooling season. No settlement payments
were required to or from counter-parties for the six months ended June 30, 2006.

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

Fuel Distribution Business

      The fair value of Griffith's open derivative positions at June 30, 2006,
and 2005, and the fair value of derivative instruments at December 31, 2005,
were not material. Derivatives outstanding at June 30, 2006, included call and
put options designated as cash flow hedges for fuel oil purchases through June
2007 for customers with fixed price contracts. Actual net gains and losses
recorded during the quarters and years to-date ended June 30, 2006, and 2005,
were also not material.

      In the first quarter of 2006, Griffith also entered into derivative
contracts to hedge a portion (714,000 gallons) of its fuel oil inventory. These
derivative instruments, comprised of calendar average New York Mercantile
Exchange ("NYMEX ") swaps, were designated as a fair value hedge of inventory.
The fair value of these instruments at June 30, 2006, for the second quarter and
the six months to-date impact to earnings were not material. Griffith had
previously entered into weather derivative contracts for


                                       15
<PAGE>

the three months of the heating seasons ended March 31, 2006, and 2005.
Settlement amounts for the comparative quarters were not material.

Parental Guarantees

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

      The guarantees described above have been issued to counter-parties to
assure the payment, when due, of certain obligations incurred by Energy Group
subsidiaries in physical and financial transactions related to heating oil,
propane, other petroleum products, weather and commodity hedges, and certain
obligations related to the sale of CH Resources. At June 30, 2006, the aggregate
amount of subsidiary obligations (excluding obligations related to CH Resources)
covered by these guarantees was $4.1 million. Where liabilities exist under the
commodity-related contracts subject to these guarantees, these liabilities are
included in Energy Group's Consolidated Balance Sheet. Energy Group's
approximate aggregate potential liability for product warranties at June 30,
2006, had not changed from that reported at December 31, 2005, which was
$101,000. Energy Group's approximate aggregate potential liability for product
warranties was $504,000 at June 30, 2005, which had not changed from that
reported at December 31, 2004.

Goodwill and Other Intangible Assets

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

      Intangible assets include separate, identifiable, intangible assets such
as customer lists and covenants not to compete. Intangible assets with finite
lives are amortized over their useful lives. The estimated useful life for
customer lists is 15 years, which is believed to be appropriate in view of
average historical customer turnover. However, if customer turnover were to
substantially increase, a shorter amortization period would be used, resulting
in an increase in amortization expense. For example, if a ten-year amortization
period were used, annual amortization expense would increase by approximately
$1.4 million. The useful life of a covenant not to compete is based on


                                       16
<PAGE>

the expiration date of the covenant, generally between two and ten years.
Intangible assets with indefinite useful lives and goodwill are no longer
amortized, but instead are periodically reviewed for impairment. Goodwill
balances are tested annually for impairment in the fourth quarter and are
retested between annual tests if an event should occur or circumstances arise
that would more likely than not reduce the fair value of a reporting unit below
its carrying amount.

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

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                   June 30, 2006              December 31, 2005            June 30, 2005
--------------------------------------------------------------------------------------------------------------------
                                Gross                        Gross                       Gross
                              Carrying     Accumulated     Carrying     Accumulated    Carrying    Accumulated
                                Amount    Amortization       Amount    Amortization     Amount     Amortization
--------------------------------------------------------------------------------------------------------------------
<S>                            <C>           <C>            <C>           <C>           <C>          <C>
Customer Lists                 $41,315       $14,117        $40,448       $12,754       $38,902      $11,453
--------------------------------------------------------------------------------------------------------------------
Covenants Not to Compete         1,714         1,081          1,669           995         1,489          924
--------------------------------------------------------------------------------------------------------------------
Total Amortizable
Intangibles                    $43,029       $15,198        $42,117       $13,749       $40,391      $12,377
--------------------------------------------------------------------------------------------------------------------
</TABLE>

      Amortization expense was $1.4 million for each of the six-month periods
ended June 30, 2006, and 2005. The estimated annual amortization expense for
each of the next five years, assuming no new acquisitions, is approximately $2.9
million.

      The carrying amount for goodwill not subject to amortization was $52.2
million as of June 30, 2006, $51.3 million as of December 31, 2005, and $50.9
million as of June 30, 2005.

Depreciation and Amortization

      Reference is made to the caption "Depreciation and Amortization" of Note 1
- "Summary of Significant Accounting Policies" to the Consolidated Financial
Statements of the Corporations' 10-K Annual Report. For financial statement
purposes, Central Hudson's depreciation provisions are computed on the
straight-line method using rates based on studies of the estimated useful lives
and estimated net salvage value of properties. The anticipated costs of removing
assets upon retirement are provided for over the life of those assets as a
component of depreciation expense. This depreciation method is consistent with
industry practice and the applicable depreciation rates have been approved by
the PSC.

      Financial Accounting Standards Board ("FASB") SFAS No. 143, titled
Accounting for Asset Retirement Obligations ("SFAS 143"), precludes the
recognition of expected future legal retirement obligations as a component of
depreciation expense or accumulated depreciation. Central Hudson, however, is
required to use depreciation methods and rates approved by the PSC under
regulatory accounting. In accordance with SFAS 71, Central Hudson continues to
accrue for the future cost of removal for its rate-regulated natural gas and
electric utility assets. In accordance with SFAS 143, Central Hudson has
classified $95.7 million, $92.2 million, and $90.7 million of net cost


                                       17
<PAGE>

of removal as regulatory liabilities as of June 30, 2006, December 31, 2005, and
June 30, 2005, respectively.

      FASB Interpretation No. 47, titled Accounting for Conditional Asset
Retirement Obligations ("FIN 47"), clarifies the term "conditional asset
retirement obligation" as used in SFAS 143 to refer to a legal obligation to
perform an asset retirement activity when the timing and/or method of settlement
are conditional on a future event that may or may not be in the control of the
entity. In accordance with FIN 47, Energy Group recorded depreciation expense on
the asset retirement obligations and accretion expense on the liabilities for
the six months ended June 30, 2006. These amounts were not material. For further
information regarding FIN 47, see the caption "Depreciation and Amortization" of
Note 1 - "Summary of Significant Accounting Policies" to the Consolidated
Financial Statements of the Corporations' 10-K Annual Report.

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

      Accumulated depreciation for the fuel distribution business was $16.1
million, $14.9 million, and $13.4 million as of June 30, 2006, December 31,
2005, and June 30, 2005, respectively.

      Accumulated depreciation for Lyonsdale was $0.1 million as of June 30,
2006.

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

Earnings Per Share

      In the calculation of earnings per share (basic and diluted) of Energy
Group's common stock ("Common Stock"), earnings for Energy Group are reduced by
the preferred stock dividends of Central Hudson. The average dilutive effect of
Energy Group's stock options and performance shares was 13,368 shares and 7,074
shares for the quarters ended June 30, 2006, and 2005, and 13,619 shares and
7,693 shares for the six months ended June 30, 2006, and 2005, respectively.
Certain stock options are excluded from the calculation of diluted earnings per
share because the exercise prices of those options were greater than the average
market price per share of Common Stock for each of the periods presented. The
number of shares of Common Stock represented by the options excluded from the
above calculation was 35,700 shares and 36,900 shares for the three-month and
six-month periods ended June 30, 2006, and


                                       18
<PAGE>

2005, respectively. For additional information regarding stock options and
performance shares, see Note 8 - "Equity-Based Compensation Incentive Plans."

Equity-Based Compensation

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

FIN 46R - Consolidation of Variable Interest Entities

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

Reclassification

      Certain amounts in the 2005 Consolidated Financial Statements have been
reclassified to conform to the 2006 presentation. Primarily, the Consolidated
Balance Sheet for Energy Group has been reformatted to distinguish Partnership
Interests from Other Assets.

NOTE 3 - REGULATORY MATTERS

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

      In April 2006, Central Hudson, Department of Public Service Staff ("PSC
Staff"), and other parties served on all parties a negotiated Joint Proposal
("2006 Joint Proposal") to be considered by the PSC in Central Hudson's then
current electric and natural gas rate proceeding. Under the terms of the 2006
Joint Proposal, an increase to electric delivery revenues of $53.7 million over
the three-year term is to be phased-in with annual electric delivery rate
increases of approximately $17.9 million as of July 1, 2006, July 1, 2007, and
July 1, 2008. A natural gas delivery revenue increase of $14.1 million is to be
phased-in over two years with natural gas delivery rate increases of $8 million
as of July 1, 2006, and $6.1 million as of July 1, 2007.

      On June 20, 2006, the PSC extended the normal eleven-month suspension of
the case through August 29, 2006, with a make-whole provision for the loss of
revenues due to the extension of the suspension period past July 1, 2006.

      On July 24, 2006, the PSC issued its Order Establishing Rate Plan ("2006
Order") following action to approve the 2006 Joint Proposal at the July 19,
2006, session. The 2006 Order adopted all of the terms and conditions of the
2006 Joint Proposal with a modification requiring distribution right-of-way
("ROW") maintenance


                                       19
<PAGE>

expenses to be subject to the same shortfall true-up mechanism that applies to
transmission ROW maintenance expenses. The 2006 Order directs a compliance
tariff filing to place new rates into effect as of August 1, 2006, subject to
the terms and conditions of the 2006 Order; Central Hudson made this compliance
filing on July 31, 2006.

      The 2006 Order provides for delivery rates based on a return on equity of
9.6% with an earnings sharing threshold of 10.6%, above which Central Hudson is
to share earnings with its customers. Rates are based on a capital structure
which includes 45% common equity, but the actual proportion of common equity up
to a limit of 47% may be used in determining the return on common equity for the
purpose of earnings sharing. The 2006 Order also includes the continued full
recovery of all purchased natural gas and electric costs through existing
monthly supply cost recovery mechanisms. In addition, three-year capital
expenditure targets to fund investments in its electric, natural gas, and common
plant, and increased allowances for the recovery of operating costs including
transmission and distribution ROW maintenance expenses, have been established.
The capital expenditure targets are subject to true-up provisions, requiring
deferral of the revenue equivalent of any shortfalls in spending over the
three-year term. Transmission and distribution ROW maintenance expenses are also
subject to true-up provisions over the three-year term, requiring the deferral
of shortfalls in actual expenditures. The 2006 Order also provides increased
rate allowances and continued deferral accounting authorization for the recovery
of expenses for pensions, other post-employment benefits ("OPEB"), stray voltage
testing, manufactured gas plant ("MGP") site remediation, and certain other
expense items. The 2006 Order also provides additional funding to assist
low-income customers in paying their energy bills, as well as continued funding
of programs to encourage customers to explore new opportunities available
through the competitive retail supply markets. In addition, the 2006 Order
includes penalty-only performance mechanisms with established targets for
specified levels of performance for a number of customer service quality,
natural gas safety, and electric reliability measures.

      A copy of the 2006 Order is available on Energy Group's website at
www.CHEnergyGroup.com.

Non-Utility Land Sales

Regulated Electric and Natural Gas Businesses

      Commencing April 26, 2005, and updated on May 22, 2006, Central Hudson
filed Notices of Intent with the PSC to sell 43 parcels of non-utility real
property. On July 22, 2005, the PSC issued an Order stating that the filings
shall be reviewed further under Public Service Law Section 70 ("Section 70") to
determine the disposition of and the accounting for the potential gains. The
total book cost of the proposed property sales of 43 parcels is approximately
$323,000 and is included in Other Property and Plant - Net on the Consolidated
Balance Sheets of Energy Group and Central Hudson.


                                       20
<PAGE>

      On June 23, 2006, the PSC issued an Order approving the proposed transfers
of ownership interests in the non-utility property and the recognition of any
gains realized upon the transfers for the benefit of shareholders.

      In July 2006, Central Hudson sold several parcels of non-utility real
property for an approximate net gain before taxes of $1 million. Additional
sales of non-utility real property are expected to occur prior to December 31,
2006.

Other Businesses

      On June 29, 2006, Energy Group (the holding company) sold its only real
property for $765,000, with a net after-tax gain of $382,000.

NOTE 4 - ACQUISITIONS, INVESTMENTS, AND DIVESTITURES

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

Acquisitions

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

      During the second quarter of 2006, Griffith acquired certain assets of
four fuel distribution companies for a total of $1.5 million. The purchase price
allocated to intangible assets (including goodwill) was $1.4 million, of which
$654,000 was allocated to goodwill. The principal tangible assets acquired were
vehicles, petroleum products, and spare parts. All four acquisitions have
earn-out provisions, which may increase the purchase price if certain sales
volumes are attained.

      On April 12, 2006, CHEC purchased a 75% interest in Lyonsdale from
Catalyst Renewables Corporation ("Catalyst") for $10.8 million that included a
preliminary additional working capital adjustment of $1.0 million, which is
subject to a final audit. CHEC allocated the total purchase price on a
preliminary basis to the fair value of assets acquired and liabilities assumed
as follows: Current Assets of $1.3 million, Other Property and Plant of $9.6
million, and Current Liabilities of $0.1 million. Catalyst remains the owner of
a minority share of Lyonsdale and will provide asset management services to
Lyonsdale under a contract expiring April 12, 2009. Lyonsdale owns and operates
a 19-megawatt, wood-fired, biomass electric generating plant, which began
operation in 1992. The plant is located in Lyonsdale, New York, which is about
35 miles northwest of Utica. The energy and capacity of the plant is being sold
at a fixed price to an investment grade rated counter-party through a long-term
contract beginning May 1, 2006, and ending December 31, 2014. The financial
statements of Lyonsdale for the period of April 12, 2006, through June 30, 2006,
have been fully consolidated into the financial statements of Energy Group.


                                       21
<PAGE>

Investments

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

      In January 2006, Cornhusker Energy Lexington Holdings, LLC ("Cornhusker
Holdings") began operation of its fuel ethanol production facility, located in
Lexington, Nebraska. On March 9, 2006, CHEC acquired an additional $2.0 million
of subordinated notes issued by Cornhusker Holdings, bringing the total acquired
by CHEC to-date to $5.0 million. On March 10, 2006, CHEC invested $4.9 million
in CH-Community Wind Energy, LLC, a joint venture between CHEC and Community
Energy, Inc. The joint venture closed on its investment in the Bear Creek and
Jersey Atlantic wind farm projects, which are both commercially operational.
CH-Community Wind Energy, LLC currently owns an 18% minority interest in these
projects. CHEC's investment is accounted for under the equity method.

NOTE 5 - SHORT-TERM INVESTMENTS

      Energy Group's short-term investments consist of Auction Rate Securities
("ARS") and Variable Rate Demand Notes ("VRDN"), which have been classified as
current available-for-sale securities pursuant to the provisions of SFAS No.
115, titled Accounting for Certain Investments in Debt and Equity Securities.
ARS and VRDN are debt instruments with a long-term nominal maturity and a
mechanism that resets the interest rate at regular intervals. Energy Group's
investments include tax-exempt ARS and VRDN with interest rates that are reset
anywhere from 7 to 35 days. These investments are available to fund current
operations or to provide funding in accordance with Energy Group's strategy to
redeploy equity into its subsidiaries. Due to the nature of these securities
with regard to their interest reset periods, the aggregate carrying value
approximates their fair value, thereby not impacting shareholders equity with
regard to unrealized gains and losses. The aggregate fair value of these
short-term investments was $40.2 million at June 30, 2006, $42.1 million at
December 31, 2005, and $49.3 million at June 30, 2005. Cash flows from the
purchases and liquidation of these investments are reported separately as
investing activities in Energy Group's Consolidated Statements of Cash Flow.

NOTE 6 - SEGMENTS AND RELATED INFORMATION

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

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


                                       22
<PAGE>

      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.

CH Energy Group, Inc. Segment Disclosure

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
                                                                 Quarter Ended June 30, 2006
(In Thousands, Except                    --------------------------------------------------------------------------------------
 Earnings Per Share)                             Regulated                     Unregulated          Eliminations       Total
-------------------------------------------------------------------------------------------------------------------------------
                                                         Natural         Fuel
                                         Electric         Gas        Distribution        Other
-------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>            <C>              <C>            <C>          <C>
Revenues from
external customers                       $107,930       $ 36,458       $  68,224        $  1,279       $  --        $  213,891
-------------------------------------------------------------------------------------------------------------------------------
Intersegment revenues                           3             34              --              --         (37)               --
-------------------------------------------------------------------------------------------------------------------------------
  Total revenues                         $107,933       $ 36,492       $  68,224        $  1,279       $ (37)       $  213,891
-------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before
income taxes                             $  4,821       $  2,039       $  (3,407)       $  2,714       $  --        $    6,167
-------------------------------------------------------------------------------------------------------------------------------
Net (loss) income                        $  2,864       $  1,017       $  (2,044)       $  2,231       $  --        $    4,068
-------------------------------------------------------------------------------------------------------------------------------
Earnings (Loss) Per
Share - Diluted                          $   0.18       $   0.07       $   (0.13)       $   0.14(1)    $  --        $     0.26
-------------------------------------------------------------------------------------------------------------------------------
Segment Assets at
June 30, 2006                            $847,814       $294,137       $ 146,805        $105,885       $(707)(2)    $1,393,934
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   The amount of Unregulated EPS attributable to CHEC's other business
      activities was $0.04 per share, with the balance of $0.10 per share
      resulting primarily from interest income.

(2)   Includes minority interest of $1,494 related to Lyonsdale.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
                                                                    Six Months Ended June 30, 2006
(In Thousands, Except                    --------------------------------------------------------------------------------------
 Earnings Per Share)                            Regulated                     Unregulated           Eliminations       Total
-------------------------------------------------------------------------------------------------------------------------------
                                                         Natural         Fuel
                                         Electric         Gas        Distribution        Other
-------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>            <C>              <C>            <C>          <C>
Revenues from
external customers                       $243,977       $107,267       $ 178,059        $  1,820       $  --        $  531,123
-------------------------------------------------------------------------------------------------------------------------------
Intersegment revenues                           6            239              --              --        (245)               --
-------------------------------------------------------------------------------------------------------------------------------
  Total revenues                         $243,983       $107,506       $ 178,059        $  1,820       $(245)       $  531,123
-------------------------------------------------------------------------------------------------------------------------------
Earnings before income
taxes                                    $ 16,221       $ 13,027       $   3,789        $  4,189       $  --        $   37,226
-------------------------------------------------------------------------------------------------------------------------------
Net income                               $  9,307       $  7,385       $   2,274        $  3,402       $  --        $   22,368
-------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share -
Diluted                                  $   0.59       $   0.47       $    0.14        $   0.21(1)    $  --        $     1.41
-------------------------------------------------------------------------------------------------------------------------------
Segment Assets at
June 30, 2006                            $847,814       $294,137       $ 146,805        $105,885       $(707)(2)    $1,393,934
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   The amount of Unregulated EPS attributable to CHEC's other business
      activities was $0.06 per share, with the balance of $0.15 per share
      resulting primarily from interest income and business development
      activities.

(2)   Includes minority interest of $1,494 related to Lyonsdale.


                                       23
<PAGE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
                                                                   Quarter Ended June 30, 2005
                                         --------------------------------------------------------------------------------------
(In Thousands, Except
  Earnings Per Share)                           Regulated                     Unregulated           Eliminations        Total
-------------------------------------------------------------------------------------------------------------------------------
                                                         Natural         Fuel
                                         Electric         Gas        Distribution        Other
-------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>            <C>              <C>             <C>          <C>
Revenues from
external customers                       $106,620       $ 31,142       $  51,598        $    210        $  --        $  189,570
-------------------------------------------------------------------------------------------------------------------------------
Intersegment revenues                           3             34              --              --          (37)               --
-------------------------------------------------------------------------------------------------------------------------------
 Total revenues                          $106,623       $ 31,176       $  51,598        $    210        $ (37)       $  189,570
-------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before
income taxes                             $  7,857       $  1,950       $  (2,486)       $  1,065        $  --        $    8,386
-------------------------------------------------------------------------------------------------------------------------------
Net (loss) income                        $  4,854       $  1,016       $  (1,492)       $  2,155        $  --        $    6,533
-------------------------------------------------------------------------------------------------------------------------------
Earnings (Loss) Per
Share - Diluted                          $   0.31       $   0.06       $   (0.09)       $   0.13(1)     $  --        $     0.41
-------------------------------------------------------------------------------------------------------------------------------
Segment Assets at
June 30, 2005                            $789,180       $267,764       $ 136,065        $124,704        $(1,230)     $1,316,483
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   The amount of Unregulated EPS attributable to CHEC's other business
      activities was $0.01 per share, with the balance of $0.12 per share
      resulted primarily from the recording of New York State income tax
      benefits of $0.09 per share related to the completion of the Energy Group
      tax audit and investment and business development activities.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
                                                                     Six Months Ended June 30, 2005
                                         --------------------------------------------------------------------------------------
(In Thousands, Except
 Earnings Per Share)                             Regulated                     Unregulated           Eliminations       Total
-------------------------------------------------------------------------------------------------------------------------------
                                                         Natural         Fuel
                                         Electric         Gas        Distribution        Other
-------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>            <C>              <C>             <C>          <C>
Revenues from
external customers                       $233,277       $ 94,571       $ 147,354        $    455        $  --        $  475,657
-------------------------------------------------------------------------------------------------------------------------------
Intersegment revenues                           6            201              --              --         (207)               --
-------------------------------------------------------------------------------------------------------------------------------
 Total revenues                          $233,283       $ 94,772       $ 147,354        $    455        $(207)       $  475,657
-------------------------------------------------------------------------------------------------------------------------------
Earnings before income
taxes                                    $ 20,696       $ 14,189       $   5,284        $  2,329        $  --        $   42,498
-------------------------------------------------------------------------------------------------------------------------------
Net income                               $ 12,347       $  8,270       $   3,171        $  3,085        $  --        $   26,873
-------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share -
Diluted                                  $   0.78       $   0.53       $    0.20        $   0.19(1)     $  --        $     1.70
-------------------------------------------------------------------------------------------------------------------------------
Segment Assets at
June 30, 2005                            $789,180       $267,764       $ 136,065        $124,704        $(1,230)     $1,316,483
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   The amount of Unregulated EPS attributable to CHEC's other business
      activities was $0.02 per share; the balance of $0.17 per share resulted
      primarily from the recording of New York State income tax benefits of
      $0.09 per share related to the completion of the Energy Group tax audit
      and investment and business development activities.


                                       24
<PAGE>

Central Hudson Gas & Electric Corporation Segment Disclosure

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
           (In Thousands)                                      Quarter Ended June 30, 2006
----------------------------------------------------------------------------------------------------------------
                                                                Natural
                                              Electric            Gas           Eliminations           Total
----------------------------------------------------------------------------------------------------------------
<S>                                          <C>               <C>               <C>                <C>
Revenues from external customers             $  107,930        $   36,458        $       --         $  144,388
----------------------------------------------------------------------------------------------------------------
Intersegment revenues                                 3                34               (37)                --
----------------------------------------------------------------------------------------------------------------
 Total Revenues                              $  107,933        $   36,492        $      (37)        $  144,388
----------------------------------------------------------------------------------------------------------------
Earnings before income taxes                 $    5,000        $    2,102        $       --         $    7,102
----------------------------------------------------------------------------------------------------------------
Net Income                                   $    3,047        $    1,076        $       --         $    4,123
----------------------------------------------------------------------------------------------------------------
Income Available for Common Stock            $    2,864        $    1,017        $       --         $    3,881
----------------------------------------------------------------------------------------------------------------
Segment Assets at June 30, 2006              $  847,814        $  294,137        $       --         $1,141,951
----------------------------------------------------------------------------------------------------------------

<CAPTION>
----------------------------------------------------------------------------------------------------------------
         (In Thousands)                                   Six Months Ended June 30, 2006
----------------------------------------------------------------------------------------------------------------
                                                                Natural
                                              Electric            Gas           Eliminations           Total
----------------------------------------------------------------------------------------------------------------
<S>                                          <C>               <C>               <C>                <C>
Revenues from external customers             $  243,977        $  107,267        $       --         $  351,244
----------------------------------------------------------------------------------------------------------------
Intersegment revenues                                 6               239              (245)                --
----------------------------------------------------------------------------------------------------------------
 Total Revenues                              $  243,983        $  107,506        $     (245)        $  351,244
----------------------------------------------------------------------------------------------------------------
Earnings before income taxes                 $   16,493        $   13,240        $       --         $   29,733
----------------------------------------------------------------------------------------------------------------
Net Income                                   $    9,674        $    7,503        $       --         $   17,177
----------------------------------------------------------------------------------------------------------------
Income Available for Common Stock            $    9,307        $    7,385        $       --         $   16,692
----------------------------------------------------------------------------------------------------------------
Segment Assets at June 30, 2006              $  847,814        $  294,137        $       --         $1,141,951
----------------------------------------------------------------------------------------------------------------

<CAPTION>
----------------------------------------------------------------------------------------------------------------
         (In Thousands)                                         Quarter Ended June 30, 2005
----------------------------------------------------------------------------------------------------------------
                                                                Natural
                                              Electric            Gas           Eliminations           Total
----------------------------------------------------------------------------------------------------------------
<S>                                          <C>               <C>               <C>                <C>
Revenues from external customers             $  106,620        $   31,142        $       --         $  137,762
----------------------------------------------------------------------------------------------------------------
Intersegment revenues                                 3                34               (37)                --
----------------------------------------------------------------------------------------------------------------
 Total Revenues                              $  106,623        $   31,176        $      (37)        $  137,762
----------------------------------------------------------------------------------------------------------------
Earnings before income taxes                 $    8,040        $    2,010        $       --         $   10,050
----------------------------------------------------------------------------------------------------------------
Net Income                                   $    5,035        $    1,077        $       --         $    6,112
----------------------------------------------------------------------------------------------------------------
Income Available for Common Stock            $    4,854        $    1,016        $       --         $    5,870
----------------------------------------------------------------------------------------------------------------
Segment Assets at June 30, 2005              $  789,180        $  267,764        $       --         $1,056,944
----------------------------------------------------------------------------------------------------------------

<CAPTION>
----------------------------------------------------------------------------------------------------------------
         (In Thousands)                                       Six Months Ended June 30, 2005
----------------------------------------------------------------------------------------------------------------
                                                                Natural
                                              Electric            Gas           Eliminations           Total
----------------------------------------------------------------------------------------------------------------
<S>                                          <C>               <C>               <C>                <C>
Revenues from external customers             $  233,277        $   94,571        $       --         $  327,848
----------------------------------------------------------------------------------------------------------------
Intersegment revenues                                 6               201              (207)                --
----------------------------------------------------------------------------------------------------------------
 Total Revenues                              $  233,283        $   94,772        $     (207)        $  327,848
----------------------------------------------------------------------------------------------------------------
Earnings before income taxes                 $   21,061        $   14,309        $       --         $   35,370
----------------------------------------------------------------------------------------------------------------
Net Income                                   $   12,711        $    8,391        $       --         $   21,102
----------------------------------------------------------------------------------------------------------------
Income Available for Common Stock            $   12,347        $    8,270        $       --         $   20,617
----------------------------------------------------------------------------------------------------------------
Segment Assets at June 30, 2005              $  789,180        $  267,764        $       --         $1,056,944
----------------------------------------------------------------------------------------------------------------
</TABLE>


                                       25
<PAGE>

NOTE 7 - NEW ACCOUNTING STANDARDS AND OTHER FASB PROJECTS

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

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

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

      The guidance in this FSP is effective with the adoption of SFAS 123(R).
For Energy Group, SFAS 123(R) was adopted effective January 1, 2006. The
provisions of this FSP do not currently apply to Energy Group or its
subsidiaries.

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

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

      SFAS 155 is effective for all financial instruments acquired or issued
after the beginning of the first fiscal year that begins after September 15,
2006, with earlier application permitted. If applicable, Energy Group would
expect to adopt SFAS 155 as of January 1, 2007. The provisions of SFAS 155 do
not currently apply to Energy Group or its subsidiaries, as they do not have
hybrid financial instruments as defined by SFAS 155.


                                       26
<PAGE>

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

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

      This proposed Statement is expected to be finalized in September 2006 and
become effective for fiscal years ending after December 15, 2006, which for
Energy Group would be fiscal year ended December 31, 2006. The FASB's proposal
to change the measurement date would be effective for Energy Group in 2007.

      Pursuant to SFAS 71 and under the policy of the PSC regarding pension and
OPEB costs, Central Hudson recovers its net periodic pension costs through
customer rates, with differences from rate allowances deferred for future
recovery from or return to customers. As a result, it is not expected that this
Statement would have a significant impact on the results of operations or cash
flows of Energy Group or its subsidiaries.

EITF Issue No. 06-3, How Taxes Collected from Customers and Remitted to
Governmental Authorities Should be Presented in the Income Statement (That is,
Gross versus Net Presentation)

Presentation of Governmental Taxes in the Income Statement

      In June 2006, the Emerging Issues Task Force ("EITF") ratified a consensus
on EITF Issue No. 06-3, titled How Taxes Collected from Customers and Remitted
to Governmental Authorities Should be Presented in the Income Statement. This
Issue focused on any taxes assessed by a governmental authority that are imposed
concurrently on specific revenue-producing transactions between a seller and a
customer and how they should be presented in the income statement. Taxes
assessed on an entity's activities over a period of time, such as gross receipts
taxes, are not within the scope of the Issue. The presentation of taxes on
either a gross (i.e. included in revenues and costs) or net basis (i.e. excluded
from revenues) is an accounting policy decision that should be disclosed
pursuant to APB Opinion No. 22, titled Disclosure of Accounting Policies. Tax
amounts deemed significant when reporting on


                                       27
<PAGE>

a gross basis should be disclosed for interim and annual financial statements
for each period for which an income statement is presented.

      This Issue does not require an entity to reevaluate its existing
classification policies related to taxes assessed by a governmental authority
but does require the presentation of additional disclosures.

      This Issue is applicable to financial reports for interim and annual
reporting periods beginning after December 15, 2006, with earlier application
permitted.

      Energy Group does not expect this Issue to have any impact on the
financial condition, results of operations, or cash flows of Energy Group or its
subsidiaries.

Accounting for Uncertain Tax Positions

      In July 2006, the FASB issued Interpretation No. 48, titled Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 ("FIN
48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in an entity's financial statements in accordance with FASB Statement No. 109,
titled Accounting for Income Taxes. FIN 48 also prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN
48 also provides guidance on derecognition, classification, interest and
penalties, accounting for interim periods, and disclosure and transition issues.

      The evaluation of a tax position in accordance with FIN 48 is a two-step
process. The first step is a recognition process whereby the entity determines
whether it is more likely than not that a tax position will be sustained upon
examination, including resolution of any related appeals or litigation
processes, based on the technical merits of the position. In evaluating whether
a tax position has met the more likely than not recognition threshold, the
entity should presume that the position will be examined by the appropriate
taxing authority that has full knowledge of all relevant information. The second
step is a measurement process whereby a tax position that meets the more likely
than not recognition threshold is calculated to determine the amount of benefit
to recognize in the financial statements. The tax position is measured as the
largest amount of benefit that is greater than 50% likely of being realized upon
ultimate settlement.

      The provisions of FIN 48 are effective for fiscal years beginning after
December 15, 2006, and are to be applied to all tax positions upon initial
adoption of this standard. Only tax positions that meet the more likely than not
recognition threshold at the effective date may be recognized or continue to be
recognized upon adoption of FIN 48. The cumulative effect of applying the
provisions of FIN 48 should be reported as an adjustment to the opening balance
of retained earnings for that fiscal year.


                                       28
<PAGE>

      The implementation of FIN 48 is not expected to have a material impact on
the financial condition, results of operations, or cash flows of Energy Group or
its subsidiaries.

NOTE 8 - EQUITY-BASED COMPENSATION INCENTIVE PLANS

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

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

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

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

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


                                       29
<PAGE>

shares of the 2004 grants were awarded to him in 2004. As of June 30, 2006, the
number of performance shares that remain outstanding are as follows: 19,800 from
the 2004 grant; 23,000 from the 2005 grant; and 20,710 from the 2006 grant. The
ultimate number of shares earned under the awards is based on metrics
established by 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.
Compensation expense recorded related to performance shares for the quarters
ended June 30, 2006, and 2005, was $276,000 and $136,000, respectively.
Compensation expense related to performance shares for the six months ended June
30, 2006, was $419,000 and was not material for the same period of 2005.

      A summary of the status of stock options awarded to executives and
non-employee Directors of Energy Group and its subsidiaries under the 2000 Plan
as of June 30, 2006, is as follows:


<TABLE>
<CAPTION>
                                                              Weighted         Weighted
                                                               Average          Average
                                     Stock Option             Exercise         Remaining
                                        Shares                  Price        Life in Years
                                     ------------             --------       -------------
<S>                                    <C>                     <C>                 <C>
Outstanding at 12/31/05                    73,300              $46.18              5.99
     Granted                                   --                  --                --
     Exercised                             (7,640)             $43.63
     Expired/Cancelled                         --                  --                --
                                      -----------              ------            ------
Outstanding at 6/30/06                     65,660              $46.48              5.58
                                      ===========              ======            ======

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

      A total of 7,640 non-qualified stock options with exercise prices of
$31.94, $44.06, and $48.62 were exercised during the six months ended June 30,
2006. Total intrinsic value of options exercised was not material.

      Compensation expense recorded for the six months ended June 30, 2006, and
2005, was not material. The balance accrued at June 30, 2006, for outstanding
stock options was $207,000. The intrinsic value of options outstanding was not
material.

      The following table summarizes information concerning outstanding and
exercisable stock options at June 30, 2006, by exercise price:

<TABLE>
<CAPTION>
                             Number of           Weighted Average            Number of              Number of
                              Options                Remaining                Options                Options
    Exercise Price          Outstanding            Life in Years            Exercisable         Remaining to Vest
    --------------          -----------            -------------            -----------         -----------------
<S>                            <C>                      <C>                    <C>
        $31.94                    320                   3.50                      320                     --
        $44.06                 29,640                   4.50                   29,640                     --
        $48.62                 35,700                   6.50                   29,490                  6,210
                               ------                   ----                   ------                  -----
                               65,660                   5.58                   59,450                  6,210
</TABLE>


                                       30
<PAGE>

      The weighted average exercise price of options remaining to vest is
$48.62, with a weighted average remaining life of 6.50 years.

      Energy Group adopted SFAS 123(R) effective January 1, 2006, using the
modified prospective application with no significant impact on its financial
condition, results of operations, or cash flows. Under this application, all new
awards as of January 1, 2006, and any outstanding awards that may be modified,
repurchased, or cancelled will be accounted for under SFAS 123(R).

NOTE 9 - INVENTORY

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

--------------------------------------------------------------------------------
                                                      Energy Group
                                                      ------------
--------------------------------------------------------------------------------
                                            June 30,    December 31,    June 30,
                                              2006          2005          2005
--------------------------------------------------------------------------------
(In Thousands)
--------------------------------------------------------------------------------

Natural Gas                                 $16,231       $16,512       $ 9,074
--------------------------------------------------------------------------------

Petroleum Products and Propane                4,652         4,138         2,692
--------------------------------------------------------------------------------

Fuel Used In Electric Generation                380            --            --
--------------------------------------------------------------------------------

Materials and Supplies                        7,976         7,700         7,752
--------------------------------------------------------------------------------

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

Total                                       $29,239       $28,350       $19,518
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
                                                      Central Hudson
                                                      --------------
                                            June 30,    December 31,    June 30,
                                              2006          2005          2005
--------------------------------------------------------------------------------
(In Thousands)
--------------------------------------------------------------------------------

Natural Gas                                 $16,231       $16,512       $ 9,074
--------------------------------------------------------------------------------

Petroleum Products and Propane                  740           758           628
--------------------------------------------------------------------------------

Materials and Supplies                        6,192         6,141         6,132
--------------------------------------------------------------------------------

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

Total                                       $23,163       $23,411       $15,834
--------------------------------------------------------------------------------

      The significant increase in the value of the natural gas, petroleum
products, and propane inventory at June 30, 2006, when compared to June 30,
2005, is due largely to an increase in the wholesale prices of those commodities
and the quantity of natural gas remaining in storage due to the mild winter.


                                       31
<PAGE>

NOTE 10 - POST-EMPLOYMENT BENEFITS

      The following are the components of Central Hudson's net periodic benefits
costs for its pension and OPEB plans for the quarters and six months ended June
30, 2006, and 2005. The OPEB amounts for both years reflect the effect of the
Medicare Prescription Drug, Improvement and Modernization Act of 2003 under the
provisions of FSP 106-2, titled Accounting and Disclosure Requirements Related
to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.

<TABLE>
<CAPTION>
                                                                 Quarter Ended June 30,
                                                   Pension Benefits                      OPEB
                                             ---------------------------       ---------------------------
                                                2006              2005            2006            2005
                                                    (In Thousands)                   (In Thousands)
                                             ---------------------------       ---------------------------
<S>                                          <C>              <C>              <C>              <C>
Service cost                                 $    1,985       $    1,837       $      592       $      968

Interest cost                                     5,577            5,489            1,752            2,395

Expected return on plan assets                   (6,709)          (5,808)          (1,560)          (1,279)

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

Recognized actuarial (gain) or loss               3,240            3,331              305            1,669
                                             ----------       ----------       ----------       ----------

Net periodic benefit cost                    $    4,635       $    5,384       $    1,417       $    4,358
                                             ==========       ==========       ==========       ==========

<CAPTION>
                                                             Six Months Ended June 30,
                                                 Pension Benefits                         OPEB
                                             ---------------------------       ---------------------------
                                                2006            2005              2006            2005
                                                   (In Thousands)                    (In Thousands)
                                             ---------------------------       ---------------------------
<S>                                          <C>              <C>              <C>              <C>
Service cost                                 $    3,970       $    3,674       $    1,662       $    1,935

Interest cost                                    11,153           10,977            4,010            4,791

Expected return on plan assets                  (13,418)         (11,616)          (2,993)          (2,557)

Amortization of:
     Prior service cost                           1,084            1,070             (628)             (74)
     Transitional (asset) or obligation              --               --            1,283            1,283

Recognized actuarial (gain) or loss               6,481            6,663            2,153            3,339
                                             ----------       ----------       ----------       ----------

Net periodic benefit cost                    $    9,270       $   10,768       $    5,487       $    8,717
                                             ==========       ==========       ==========       ==========
</TABLE>


                                       32
<PAGE>

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

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

      Employer contributions for OPEB totaled $2.4 million during the six months
ended June 30, 2006. The total contribution to be made in 2006 is expected to be
similar to the 2005 amount of $6.1 million.

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

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

NOTE 11 - COMMITMENTS AND CONTINGENCIES

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

City of Poughkeepsie

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


                                       33
<PAGE>

Environmental Matters

Central Hudson:

      Water

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

      Air

      In October 1999, Central Hudson was informed by the New York State
Attorney General ("Attorney General") that the Danskammer 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." As part of
this investigation, Central Hudson has received several requests for information
from the Attorney General, the DEC, and the United States Environmental
Protection Agency ("EPA") seeking information about the operation and
maintenance of the Danskammer Plant during the period from 1980 to 2000,
including specific information regarding approximately 45 projects conducted
during that period. In March 2000, the EPA assumed responsibility for the
investigation. Central Hudson has completed its production of documents in
connection with the information requests, and believes any permits required for
these projects were obtained in a timely manner. Notwithstanding Central
Hudson's sale of the Danskammer Plant on January 30, 2001, Central Hudson could
retain liability depending on the type of remedy, if any, imposed in connection
with this matter.

      Former Manufactured Gas Plant Facilities

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


                                       34
<PAGE>

removed the six sites it had previously placed on the Registry, subject to
future revisions of its testing methods. The DEC subsequently revised its
testing methods. As discussed below, the Laurel Street, North Water Street,
North Perry Street, Newburgh, Beacon, and Catskill sites have been the subject
of further discussions and agreements with the DEC. In addition, as also
discussed below, the Saugerties and Kingston sites have been the subject of
discussions with the DEC and, regarding the Kingston site, with a private
developer.

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

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

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

      Further studies by Central Hudson of the City of Newburgh's property were
provided to the DEC, which determined that the contaminants found may pose a
significant threat to human health or the environment. As a result, Central
Hudson


                                       35
<PAGE>

developed a draft Feasibility Study Report ("Feasibility Report") which was
filed with the DEC and provided to the City of Newburgh in 1999. After review of
the Feasibility Report by the DEC and the New York State Department of Health
("DOH") and additional sampling by Central Hudson, Central Hudson submitted
revised risk assessments in June 2001, which also encompassed additional cleanup
of Hudson River sediments and property owned by the City of Newburgh.

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

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

      Central Hudson has entered into a contract with Blasland, Bouck and Lee
("BBL") of Syracuse, New York with a value up to $1.6 million. Under the
contract, BBL, which has conducted all studies to-date at the site, will conduct
additional required pre-design studies and will assist with development of
remediation contract specifications and remediation construction oversight
assistance, in accordance with the ROD. An initial schedule for remediating the
site has been approved by the DEC and requires Central Hudson to submit and the
DEC to approve the complete design and incorporated schedule of the remedy of
the former MGP site by September 30, 2006, and for Central Hudson to submit and
the DEC to approve the complete design and incorporated schedule of the remedy
of adjacent property and of a certain portion of the Hudson River by December
31, 2007.

      As of June 30, 2006, approximately $12.5 million has been spent on the
City of Newburgh matter, including the defense of the litigation described
above. It is not possible to predict the extent of additional remediation costs
that will be incurred in connection with this matter, but Central Hudson
believes that such costs could be in excess of $17 million. As of June 30, 2006,
a $17 million estimate regarding this matter has been recorded as liability, and
the expenses have been deferred, subject to the provisions of a PSC Order issued
on June 3, 1997, that granted permission for the deferral of these costs subject
to an annual PSC review of the specific costs being deferred. The authority from
the PSC to defer these costs does not assure future rate recovery.

      Neither Energy Group nor Central Hudson can make any prediction as to the
full financial effect of this matter on either Energy Group or Central Hudson,
including the extent, if any, of insurance reimbursement and including
implementation of


                                       36
<PAGE>

environmental cleanup under the Order on Consent. However, Central Hudson has
put its insurers on notice of this matter and intends to seek reimbursement from
its insurers for the cost of any liability. Certain of the insurers have denied
coverage.

      Other MGP Sites: Central Hudson conducted site assessments of the
Poughkeepsie Laurel Street, North Water Street, and Beacon sites under Voluntary
Cleanup Agreements negotiated in 2000 with the DEC to determine if there are any
significant quantities of residues from the MGP operations on the sites and
whether any such residues would require remediation. In March 2002, the DEC
informed Central Hudson that both it and the DOH had approved Central Hudson's
Supplemental Preliminary Site Assessment for the North Water Street site, which
had concluded that the contamination at the site "does not appear to pose a
significant threat to public health and the environment." At that time, the DEC
and Central Hudson agreed that further investigation at the site would be given
lower priority than work at the other Central Hudson MGP sites. In August 2002,
however, an oily sheen on the Hudson River adjacent to this site was reported to
the DEC. As a result, the DEC revised its priority determination with respect to
the North Water Street site and has now given it a high priority for action. In
2004, Central Hudson received approval from the DEC for and conducted additional
investigation work at the North Water Street site, which included field work on
the site and in the adjacent Hudson River. A report detailing the work and data
gathered was filed with the DEC early in 2005. Subsequently, in 2005, Central
Hudson provided the DEC with an additional report of an investigation of
subsurface conditions near the Hudson River. In June 2006, Central Hudson filed
an additional report with the DEC that provided additional Hudson River field
data requested by the DEC, all past data collected to date, and proposed that
Central Hudson next analyze possible remedial alternatives. Central Hudson has
not yet received a response from the DEC to this report. Neither Energy Group
nor Central Hudson can predict the extent or cost of any possible remediation at
this time.

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

      By 2003, Central Hudson had performed a full site investigation and
proposed a remediation of the Laurel Street site. The DEC subsequently requested
that additional investigation be performed. Central Hudson has performed a
limited additional investigation and is currently analyzing the results of that
investigation.

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


                                       37
<PAGE>

focused additional investigation at the North Perry Street site. Central Hudson
has recently completed such additional investigation, which did not indicate the
presence of any significant MGP-related material, and has provided the report to
the DEC.

      During the fourth quarter of 2001, Central Hudson was advised that the DEC
and the DOH found that no further remedial action was necessary at the Beacon
site. In January 2006, Central Hudson was advised that property adjacent to the
site of the former Beacon site appeared to have soil present that may be
contaminated with MGP-related byproducts. In response to this information,
Central Hudson has met with the DEC and is providing the additional information
it has received characterizing the nature and extent of the contamination.
Central Hudson has also received the results of additional studies of the
adjacent property indicating that MGP-related by-products may be located on a
portion of the property. Central Hudson is currently evaluating what may be
required to address the contamination.

      The DEC has also requested that Central Hudson enter into a Brownfield
Cleanup Agreement covering the Kingston, Saugerties, and Catskill sites.
Regarding the Kingston site, Central Hudson is considering an offer from a third
party to purchase the site. In July 2006, Central Hudson and the third party
entered into an agreement allowing the third party to conduct an investigation
at the site and approach the DEC with a proposal to remediate the site, if the
investigation indicates that remediation is necessary. Central Hudson cannot
predict whether this sale, which is subject to Section 70 approval by the PSC,
will take place. Regarding the Catskill site, Central Hudson has recently
executed a Brownfield Cleanup Agreement to investigate and, if necessary,
remediate the site. The application has been deemed complete by the DEC and has
undergone a public review and comment period required by the Brownfield Cleanup
Program law. The Brownfield Cleanup Agreement is now awaiting execution by the
DEC. Regarding the Saugerties site, Central Hudson has submitted to the DEC an
analysis indicating that Central Hudson has no legal responsibility for
contamination, if any, at the Saugerties site. The DEC has not yet responded to
the submitted analysis.

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

      Central Hudson has developed estimates of the potential costs it could
incur in connection with the remediation of four of the MGP sites, namely the
City of Newburgh site, the Laurel Street site, the North Water Street site, and
the Kingston site. The cost estimates for the Newburgh and Laurel Street sites
are based on completed feasibility studies (or their equivalents). The cost
estimates for the North Water Street and Kingston sites, however, are considered
conceptual and preliminary. Each of the cost estimates involves assumptions
relating to investigation expenses, remediation costs, potential future
liabilities, and post-remedial monitoring costs, and is based on a variety of
factors including projections regarding the amount and extent of contamination,
the location, size and use of the sites, proximity to sensitive resources,
status of regulatory


                                       38
<PAGE>

investigations, and information regarding remediation activities at other MGP
sites in New York State. The cost estimates also assume that the proposed
remediation techniques are technically feasible and that the remediation plans
receive regulatory approval. The cost estimates, when considered in the
aggregate, indicate that the total costs in connection with remediation of the
four sites could exceed $125 million over the next 30-year period, including the
annual cost of operations and maintenance and an annual inflation factor of
2.5%. Central Hudson has already recorded an aggregate of $19.5 million as
liabilities, comprised of $4 million in current liabilities and $13 million in
long-term liabilities with respect to the City of Newburgh and $2.5 million in
long-term liabilities with respect to the Laurel Street site.

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

      During the six months ended June 30, 2006, Central Hudson spent
approximately $0.2 million related to investigations of these other MGP sites.
Future remediation activities and costs may vary significantly from the
assumptions used in Central Hudson's current cost estimates. The remediation
actions ultimately required at any of the Central Hudson MGP sites could cause a
material adverse effect (the extent of which cannot be reasonably estimated) on
the financial condition of Energy Group and Central Hudson if Central Hudson
were unable to recover all or a substantial portion of these costs through rates
and/or insurance. Central Hudson has put its insurers on notice regarding these
matters and intends to seek reimbursement from its insurers for amounts, if any,
for which it may become liable.

      Under the provisions of the new rate agreement that will become effective
July 1, 2006, described in Note 3 - "Regulatory Matters" of this Quarterly
Report on Form 10-Q, Central Hudson will be permitted to defer for future
recovery the differences between actual costs for MGP site investigation and
remediation and the rate allowances, with carrying charges to be accrued on the
deferred balances at the authorized rate of return.

      Little Britain Road

            In December 1977, Central Hudson purchased property at 410 Little
Britain Road, New Windsor, New York. In June 1992, the DEC informed Central
Hudson that the DEC was preparing to conduct a Preliminary Site Assessment
("PSA") of the site. In February 1995, the DEC issued an Order on Consent in
which Central Hudson agreed to conduct the PSA. In November 2000, following
completion of the PSA, Central Hudson and the DEC entered into a Voluntary
Cleanup Agreement that called for remediation of soil contamination.
Subsequently, Central Hudson removed approximately 3,100 tons of soil and
conducted groundwater sampling. Groundwater sampling results from shallow wells
showed presence of certain contaminants at levels exceeding DEC criteria. In
late 2005, Central Hudson installed a deep groundwater well and it sampled the
well in early 2006. Levels of contaminants exceeding DEC criteria


                                       39
<PAGE>

were reported. In June 2006, Central Hudson proposed to the DEC to add three
additional deep groundwater wells in July 2006 and include those wells in future
sampling, which will occur in August 2006 and December 2006. Central Hudson has
put its insurers on notice regarding this matter and intends to seek
reimbursement from its insurers for amounts, if any, for which it may become
liable. Neither Energy Group nor Central Hudson can predict the outcome of this
matter.

      Orange County Landfill

      Reference is made to the discussion under the subcaption "Orange County
Landfill" in Note 11 - "Commitments and Contingencies" to the Consolidated
Financial Statements of the Corporations' 10-K Annual Report. The Tolling
Agreement dated September 7, 2001, whereby Central Hudson agreed to toll the
applicable statute of limitations by certain state agencies against Central
Hudson for certain alleged causes of action, has through a series of sequential
agreements been extended to November 30, 2006. Settlement discussions are
ongoing. Neither Energy Group nor Central Hudson can predict the outcome of this
matter.

      Newburgh Consolidated Iron Works

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

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

      Asbestos Litigation

      As of June 30, 2006, of the 3,283 cases brought against Central Hudson,
1,161 remain pending. Of the cases no longer pending against Central Hudson,
1,972 have been dismissed or discontinued without payment by Central Hudson, and
Central Hudson has settled 150 cases. Central Hudson is presently unable to
assess the validity of the remaining asbestos lawsuits; accordingly, it cannot
determine the ultimate


                                       40
<PAGE>

liability relating to these cases. Based on information known to Central Hudson
at this time, including Central Hudson's experience in settling asbestos cases
and in obtaining dismissals of asbestos cases, Central Hudson believes that the
costs which may be incurred in connection with the remaining lawsuits will not
have a material adverse effect on either of Energy Group's or Central Hudson's
financial position or results of operations.

CHEC:

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

      Griffith has a voluntary environmental program in connection with the West
Virginia Division of Environmental Protection regarding Griffith's Kable Oil
Bulk Plant, located in West Virginia. During 2006, $19,900 was spent on site
remediation efforts. The State of West Virginia has indicated that some
additional remediation will be required and Griffith has received an estimate of
$300,000 for the environmental remediation. In addition, Griffith spent $84,100
on remediation efforts in Maryland, Virginia, and Connecticut in 2006.

      Griffith is currently updating the remediation assessments for all of its
environmental sites and expects to complete this work in the third quarter of
2006. Griffith cannot predict whether the outcome of the current studies will
require adjustment to the corresponding environmental reserve, which is
currently $3.0 million. Griffith is to be reimbursed $301,000 from the State of
Connecticut under an environmental agreement and has recorded this receivable.

      On May 31, 2002, CH Services sold all of its stock ownership interest in
CH Resources to WPS Power Development, Inc. In connection with the sale, CH
Services agreed for four years following the date of this sale to retain up to
$4 million of potential,


                                       41
<PAGE>

on-site environmental liabilities which may have been incurred by CH Resources
prior to the closing. No such material liabilities have been identified and this
indemnification expired in accordance with its terms on May 31, 2006.

Other Matters

Central Hudson:

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

      Neversink Hydro Station

      Central Hudson's ownership interest in the Neversink Hydro Station
("Neversink") was governed by an agreement between Central Hudson and the City
of New York ("the City"), acting through the Board of Water Supply, dated April
21, 1948. That agreement provided for the transfer of Central Hudson's ownership
interest in Neversink, which has a book value of zero, to the City on December
31, 2003. Central Hudson and the City engaged in negotiations relating to the
transfer of Central Hudson's ownership interest in Neversink and extended the
time for the transfer through a series of interim agreements. On February 28,
2006, the parties entered into an "Agreement as to Conveyance of the Neversink
Hydroelectric Generating Plant." This agreement specifies the terms and
conditions related to the transfer including the continued interconnection of
the plant to the electric transmission grid and Central Hudson's post-transfer
property access rights with respect to certain components of its transmission
and distribution equipment. Requisite authorizations for the transfer have been
requested from the Federal Energy Regulatory Commission ("FERC") and the PSC.
The FERC has issued the required authorization within its jurisdiction and the
request for such from the PSC is still pending before that agency. There can be
no assurance that the PSC will issue such authorization.

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

EXECUTIVE SUMMARY

Business Overview

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


                                       42
<PAGE>

      Central Hudson contributed approximately 66% of Energy Group's revenue and
75% of its net income for the first six months of 2006, the fuel distribution
segment contributed approximately 34% of Energy Group's revenue and 10% of its
net income for the first six months of 2006, and the investment segment
contributed less than 1% of Energy Group's revenue and 15% of its net income for
the first six months of 2006.

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

Central Hudson

      Central Hudson delivers electricity and natural gas to approximately
367,000 customers in a defined service territory in the mid-Hudson Valley region
of New York State. Central Hudson was significantly transformed in 2001 by the
PSC's electricity industry restructuring under which formerly "vertically
integrated" electric utilities such as Central Hudson divested most or all of
their electric generating plants to unaffiliated parties. Since then, Central
Hudson's earnings have been derived primarily from delivery charges levied upon
end-users of its electricity and natural gas transmission and distribution
systems in its service territory. Central Hudson continues to procure supplies
of electricity and natural gas for a majority of its customers. In doing so,
Central Hudson recovers its actual costs through cost adjustment clauses and
without deriving profits from these activities. Central Hudson is facilitating
migration of its delivery customers to third-party providers for their energy
supplies.

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

      While these favorable trends are expected to continue, they could be
impacted by an economic recession, dampening of the housing market by rising
interest rates, and/or reduced consumption by customers in response to higher
energy costs or changing economic conditions. Management believes that Central
Hudson customers may have practiced some conservation during the recent heating
season, but it is difficult to quantify the effects of such actions on Central
Hudson's delivery volumes in light of the variations caused by the mild weather.

      Central Hudson's rates are regulated by the PSC, which is responsible for
setting rates at a level that will recover the cost of providing safe and
reliable service while providing a fair and reasonable return on invested
capital. Central Hudson has focused


                                       43
<PAGE>

its management attention for many years on managing its costs and maintaining
high customer satisfaction so that its costs can be fully recovered and a
reasonable rate of return can be earned under applicable regulatory agreements.

      Central Hudson has achieved substantial success through its efforts,
consistently ranking among the lowest cost electric utilities in New York State,
and ranking in the top half in overall customer satisfaction among utilities in
the Eastern United States, as reported by J.D. Power and Associates in its 2006
Electric Utility Residential Customer Satisfaction Study.

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

      In April 2006, Central Hudson, PSC Staff, and other parties served on all
parties the 2006 Joint Proposal to be considered by the PSC in Central Hudson's
then current electric and natural gas rate proceeding. Under the terms of the
2006 Joint Proposal, an increase to electric delivery revenues of $53.7 million
over the three-year term is to be phased in with annual electric delivery rate
increases of approximately $17.9 million as of July 1, 2006, July 1, 2007, and
July 1, 2008. A natural gas delivery revenue increase of $14.1 million is to be
phased-in over two years with natural gas delivery rate increases of $8 million
as of July 1, 2006, and $6.1 million as of July 1, 2007.

      On June 20, 2006, the PSC extended the normal eleven-month suspension of
the case through August 29, 2006, with a make-whole provision for the loss of
revenues due to the extension of the suspension period past July 1, 2006.

      On July 24, 2006 the PSC issued the 2006 Order following action to approve
the 2006 Joint Proposal at the July 19, 2006, session. The 2006 Order adopted
all of the terms and conditions of the 2006 Joint Proposal with a modification
requiring distribution ROW maintenance expenses to be subject to the same
shortfall true-up mechanism that applies to transmission ROW maintenance. The
2006 Order directs a compliance tariff filing to place new rates into effect as
of August 1, 2006, subject to the terms and conditions of the 2006 Order;
Central Hudson made this compliance filing on July 31, 2006.

      The approved 2006 Order provides Central Hudson with improved cash flow
and the opportunity to fund significant investments in its electric and natural
gas system. If Central Hudson does not expend the funds provided for capital
investment, the revenue equivalent of the shortfall must be deferred for refund
to customers. The Joint Proposal also provides for continued recovery of all
purchased natural gas and electric supply costs through existing monthly
adjustment mechanisms. Central Hudson was provided with increased rate
allowances for pension and OPEB expenses, transmission and distribution
right-of-way maintenance expenses, and stray voltage testing expenses. In
addition, Central Hudson is allowed to recover the expenses associated with the


                                       44
<PAGE>

remediation of its former MGP sites. The approved 2006 Order provides a
framework and opportunity for continued earnings and improved cash flows. In
addition, Central Hudson's actual sales growth and its ability to effectively
manage its costs of operation will also play significant roles in determining
Central Hudson's future earnings and cash flows.

      A copy of the 2006 Order is available on Energy Group's website at
www.CHEnergyGroup.com.

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

Fuel Distribution Business

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

      Griffith's business environment has recently been challenging and remains
so due to high wholesale fuel oil, propane, and motor fuel prices. These high
wholesale prices have required significant infusions of working capital into
Griffith and have resulted in increased price sensitivity and conservation by
Griffith's customers. Despite these challenges, Griffith's profitability in 2005
exceeded the level achieved in 2004. Customer attrition due to price sensitivity
increased in 2004 and early 2005, but has since been curtailed and modest
account growth has resumed. Growth through acquisition of smaller companies,
within or adjacent to Griffith's existing delivery areas, resumed in 2005. Since
2001, Griffith has acquired and integrated 23 small fuel distribution
businesses, including one in the first quarter of 2006 and four in the second
quarter of 2006. Energy Group views Griffith's cost management, strong customer
service capabilities, and access to capital as competitive advantages that
Griffith will endeavor to translate into increased market share and earnings,
both through internal marketing and selective acquisitions.

CHEC's Investments and Other Items

      From time to time, CHEC has made investments in the competitive energy
markets. In 2006, CHEC made a third renewable energy investment - in a biomass
electric generating plant - following investments in 2004 and 2005 in an ethanol
production facility and a wind energy venture. CHEC continues to seek to invest
Energy Group's available cash reserves and to utilize Energy Group's potential
debt capacity through making appropriate investments in the energy markets.
CHEC's approach has been cautious, due both to Energy Group's limited risk
tolerance and to strong competition from other investors. Passage of the 2005
Energy Policy Act has increased


                                       45
<PAGE>

incentives to invest in certain portions of the energy markets, and certain
state and federal legislative actions have increased demand for renewable
energy. CHEC is evaluating these opportunities but remains cautious about undue
reliance on government incentives. CHEC's ability to find investments that
provide attractive returns with acceptable risks will be a key factor in
determining whether Energy Group is able to achieve its target of 5% average
annual growth in earnings per share over the next several years. CHEC's other
investments - in energy efficiency projects, a venture capital fund, and other
small partnerships - are not expected to play a significant role in Energy
Group's strategy going forward.

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

Risk Management

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

Corporate Governance

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

Credit Quality

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


                                       46
<PAGE>

Overview of Second Quarter Results

      Earnings per share for the second quarter of 2006 for Energy Group were
$0.26 per share, versus the $0.41 per share posted during the second quarter of
2005. Increased operating and maintenance expenses, unseasonable weather, and
the absence of one-time income tax adjustments that had been made in 2005 were
among the primary drivers of the variation. Some of the favorable offsetting
developments of the quarter included gains from several regulatory mechanisms
within Central Hudson, the sale of property held by Energy Group (the holding
company), and an increase in income from CHEC's interest in Cornhusker Holdings.

      Energy Group continues to make progress on several long-term objectives of
its business. As discussed earlier, Central Hudson recently received permission
from the PSC to increase energy delivery rates. This increase, Central Hudson's
first for electric and natural gas delivery rates in more than 13 years, will
begin improving cash flow in the third quarter. Energy Group's regulated utility
and its non-regulated fuel distribution business also both continue to see
growth in their customer bases.

      In addition, Energy Group continues to make progress in its non-regulated
investment portfolio, with the addition of a majority ownership of Lyonsdale,
acquired in April.

Regulated Electric and Natural Gas Businesses

      Central Hudson earned $0.25 per share in the second quarter of 2006,
compared to $0.37 per share during the same period of 2005. Reduced heating and
cooling degree-days decreased electric deliveries for residential and commercial
customers by 7% and 3%, respectively, from the same quarter of 2005; electric
deliveries to industrial customers declined by 4%. Natural gas deliveries
decreased by 10% overall as compared to the second quarter of 2005, with
residential, commercial, and industrial deliveries falling by 10%, 9%, and 19%,
respectively. Vegetation management, transmission line inspection, and other
electric infrastructure expenses contributed to an increase in operating
expenses. Various regulatory mechanisms partially offset the impacts of reduced
sales and increased operating expenses.

Fuel Distribution Business

      Griffith lost $0.13 per share - compared to a $0.09 per share loss during
the same period in 2005 - during a quarter in which fuel distribution businesses
typically report losses due to the nature of their seasonal delivery business.
Increased operating expenses associated with the acquisition of several small
"tuck-in" fuel distribution companies also contributed to this business
segment's quarterly loss, as did marketing expenses. These acquisitions are
expected to add to Griffith's revenues and earnings over a twelve-month period.
Improved service profitability resulting from increased service contract revenue
helped to offset the decline, as did an increase in margins for certain
petroleum products.


                                       47
<PAGE>

Other Businesses

      Unregulated business units earned $0.14 per share during the quarter,
compared to $0.13 per share in the second quarter of 2005. CHEC's investments in
Cornhusker Holdings increased earnings by $0.04 per share during the quarter,
while the sale of property held by Energy Group (the holding company) increased
quarterly results by $0.03 per share. Income taxes increased $0.08 per share
compared to the second quarter of 2005 due to the absence of a one-time item
related to the favorable settlement of a 2001 tax audit.

REGULATORY MATTERS

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

NON-UTILITY LAND SALES

      For further information regarding non-utility land sales, see Note 3 -
"Regulatory Matters."

CAPITAL RESOURCES AND LIQUIDITY

      The growth of Energy Group's retained earnings in the six months ended
June 30, 2006, contributed to the increase in the book value per share of its
Common Stock from $31.97 at December 31, 2005, to $32.31 at June 30, 2006; the
common equity ratio increased from 56.0% at December 31, 2005, to 56.1% at June
30, 2006. Book value per share at June 30, 2005, was $31.95 and the common
equity ratio was 58.7%.

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

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

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


                                       48
<PAGE>

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

Energy Group - Cash Flow Summary

      Changes in Energy Group's cash and cash equivalents resulting from
operating, investing, and financing activities for the six months ended June 30,
2006, and 2005, are summarized in the following chart:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
                                           Six Months       Six Months         Variance
          Energy Group                     Ended 2006       Ended 2005      2006 vs. 2005
-------------------------------------------------------------------------------------------
Net Cash Provided By (Used In):                       (Millions of Dollars)
-------------------------------------------------------------------------------------------
<S>                                         <C>              <C>              <C>
Operating Activities                        $   45.2         $   45.7         $   (0.5)
-------------------------------------------------------------------------------------------
Investing Activities                           (44.1)           (35.4)            (8.7)
-------------------------------------------------------------------------------------------
Financing Activities                           (13.5)           (16.0)             2.5
-------------------------------------------------------------------------------------------
Net change for the period                      (12.4)            (5.7)            (6.7)
-------------------------------------------------------------------------------------------
Balance at beginning of period                  49.4             70.4            (21.0)
-------------------------------------------------------------------------------------------
Balance at end of period                    $   37.0         $   64.7         $  (27.7)
-------------------------------------------------------------------------------------------
</TABLE>

      Energy Group's net cash flows of $45.2 million provided by operating
activities during the six months ended June 30, 2006, were essentially the same
as compared to the six months ended June 30, 2005. Net cash flows reflect the
collection of cash and a decrease in accounts receivable primarily due to
reduced natural gas billings to Central Hudson customers and seasonally lower
billings to Griffith customers. Net cash flows were offset by decreases in
accounts payable primarily as a result of lower purchased electric and natural
gas costs for Central Hudson and lower volumes of petroleum products purchased
by Griffith.

      Net cash flows used in investing activities were $8.7 million higher
during the six months ended June 30, 2006, as compared to the same period in
2005. The purchase of a majority interest in Lyonsdale and minor acquisitions by
Griffith primarily increased expenditures in 2006. Partially offsetting the
higher expenditures were repayments made to CHEC for notes outstanding and net
funds received from the purchase and sale of Energy Group's short-term
investments. As discussed in Note 2 - "Summary of Significant Accounting
Policies" under caption "Revision in the Classification of Certain Securities,"
these investments were previously classified as cash and cash equivalents. As a
result of this revision in classification, Energy Group has also made
corresponding adjustments to its Consolidated Statement of Cash Flows for all
periods presented to reflect the gross purchases and liquidation of these
available-for-sale securities as investing activities rather than as a component
of cash and cash equivalents. This revision in classification has no impact on
previously reported total current assets, total assets, working capital
position, results of operations, or financial covenants and does not affect
previously reported cash flows from operating or financing activities. The
Consolidated Financial Statements of Central Hudson were not affected by this
revision in classification. For more information relating to Energy Group's
short-term investments, see Note 5 - "Short-Term Investments."


                                       49
<PAGE>

      Net cash flows used in financing activities were $2.5 million lower for
the six months ended June 30, 2006, as compared to the same period in 2005. The
resulting increase in cash flows was primarily driven by additional net
borrowings of short-term debt by Central Hudson during the first six months of
2006 as compared to the same period in 2005.

Central Hudson - Cash Flow Summary

      Changes in Central Hudson's cash and cash equivalents resulting from
operating, investing, and financing activities for the six months ended June 30,
2006, and 2005, are summarized in the following chart:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
                                           Six Months         Six Months          Variance
Central Hudson                             Ended 2006         Ended 2005        2006 vs. 2005
----------------------------------------------------------------------------------------------
Net Cash Provided By (Used In):                         (Millions of Dollars)
----------------------------------------------------------------------------------------------
<S>                                         <C>                <C>                <C>
Operating Activities                        $   33.4           $   40.3           $   (6.9)
----------------------------------------------------------------------------------------------
Investing Activities                           (30.4)             (28.6)              (1.8)
----------------------------------------------------------------------------------------------
Financing Activities                            (5.5)             (16.5)              11.0
----------------------------------------------------------------------------------------------
Net change for the period                       (2.5)              (4.8)               2.3
----------------------------------------------------------------------------------------------
Balance at beginning of period                   4.2                8.2               (4.0)
----------------------------------------------------------------------------------------------
Balance at end of period                    $    1.7           $    3.4           $   (1.7)
----------------------------------------------------------------------------------------------
</TABLE>

      Central Hudson's net cash flows provided by operating activities in the
six months ended June 30, 2006, were $6.9 million lower as compared to the six
months ended June 30, 2005, primarily due to a new requirement to make
prepayments for electricity supply to the New York Independent System Operator
("NYISO") a week in advance.

      Central Hudson's net cash flows related to investing activities of $30.4
million in the six months ended June 30, 2006, a decrease of $1.8 million as
compared to the six months ended June 30, 2005, were comprised entirely of
increased construction and removal expenditures.

      Net cash flows used for financing activities were $11.0 million lower in
the six months ended June 30, 2006, as compared to the same period in 2005. The
resulting increase in cash was primarily driven by the lower amount of dividends
paid to Energy Group in 2006 and additional net borrowings of short-term debt as
compared to the same period in 2005.

Contractual Obligations

      A review of capital resources and liquidity should also consider other
contractual obligations and commitments, which are further disclosed in Note 11
- "Commitments and Contingencies" to the Consolidated Financial Statements of
the Corporations' 10-K Annual Report.

      Based on current practice, Central Hudson's actuarial consultant has
estimated that total contributions to the Retirement Plan for the four-year
period from 2006 to 2009


                                       50
<PAGE>

could range from no contribution to $45 million. The actual contributions could
vary significantly based upon economic growth, inflation, and interest rate
assumptions.

      Employer contributions for OPEB totaled $2.4 million during the six months
ended June 30, 2006. The total contribution to be made in 2006 is expected to be
similar to the 2005 amount of $6.1 million.

Financing Program

      At June 30, 2006, Energy Group, on a consolidated basis, had current
maturities of $33 million of long-term debt and $33.5 million of short-term debt
outstanding. Cash and cash equivalents for Energy Group, consolidated, were $37
million at June 30, 2006.

      Energy Group, the holding company, has a $75.0 million revolving credit
agreement with several commercial banks which, as of June 30, 2006, has no
outstanding balance.

      As of June 30, 2006, Central Hudson had current maturities of $33 million
of long-term debt, short-term debt outstanding of $33.5 million and cash and
cash equivalents of $1.7 million. The short-term debt outstanding is from the
use of uncommitted credit lines. Central Hudson has a $75.0 million revolving
credit agreement with a group of commercial banks which, as of June 30, 2006,
had no outstanding balance. Central Hudson also has a committed short-term
credit agreement for $2.0 million and certain uncommitted lines of credit with
various banks. These agreements give Central Hudson competitive options to
minimize the cost of its short-term borrowing.

      In March 2004, the PSC approved Central Hudson's petition to enter into
committed multi-year short-term financing agreements up to $77 million and to
issue and sell up to $85 million of medium-term notes during the period January
1, 2004, to December 31, 2006. Central Hudson has issued $58 million of
medium-term notes and expects to issue the remaining $27 million before December
31, 2006.

      On July 3, 2006, Central Hudson filed a new financing petition with the
PSC, seeking authorization for its expected financing needs for the period
January 1, 2007, through December 31, 2009. The petition requests authorization
to increase committed multi-year short-term borrowing capacity to $125 million
from current authorization for $75 million. Additionally, the petition requests
authorization for the issuance of up to $140 million of medium-term notes over
the three-year period to meet its projected cash requirements and the redemption
of maturing notes.

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

      Energy Group and Central Hudson each believes that it will be able to meet
its reasonably likely short-term and long-term cash requirements, assuming that
Central


                                       51
<PAGE>

Hudson's current and future rate plans reflect the costs of service, including a
reasonable return on invested capital.

      CHEC has a $15.0 million line of credit with a commercial bank which, as
of June 30, 2006, had no outstanding balance.

      On July 25, 2002, the Board of Directors of Energy Group authorized a
Common Stock Repurchase Program ("Repurchase Program") to repurchase up to 4.0
million shares, or approximately 25%, of outstanding Common Stock over the five
years beginning August 1, 2002. Between August 1, 2002, and December 31, 2003,
the number of shares repurchased under the Repurchase Program was 600,087 at a
cost of $27.5 million. No shares were repurchased during the six months ended
June 30, 2006, or during the twelve months ended December 31, 2005, and 2004.
Energy Group intends to set repurchase targets, if any, each year based on
circumstances then prevailing. Repurchases have been suspended while Energy
Group assesses opportunities to redeploy its cash reserves in regulated and
competitive energy-related businesses. Energy Group reserves the right to
modify, suspend, or terminate the Repurchase Program at any time without notice.

EARNINGS PER SHARE

      Energy Group's consolidated earnings per share (basic) for the second
quarter of 2006 were $0.26 per share as compared to $0.41 per share for the
second quarter of 2005, a decrease of $0.15 per share. Details of the change in
earnings are as follows:

Three Months Ended June 30, 2006

Regulated Electric and Natural Gas Businesses

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

      o     A decrease of $0.12 per share due to an increase in various
            operating expenses. This figure is net of $0.08 per share from the
            recording of electric revenues to restore earnings to the allowed
            rate of return in accordance with the provisions of Central Hudson's
            Settlement Agreement, which expired June 30, 2006. Expenses that
            increased included electric distribution and line clearance work
            ($0.06), electric transmission line inspection ($0.03),
            uncollectible accounts ($0.02), other electric transmission and
            distribution expenses ($0.03), and other expenses (total of $0.06).

      o     A decrease of $0.03 per share due to a decrease in natural gas net
            operating revenues resulting from warmer weather in April and May,
            as compared to the same months last year. Residential heating
            degree-days for these two months decreased 9% over last year. Billed
            deliveries to firm natural gas customers decreased 10% and the
            average number of residential and commercial


                                       52
<PAGE>

            customers increased by nearly 2%. Industrial deliveries, which are
            approximately 4% of total firm sales, decreased 19%.

      o     An increase of $0.01 per share from electric and natural gas
            regulatory mechanisms including a favorable reconciling adjustment
            of $0.04 per share related to Central Hudson's natural gas supply
            charge and a $0.01 per share change related to electric shared
            earnings. In 2005, the natural gas supply adjustment was recorded in
            the third quarter. These increases were partially offset by the
            absence in the current quarter of $0.04 per share related to a
            billing issue resolved by the NYISO in June 2005.

      o     An increase of $0.03 per share from an increase in electric net
            operating revenues. Though weather decreased earnings by
            approximately $0.03 per share, this decrease was more than offset by
            the absence in the current quarter of a $0.05 per share change in
            earnings related to a weather-hedging contract in place for the
            second quarter of 2005. A weather-hedging contract was not in effect
            for the month of June 2006, but a contract is in effect for July and
            August. The increase in net revenues also includes an increase in
            finance charges. Despite modest customer growth, total billed
            electric deliveries decreased 3%, including a 4% decrease in
            deliveries to residential customers and a 2% reduction in deliveries
            to commercial customers, both attributable to a decrease in usage
            resulting from weather. Residential cooling degree-days were 3%
            lower than last year and residential electric heating-degree days
            were 7% lower than last year.

      o     A decrease of $0.01 per share due to the net effect of various other
            items including an increase in interest charges and payroll and use
            taxes, which was partially offset by a reduction in income taxes.
            The increase in interest charges results from the issuance of
            medium-term notes in December 2005.

Fuel Distribution Business

      Earnings from the fuel distribution business decreased $0.04 per share due
to the following:

      o     A decrease of $0.06 per share due to an increase in operating
            expenses. The increase in operating expenses is due to an increase
            in marketing and other general and administrative expenses, as well
            as expenses associated with the acquisitions made in the fourth
            quarter of 2005 and the first half of 2006.

      o     An increase of $0.02 per share due to an increase in service
            profitability resulting primarily from an increase in service
            contract revenue. Gross margin from the sale of petroleum products
            was flat. A decrease in volume and margin in heating oil was offset
            by an increase in margin in motor fuels.


                                       53
<PAGE>

Other Businesses

      Earnings for Energy Group (the holding company) and CHEC's interests in
partnerships and other investments increased $0.01 per share due to the
following:

      o     An increase of $0.04 per share due to an increase in income from
            CHEC's other investment interests, primarily its interest in
            Cornhusker Holdings.

      o     An increase of $0.03 per share from a gain on the sale of property
            held by Energy Group (the holding company).

      o     An increase of $0.02 per share due to a reduction in business
            development costs and injuries and damages expense.

      o     A decrease of $0.08 per share due largely to the absence in the
            current quarter of favorable income tax adjustments recorded in the
            second quarter of 2005 related to the completion of a tax audit for
            2001.

Six Months Ended June 30, 2006

      Energy Group's consolidated earnings per share (basic) for the six months
ended June 30, 2006, and 2005, reflect earnings per share (basic) of $1.42 and
$1.70, respectively, a decrease in earnings of $0.28 per share. Details of the
six month changes in earnings are as follows:

Regulated Electric and Natural Gas Businesses

      Earnings for Central Hudson's electric and natural gas operations
decreased $0.25 per share due to the following:

      o     A decrease of $0.19 per share due to an increase in various
            operating expenses. This figure is net of $0.14 per share from the
            recording of electric revenues to restore earnings to the allowed
            rate of return in accordance with the provisions of Central Hudson's
            Settlement Agreement. Expenses that increased included storm
            restoration efforts ($0.06), electric distribution and line
            clearance work ($0.06), electric transmission line inspection
            ($0.03), uncollectible accounts ($0.02), injuries and damages and
            workers compensation ($0.03), other compensation costs ($0.07), and
            other expenses (totaling $0.06).

      o     A decrease of $0.10 per share due to a decrease in natural gas net
            operating revenues resulting from warmer weather. Residential
            heating degree-days decreased 8% for the six months ended June 30,
            2006, as compared to last year. Weather decreased earnings from
            deliveries to natural gas customers by approximately $0.09 per
            share. Billed deliveries to firm natural gas customers decreased 13%
            and the average number of residential and commercial customers
            increased 2%. Industrial deliveries, which are approximately 4% of
            total firm sales, decreased 26% due primarily to the loss of several
            customers.


                                       54
<PAGE>

      o     A decrease of $0.05 per share from a decrease in electric net
            operating revenues. Despite modest customer growth, total billed
            electric deliveries decreased 4%, including a 6% decrease in
            deliveries to residential customers and a 3% reduction in deliveries
            to commercial customers, both attributable to a decrease in usage
            resulting from weather. Residential cooling degree-days were 3%
            lower than last year and residential electric heating-degree days
            were 8% lower than last year. Weather decreased earnings by
            approximately $0.02 per share, after accounting for the effect of
            weather-hedging contracts.

      o     An increase of $0.09 per share from electric and natural gas
            regulatory mechanisms including $0.10 per share from a decrease in
            electric shared earnings resulting from lower operating income for
            the rate year ended June 30, 2006, and a favorable reconciling
            adjustment of $0.04 per share related to Central Hudson's natural
            gas supply charge. These increases were partially offset by the
            absence in the current quarter of $0.04 per share related to a
            billing issue resolved by the NYISO in June 2005.

Fuel Distribution Business

      Earnings from the fuel distribution business decreased $0.06 per share due
to the following:

      o     A decrease of $0.09 per share due to an increase in operating
            expenses. The increase in operating expenses is due to an increase
            in marketing expense and other general and administrative expenses,
            as well as expenses associated with the acquisitions made in the
            fourth quarter of 2005 and the first half of 2006.

      o     An increase of $0.03 due to an increase in service profitability of
            $0.05 per share resulting primarily from an increase in service
            contract revenue. This increase was partially offset by a decrease
            in gross margin from the sale of petroleum products of $0.02 per
            share resulting from a decrease in volumes sold due to warmer
            weather, customer conservation, and customer attrition. Overall,
            sales of petroleum products decreased 4% with sales of heating oil
            to residential customers dropping 12% due primarily to the warmer
            weather. Improved margins per gallon on petroleum products and
            earnings from the 2005 and 2006 acquisitions partially offset the
            decrease in gross margin. The 2005 acquisitions also increased the
            net residential customer count by 4%. As adjusted for billing lags,
            heating degree-days decreased 16%, which impacted earnings by
            approximately $0.10 per share, after accounting for the impact of
            weather-hedging contracts.

Other Businesses

      Earnings for Energy Group (the holding company) and CHEC's interests in
partnerships and other investments increased $0.03 per share largely due to
income


                                       55
<PAGE>

realized by CHEC's interest in Cornhusker Holdings and a gain realized from the
sale of property held by Energy Group (the holding company).

RESULTS OF OPERATIONS

      The following discussion and analyses include explanations of significant
changes in revenues and expenses between the three and six months ended June 30,
2006, and the three and six months ended June 30, 2005, for the regulated
electric and natural gas businesses, the fuel distribution business, and the
other businesses.

OPERATING REVENUES

      Energy Group's consolidated operating revenues increased $24.3 million, or
12.8%, for the three months ended June 30, 2006, as compared to the same period
in 2005. Revenues increased $55.5 million, or 11.7%, for the comparative
six-month periods. Details of these revenue changes are presented in the
following charts and related discussions concerning the variances.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                           2006/2005 INCREASE (DECREASE)
(Thousands of Dollars)                                    THREE MONTHS ENDED JUNE 30, 2006
---------------------------------------------------------------------------------------------------------------------
                                                                        Fuel
                                Electric          Natural Gas       Distribution         Other              Total
---------------------------------------------------------------------------------------------------------------------
<S>                            <C>                <C>                <C>               <C>                <C>
Customer Delivery Sales        $    (758)(a)      $  (1,081)(b)      $  16,625(c)      $     (83)         $  14,703
---------------------------------------------------------------------------------------------------------------------
Sales to Other Utilities          (1,131)             8,283                 --             1,153(f)           8,305
---------------------------------------------------------------------------------------------------------------------
Energy Cost Adjustment(d)           (687)            (1,891)                --                --             (2,578)
---------------------------------------------------------------------------------------------------------------------
Deferred Revenues(e)               2,453                 42                 --                --              2,495
---------------------------------------------------------------------------------------------------------------------
Miscellaneous                      1,433                (37)                --                --              1,396
---------------------------------------------------------------------------------------------------------------------
       Total                   $   1,310          $   5,316          $  16,625         $   1,070          $  24,321
---------------------------------------------------------------------------------------------------------------------

<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                        2006/2005 INCREASE (DECREASE)
(Thousands of Dollars)                                  SIX MONTHS ENDED JUNE 30, 2006
---------------------------------------------------------------------------------------------------------------------
                                                                        Fuel
                                Electric          Natural Gas       Distribution         Other              Total
---------------------------------------------------------------------------------------------------------------------
<S>                            <C>                <C>                <C>               <C>                <C>
Customer Delivery Sales        $  (2,821)(a)      $  (3,038)(b)      $  30,705(c)      $     212          $  25,058
---------------------------------------------------------------------------------------------------------------------
Sales to Other Utilities            (371)             9,003                 --             1,153(f)           9,785
---------------------------------------------------------------------------------------------------------------------
Energy Cost Adjustment(d)          6,561              6,189                 --                --             12,750
---------------------------------------------------------------------------------------------------------------------
Deferred Revenues(e)               5,576                457                 --                --              6,033
---------------------------------------------------------------------------------------------------------------------
Miscellaneous                      1,755                 85                 --                --              1,840
---------------------------------------------------------------------------------------------------------------------
       Total                   $  10,700          $  12,696          $  30,705         $   1,365          $  55,466
---------------------------------------------------------------------------------------------------------------------
</TABLE>

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

(b)   Includes both firm and interruptible revenues.

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

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

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

(f)   Revenues from Lyonsdale beginning April 2006.


                                       56
<PAGE>

Regulated Electric and Natural Gas Businesses

      Utility electric and natural gas operating revenues increased $6.6
million, or 4.8%, from $137.8 million in 2005 to $144.4 million in 2006 for the
quarter ended June 30, 2006. Electric and natural gas revenues increased $1.3
million, or 1.2%, and $5.3 million, or 17.1%, respectively. Electric revenues
increased due largely to revenues made available by Central Hudson's Settlement
Agreement after ratemaking operating income reached a certain level, as well as
a change in revenues recorded for weather-hedging contracts. These increases
were partially offset by a decrease in sales to other utilities revenues, a
decrease in revenues related to the recovery of purchased electricity costs
through Central Hudson's energy cost adjustment mechanism, and a decrease in
revenues from deliveries. Natural gas revenues increased due primarily to an
increase in sales of natural gas for electric generation. These resale revenues
increased $8.3 million, which was partially offset by a decrease in revenues
related to the recovery of natural gas supply costs and a decrease in revenues
from deliveries.

      For the six months ended June 30, 2006, utility electric and natural gas
operating revenues increased $23.4 million, or 7.1%, from $327.8 million in 2005
to $351.2 million in 2006. Electric revenues increased $10.7 million, or 4.6%,
from $233.3 million in 2005 to $244.0 million in 2006 and natural gas operating
revenues increased $12.7 million, or 13.4%, from $94.6 million in 2005 to $107.3
million in 2006. Both reflect an increase in revenues related to the recovery of
purchased electricity and natural gas costs through Central Hudson's energy cost
adjustment mechanisms and revenues made available by Central Hudson's Settlement
Agreement after ratemaking operating income reached a certain level. The change
in revenues also includes a significant increase in natural gas sales to other
utilities revenues of $9.0 million due to an increase in the sale of natural gas
for electric generation and an increase in electric revenues due to a change in
revenues related to shared earnings and weather-hedging contracts. These
increases were partially offset by a reduction in revenues from electric and
natural gas deliveries due to weather.

Fuel Distribution Business

      Revenues for CHEC's fuel distribution business increased $16.6 million, or
32.2%, from $51.6 million in 2005 to $68.2 million in 2006 due to a significant
increase in the price of petroleum products. Revenues from petroleum products
increased $15.6 million, or 33.2%, from $47.0 million in 2005 to $62.6 million
in 2006 due to an increase in the average selling price to cover the increased
costs of petroleum products. Motor fuel revenues increased $13.9 million, or
43.2%, from $32.3 million in 2005 to $46.2 million in 2006. Heating oil revenues
also increased $1.5 million, or 10.8%, from $13.9 million in 2005 to $15.4
million in 2006. Other revenues related to the sale of petroleum


                                       57
<PAGE>

products increased $0.2 million. Other revenues related to service and
installations and energy services increased $1.0 million.

      For the six months ended June 30, 2006, fuel oil distribution business
revenues increased $30.7 million, or 20.8%, from $147.4 million in 2005 to
$178.1 million in 2006. Revenues from petroleum products increased $28.6
million, or 20.7%, from $138.4 million in 2005 to $167.0 million in 2006, due
primarily to a significant increase in the wholesale price of petroleum
products, which was partially offset by a reduction in volumes. Motor fuel
revenues increased $22.6 million, or 39%, while heating oil revenues increased
$5.5 million, or 7.1%. Other revenues related to the sale of petroleum products
increased $0.5 million, while other revenues related to energy service and
service and installations increased $1.2 million.

SALES VOLUMES

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

Regulated Electric and Natural Gas Businesses

      The following chart reflects the change in the level of electric and
natural gas deliveries for the quarter and six months ended June 30, 2006, as
compared to the same period for 2005.

<TABLE>
<CAPTION>
                                        INCREASE (DECREASE) FROM 2005          INCREASE (DECREASE) FROM 2005
                                        -----------------------------          -----------------------------
                                         3 MONTHS ENDED JUNE 30, 2006           6 MONTHS ENDED JUNE 30, 2006
                                         ----------------------------           ----------------------------
                                        Electric           Natural Gas        Electric             Natural Gas
                                        --------           -----------        --------             -----------
<S>                                       <C>                 <C>               <C>                   <C>
Residential..................             (4)%                (10)%             (6)%                  (12)%
Commercial...................             (2)%                 (9)%             (3)%                  (12)%
Industrial...................             (4)%                (19)%             (2)%                  (26)%
Other........................               0%                  24%               1%                   (7)%
</TABLE>

      Utility deliveries of electricity within Central Hudson's service
territory decreased 3% in the second quarter of 2006 as compared to the same
period in 2005. Deliveries to residential and commercial customers decreased 4%
and 2%, respectively, resulting from a decrease in usage due to weather and
conservation, which was partially offset by modest customer growth. Residential
heating degree-days decreased 7% compared to the prior year while residential
cooling degree-days decreased 3%. Deliveries to industrial customers decreased
4%.

      Utility deliveries of natural gas to firm Central Hudson customers
decreased 10% in the second quarter of 2006 as compared to the same period in
2005. Deliveries to residential and commercial customers, largely space heating
deliveries, decreased 10% and 9% respectively, due to the warmer weather and
conservation in the months of April and May and were also partially offset by
modest customer growth. Industrial sales, which are approximately 4% of total
firm deliveries in the comparative quarters,


                                       58
<PAGE>

decreased 19%, while deliveries to interruptible customers increased 16% due to
an increase in the delivery of natural gas for electric generation.

      For the six months ended June 30, 2006, utility deliveries of electricity
decreased 4% as compared to the same period in 2005. Deliveries to residential
and commercial customers decreased 6% and 3%, respectively, resulting from a
decrease in usage due to milder weather and conservation in the first five
months of the year and cooler weather in the month of June. Deliveries to
industrial customers decreased 2%. The decrease in deliveries was partially
offset by some customer growth. As compared to the same period in 2005,
residential heating degree-days decreased 8% for the first five months of 2006
and cooling degree-days dropped 13% in the month of June.

      Deliveries of natural gas to firm Central Hudson customers for the six
months ended June 30, 2006, decreased 13% due primarily to milder weather and
conservation in the first five months of the year, as evidenced by a 9% decrease
in residential heating degree-days for this period. This decrease was partially
offset by modest customer growth. Residential and commercial deliveries, largely
space heating sales, both decreased 12% and industrial deliveries, which
represent 4% of total firm deliveries, decreased 26% due to the loss of several
customers. Interruptible deliveries increased 3%.

Fuel Distribution Business

      Sales of petroleum products increased 0.7 million gallons, or 2.8%, to
26.3 million gallons in the second quarter of 2006 from 25.6 million gallons in
the second quarter of 2005. Motor fuel sales increased 1.2 million gallons, or
6.8%, from 18.2 million gallons in 2005 to 19.5 million gallons in 2006 while
sales of propane decreased slightly from 0.33 million gallons in 2005 to 0.32
million gallons in 2006. Motor fuel sales increased principally from
acquisitions made in 2005 and the gain of one large volume customer. The
decrease in propane sales is largely attributable to the warmer weather in 2006.
Sales of heating oil to residential customers declined from 7.0 million gallons
in 2005 to 6.5 million gallons in 2006. The decrease resulted from a reduction
in residential sales due primarily to warmer weather and conservation in the
second quarter of 2006 as compared to 2005, as evidenced by a 17% decrease in
heating degree days, adjusted for billing lags. The decrease in volume was
partially offset by an increase in sales from acquisitions made in the fourth
quarter of 2005 and the second quarter of 2006.

      For the six months ended June 30, 2006, sales of petroleum products
decreased 2.9 million gallons, or 4.0%, from 76.1 million gallons in 2005 to
73.2 million gallons in 2006. This was due to a decrease of 4.9 million gallons,
or 12.1%, in sales of heating oil from 40.5 million gallons in 2005 to 35.6
million gallons in 2006. The decrease in sales of heating oil reflects a
reduction in residential sales due to warmer weather in 2006 than 2005, as
evidenced by a 16% decrease in heating degree-days, adjusted for billing lags.
The decrease in volume was partially offset by an increase in sales from
acquisitions made in the fourth quarter of 2005 and the first half of 2006.
Motor fuel sales increased 2.2 million gallons, or 6.1%, from 34.1 million
gallons in 2005 to 36.3


                                       59
<PAGE>

million gallons in 2006 due to acquisitions made in 2005 and 2006, while sales
of propane decreased slightly from 1.4 million gallons in 2005 to 1.2 million
gallons in 2006 due to warmer weather in 2006.

OPERATING EXPENSES

Regulated Electric and Natural Gas Businesses

      Total utility operating expenses, including income taxes, increased $7.8
million, or 6.0%, from $129.4 million in the second quarter of 2005 to $137.2
million in the second quarter of 2006. Purchased natural gas expense increased
$4.6 million due to an increase in volumes purchased, most of which was sold for
electric generation. The increase of $10 million for volumes purchased was
partially offset by a reduction in the wholesale cost of natural gas of $1.3
million and a decrease of $4.1 million in amounts recorded related to the
recovery of these costs via Central Hudson's natural gas cost adjustment
mechanism. Other operating expenses, including income taxes, increased $4.5
million reflecting an increase in expenses for electric line clearance work,
transmission line inspections, other electric transmission and distribution
maintenance and operation functions, expenses related to uncollectible accounts
and injuries and damages, and increases in other general and administrative
expenses. These increases were partially offset by a decrease in income taxes
due to lower taxable income, as well as a decrease in purchased electricity
expenses due to lower wholesale costs and a reduction in volumes purchased due
to a decrease in electric deliveries.

      For the six months ended June 30, 2006, operating expenses including
income taxes, increased by $26.4 million, or 8.8%, from $301.4 million in 2005
to $327.8 million in 2006. Purchased electricity and natural gas costs increased
$6.1 million, or 4.3%, and $13.1 million, or 20.4%, respectively, primarily due
to an increase in wholesale costs and a change in amounts recorded related to
the recovery of these costs via Central Hudson's energy cost adjustment
mechanisms. The increase in these costs was partially offset by a reduction in
volumes purchased due to the decrease in the delivery of electricity and natural
gas. Other operating expenses, including income taxes, increased $7.2 million
from $94.7 million in 2005 to $101.9 million in 2006 due to the factors noted
above for the quarter as well as an increase in storm restoration costs
resulting from severe wind storms in January and February 2006. These increases
were also partially offset by a decrease in income taxes due to lower taxable
income.

Fuel Distribution Business

      For the three months ended June 30, 2006, operating expenses increased
$17.3 million, or 32.5%, from $53.2 million in 2005 to $70.5 million in 2006.
The cost of petroleum increased $15.6 million, or 39%, due to higher wholesale
market prices. Other operating expenses increased $1.7 million in 2006 due to an
increase in marketing expenses, other general and administrative expenses, and
additional expenses associated with the acquisitions made in the fourth quarter
of 2005 and the first half of 2006.


                                       60
<PAGE>

      For the six months ended June 30, 2006, operating expenses, including
income taxes, increased $31.8 million, or 22%, from $144.4 million in 2005 to
$176.2 million in 2006. The cost of petroleum products increased $29.1 million,
or 26%, due to higher wholesale market prices. Other operating expenses
increased $2.7 million in 2006 due to an increase in marketing expenses, other
general and administrative expenses, and additional expenses associated with the
acquisitions made in the fourth quarter of 2005 and the first half of 2006.

Other Businesses

      Revenues and Operating Expenses

      On April 12, 2006, CHEC purchased a 75% interest in Lyonsdale from
Catalyst. Lyonsdale owns and operates a 19-megawatt, wood-fired, biomass
electric generating plant. The financial statements of Lyonsdale have been fully
consolidated into the financial statements of CHEC.

      The consolidation of 100% of the revenue and expenses of Lyonsdale before
income taxes resulted in additional operating revenues of $1.2 million and
expenses of $1.7 million. The expenses are comprised of $0.6 million of fuel
used in electric generation, $0.9 million of other expenses of operation, $0.1
million of depreciation expense, and $0.01 million of other interest. As a
result of ownership in Lyonsdale, Energy Group recorded a $0.2 million tax
benefit for Production Tax Credits.

OTHER INCOME

Regulated Electric and Natural Gas Businesses

      Other income for Central Hudson increased $0.4 million for the quarter
ended June 30, 2006, reflecting an increase in regulatory carrying charges due
from customers related to pension costs and the recording of favorable
regulatory adjustments for the change in interest rates on Central Hudson's
variable rate long-term debt. The latter adjustment offsets the increase in
interest on the variable rate debt, as discussed under the caption "Interest
Charges."

      For the six months ended June 30, 2006, as compared to the six months
ended June 30, 2005, other income increased $1.0 million for the reasons noted
for the quarter.

Other Businesses

      Other income and income taxes relating primarily to Energy Group (the
holding company) and CHEC's investment in partnerships and interests other than
fuel distribution operations increased $0.2 million for the quarter ended June
30, 2006. Other income increased $2.1 million, including $1.1 million of income
realized by CHEC's investments, primarily due to its interest in Cornhusker
Holdings, a $0.7 million pre-tax gain on the sale of property held by Energy
Group, and reductions in Energy


                                       61
<PAGE>

Group expenses related to business development and injuries and damages. Income
taxes increased $1.9 million due largely to favorable adjustments recorded in
the second quarter of 2005 related to the completion of a tax audit for 2001.

      For the six months ended June 30, 2006, an increase of $1.9 million in
other income was offset by a $1.9 million increase in income taxes. Both changes
occurred due largely to the reasons noted for the quarter.

INTEREST CHARGES

      Interest charges (which are solely related to Central Hudson) increased
$1.2 million and $1.9 million for the quarter and six months ended June 30,
2006, respectively. The increase is due to an increase in interest charges on
long and short-term debt. Interest on long-term debt increased due to the
issuance of medium-term notes in December 2005 and increased interest on Central
Hudson's variable rate debt. Additional short-term debt was required for working
capital needs due to higher fuel prices. The increase in interest charges also
reflects an increase in regulatory carrying charges due to customers related to
an adjustment on deferred proceeds from the sale of emission allowances.

COMMON STOCK DIVIDENDS

      Reference is made to the caption "Common Stock Dividends and Price Ranges"
of Part II, Item 7 of the Corporations' 10-K Annual Report for a discussion of
Energy Group's dividend payments. On March 24, 2006, the Board of Directors of
Energy Group declared a quarterly dividend of $0.54 per share, payable May 1,
2006, to shareholders of record as of April 10, 2006. On May 25, 2006, the Board
of Directors of Energy Group declared a quarterly dividend of $0.54 per share,
payable August 1, 2006, to shareholders of record as of July 10, 2006.

OTHER MATTERS

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

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


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<PAGE>

an economic slowdown and dampen economic growth in Central Hudson's service
territory. Slower growth could adversely affect the overall volume of
electricity and natural gas deliveries, reducing earnings from utility
operations.

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

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

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

FORWARD-LOOKING STATEMENTS

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


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<PAGE>

electricity, natural gas, fuel oil, and propane requirements; the outcome of
pending litigation and certain environmental matters, particularly the status of
inactive hazardous waste disposal sites and waste site remediation requirements;
and certain presently unknown or unforeseen factors, including, but not limited
to, acts of terrorism. Registrants undertake no obligation to update publicly
any forward-looking statements, whether as a result of new information, future
events, or otherwise.

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

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4 - CONTROLS AND PROCEDURES

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

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


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<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Central Hudson:

Former Manufactured Gas Plant Facilities

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

Little Britain Road

      For information about the Little Britain Road site, see Note 11 -
"Commitments and Contingencies" to the financial statements under the subcaption
"Little Britain Road," included in Part I, Item 1 of this Quarterly Report on
Form 10-Q, which is incorporate herein by reference.

Orange County Landfill

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

Asbestos Litigation

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

Neversink

      For information concerning the transfer of Neversink to the City of New
York, see Item 3 of the Corporations' 10-K Annual Report and Note 11 -
"Commitments and Contingencies" to the financial statements included in that
report and Note 11 - "Commitments and Contingencies" to the financial statements
included in Part I, Item 1


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<PAGE>

of this Quarterly Report on Form 10-Q under the subcaption "Neversink Hydro
Station," which is incorporated herein by reference.

CHEC:

      For information concerning Griffith's remediation efforts at the Kable Oil
bulk plant in West Virginia, see Item 3 of the Corporations' 10-K Annual Report
and Note 11 - "Commitments and Contingencies" to the financial statements
included in that report and Note 11 - "Commitments and Contingencies" to the
financial statements included in Part I, Item 1 of this Quarterly Report on Form
10-Q under the caption "CHEC," which is incorporated herein by reference.

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

ITEM 1A. RISK FACTORS

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

      Storms and Other Events Beyond Central Hudson's Control May Interfere with
      the Operation of its Transmission and Distribution Facilities in the
      Mid-Hudson Valley Region

      Central Hudson's revenues are generated by the delivery of electricity
over transmission and distribution lines and by the delivery of natural gas
through pipelines. These facilities, which are owned and operated by Central
Hudson or by third-party entities, are at risk of damage from storms, natural
disasters, wars, terrorist acts, and other catastrophic events, occurring both
within and outside Central Hudson's franchise territory. Moreover, these
facilities are at risk of curtailment or cessation of operations as a result of
system capacity constraints or unfavorable regulatory or judicial orders. The
siting, regulatory approval, and construction of natural gas and electric
transmission projects are subject to applicable laws and regulations, including
local considerations, which may increase the cost or delay the completion of
these projects. If Central Hudson or the relevant third-party entity (as the
case may be) is unable in a timely manner to repair its facilities, expand the
capacity of its facilities, or to obtain the rescission or stay of unfavorable
regulatory or judicial orders which have caused the curtailment or cessation of
operation or delayed the completion of its facilities (as the case may be),
Central Hudson's customers may experience a service disruption and Central
Hudson may experience lower revenues or increased expenses, or both, that
Central Hudson may not be able to recover fully through rates, insurance, sales
margins, or other means in a timely manner, or at all.


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<PAGE>

      Central Hudson's Rate Plans Limit its Ability to Pass Through Increased
      Costs to its Customers; If Central Hudson's Rate Plans Are Modified by
      State Regulatory Authorities, Central Hudson's Revenues May Be Lower Than
      Expected

      As a transmission and distribution company delivering electricity and
natural gas within New York State, Central Hudson is regulated by the PSC, which
regulates retail rates, terms and conditions of service, various business
practices and transactions, financings, and transactions between Central Hudson
and Energy Group or Energy Group's competitive business subsidiaries.

      The rate plans under which Central Hudson operated from November 2001
through June 30, 2006, were superseded by a new rate plan (i.e. the 2006 Order)
covering the three-year period from July 1, 2006, to June 30, 2009. Rate plans
generally may not be changed during their respective terms, absent unusual
circumstances. As a result, the new rate plan may not fully reflect all of the
future trends in revenues, expenses, construction costs, and other important
factors that will determine Central Hudson's financial performance.

      The previous effective rate plans and the rate proceeding commenced by
Central Hudson in 2005 are discussed in Note 2 - "Regulatory Matters" of the
Corporations' 10-K Annual report. The new rate plan (i.e. the 2006 Order) and
the 2006 Joint Proposal (which forms the basis for the 2006 Order) are discussed
in Note 3 - "Regulatory Matters" of this Quarterly Report on form 10-Q.

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

      On June 30, 2006, the average wholesale price of fuel oil, as measured by
the closing price on the NYMEX was $1.86 per gallon. This is a 28% increase over
the $1.46 per gallon price on June 30, 2005, and a 95% increase over the $0.96
per gallon price on June 30, 2004. Griffith's management believes the
significant rise in the wholesale price of fuel oil has adversely impacted the
ability of Griffith to attract new full service residential customers and, to a
lesser extent, retain existing full service residential customers. Griffith's
management believes some customer attrition is due to former and prospective
full service customers deciding, because of high fuel oil prices, to purchase
fuel from discount distributors, which - unlike Griffith - do not offer other
services such as equipment installation, repair, and maintenance. In addition,
Griffith's management believes that some customers are conserving their use of
fuel oil by accepting lower temperatures in their homes and by implementing home
improvements (e.g., more insulation, better windows). If higher fuel prices were
to continue indefinitely, or such prices were to increase significantly,
Griffith could experience further customer attrition and further reductions in
sales volume due to customer conservation. If one or both of these were to occur
and be material, the consequence could be a material reduction in profitability
that could, in turn, lead to an impairment of the goodwill included in the
intangible assets on Griffith's and Energy Group's balance


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sheet. Additionally, if customer attrition were to accelerate significantly the
remaining value of the customer list could be impaired or subject to faster
amortization.

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

      The Annual Meeting of Shareholders of Energy Group was held on April 25,
2006. For a description of the matters voted on and the election outcome, see
Part II, Item 4 of Registrants' Quarterly Report on Form 10-Q for the quarter
ended March 31, 2006.

ITEM 6. EXHIBITS

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

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

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

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

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

32.1                  Section 1350 Certification by Mr. Lant.

32.2                  Section 1350 Certification by Mr. Capone.


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<PAGE>

                                   SIGNATURES

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

                                               CH ENERGY GROUP, INC.
                                                    (Registrant)

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


                                     CENTRAL HUDSON GAS & ELECTRIC CORPORATION
                                                  (Co-Registrant)

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

Dated: August 2, 2006


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<PAGE>

                                  EXHIBIT INDEX

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

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

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

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

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

32.1                  Section 1350 Certification by Mr. Lant.

32.2                  Section 1350 Certification by Mr. Capone.


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