UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549

                                   FORM 10-Q/A

(Mark One)

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

For the quarterly period ended................................September 30, 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 November 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).

                                Explanatory Note:

      This amended and restated Quarterly Report on Form 10-Q for the quarter
ended September 30, 2006, is filed solely for the purpose of correcting and
clarifying certain references to the amount of revenues from natural gas sales
and electric delivery revenues in the nine months ended September 30, 2006,
which appeared in the last paragraph under the heading "Regulated Electric and
Natural Gas Businesses" in Item 2 of Part I (Management's Discussion and
Analysis of Financial Condition and Results of Operations) of the Report on page
65. No change is made in the financial statements included in the Report or in
any other item of the Report.

<PAGE>

               FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 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 September 30, 2006, and 2005

            Consolidated Statement of Income -                               2
             Nine Months Ended September 30, 2006, and 2005

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

            Consolidated Statement of Comprehensive Income -                 3
             Nine Months Ended September 30, 2006, and 2005

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

            Consolidated Statement of Cash Flows -                           6
             Nine Months Ended September 30, 2006, and 2005

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

            Consolidated Statement of Income -                               8
             Nine Months Ended September 30, 2006, and 2005

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

            Consolidated Statement of Comprehensive Income -                 9
             Nine Months Ended September 30, 2006, and 2005

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

            Consolidated Statement of Cash Flows -                          12
             Nine Months Ended September 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                             48
          Financial Condition and Results of Operations

Item 3 - Quantitative and Qualitative Disclosures                            72
          about Market Risk

Item 4 - Controls and Procedures                                             72

      PART II - OTHER INFORMATION

Item 1 - Legal Proceedings                                                   74

Item 1A - Risk Factors                                                       75

Item 6 - Exhibits                                                            76

Signatures                                                                   77

Exhibit Index                                                                78

Certifications                                                               81

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

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 September 30,
                                                                                          2006         2005
                                                                                       --------    ---------
                                                                                      (Thousands of Dollars)
<S>                                                                                    <C>         <C>
Operating Revenues
  Electric ........................................................................    $154,723    $ 159,589
  Natural gas .....................................................................      18,384       14,115
  Competitive business subsidiaries ...............................................      66,713       54,192
                                                                                       --------    ---------
      Total Operating Revenues ....................................................     239,820      227,896
                                                                                       --------    ---------

Operating Expenses
  Operation:
    Purchased electricity and fuel used in
       electric generation ........................................................      95,665      111,496
    Purchased natural gas .........................................................      10,663        7,311
    Purchased petroleum ...........................................................      52,651       43,287
    Other expenses of operation - regulated activities ............................      31,690       24,613
    Other expenses of operation - competitive business subsidiaries ...............      12,668       12,642
  Depreciation and amortization ...................................................       8,843        9,116
  Taxes, other than income tax ....................................................       8,968        8,578
                                                                                       --------    ---------
      Total Operating Expense......................................................     221,148      217,043
                                                                                       --------    ---------

Operating Income ..................................................................      18,672       10,853
                                                                                       --------    ---------

Other Income and Deductions
  Interest on regulatory assets and investment income .............................       1,922        2,629
  Other - net .....................................................................         279         (743)
                                                                                       --------    ---------
      Total Other Income ..........................................................       2,201        1,886
                                                                                       --------    ---------

Interest Charges
  Interest on long-term debt ......................................................       4,115        3,421
  Interest on regulatory liabilities and other interest ...........................       1,147          966
                                                                                       --------    ---------
      Total Interest Charges ......................................................       5,262        4,387
                                                                                       --------    ---------

Income before income taxes, preferred dividends of subsidiary and minority interest      15,611        8,352

Income taxes ......................................................................       4,392        2,364

Minority Interest .................................................................           7           --
                                                                                       --------    ---------

Income before preferred dividends of subsidiary ...................................      11,212        5,988
Cumulative preferred stock dividends of subsidiary ................................         242          242
                                                                                       --------    ---------

Net Income ........................................................................      10,970        5,746
Dividends Declared on Common Stock ................................................       8,511        8,511
                                                                                       --------    ---------

Balance Retained in the Business ..................................................    $  2,459    ($  2,765)
                                                                                       ========    =========

Common Stock:
    Average Shares Outstanding - Basic ............................................      15,762       15,762
                               - Diluted ..........................................      15,777       15,769

    Earnings Per Share - Basic ....................................................    $   0.70    $    0.36
                       - Diluted ..................................................    $   0.70    $    0.36

    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 9 Months Ended September 30,
                                                                                            2006            2005
                                                                                         ---------       ---------
                                                                                          (Thousands of Dollars)
<S>                                                                                      <C>             <C>
Operating Revenues
  Electric ........................................................................      $ 398,700       $ 392,866
  Natural gas .....................................................................        125,651         108,687
  Competitive business subsidiaries ...............................................        246,592         202,001
                                                                                         ---------       ---------
      Total Operating Revenues ....................................................        770,943         703,554
                                                                                         ---------       ---------

Operating Expenses
  Operation:
    Purchased electricity and fuel used in
       electric generation ........................................................        245,114         254,200
    Purchased natural gas .........................................................         87,718          71,288
    Purchased petroleum ...........................................................        193,022         154,550
    Other expenses of operation - regulated activities ............................         90,170          73,472
    Other expenses of operation - competitive business subsidiaries ...............         43,222          39,350
  Depreciation and amortization ...................................................         26,920          27,304
  Taxes, other than income tax ....................................................         25,089          25,344
                                                                                         ---------       ---------
      Total Operating Expense .....................................................        711,255         645,508
                                                                                         ---------       ---------

Operating Income ..................................................................         59,688          58,046
                                                                                         ---------       ---------

Other Income
  Interest on regulatory assets and investment income .............................          7,524           7,349
  Other - net .....................................................................          1,251          (1,589)
                                                                                         ---------       ---------
      Total Other Income ..........................................................          8,775           5,760
                                                                                         ---------       ---------

Interest Charges
  Interest on long-term debt ......................................................         12,139          10,187
  Interest on regulatory liabilities and other interest ...........................          3,130           2,285
                                                                                         ---------       ---------
      Total Interest Charges ......................................................         15,269          12,472
                                                                                         ---------       ---------

Income before income taxes, preferred dividends of subsidiary and minority interest         53,194          51,334

Income Taxes ......................................................................         19,250          17,988

Minority Interest .................................................................           (121)             --
                                                                                         ---------       ---------

Income before preferred dividends of subsidiary ...................................         34,065          33,346
Cumulative preferred stock dividends of subsidiary ................................            727             727
                                                                                         ---------       ---------

Net Income ........................................................................         33,338          32,619
Dividends Declared on Common Stock ................................................         25,534          25,534
                                                                                         ---------       ---------

Balance Retained in the Business ..................................................      $   7,804       $   7,085
                                                                                         =========       =========

Common Stock:
    Average Shares Outstanding - Basic ............................................         15,762          15,762
                               - Diluted ..........................................         15,776          15,768

    Earnings Per Share - Basic ....................................................      $    2.12       $    2.07
                       - Diluted ..................................................      $    2.11       $    2.07

    Dividends Declared Per Share ..................................................      $    1.62       $    1.62
</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 September 30,
                                                                                 2006             2005
                                                                              ----------       ----------
                                                                                (Thousands of Dollars)
<S>                                                                           <C>              <C>
Net Income .............................................................      $   10,970       $    5,746

Other Comprehensive Income:

Net unrealized gains (losses) net of tax and net income realization:
      FAS 133 Designated Cash Flow Hedges - net of tax of $118 and $(80)            (177)             120
      Investments - net of tax of $(139) and $(40) .....................             209               59
                                                                              ----------       ----------

Other comprehensive income (loss) ......................................              32              179
                                                                              ----------       ----------

Comprehensive Income ...................................................      $   11,002       $    5,925
                                                                              ==========       ==========

<CAPTION>

                                                                           For the 9 Months Ended September 30,
                                                                                 2006             2005
                                                                              ----------       ----------
                                                                                 (Thousands of Dollars)
<S>                                                                           <C>              <C>
Net Income .............................................................      $   33,338       $   32,619

Other Comprehensive Income:

Net unrealized gains (losses) net of tax and net income realization:
      FAS 133 Designated Cash Flow Hedges - net of tax of $107 and $(80)            (160)             119
      Investments - net of tax of $(223) and $(207) ....................             335              311
                                                                              ----------       ----------

Other comprehensive income (loss) ......................................             175              430
                                                                              ----------       ----------

Comprehensive Income ...................................................      $   33,513       $   33,049
                                                                              ==========       ==========
</TABLE>

                 See Notes to Consolidated Financial Statements


                                     - 3 -
<PAGE>

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

<TABLE>
<CAPTION>
                                                                   September 30,      December 31,       September 30,
                            ASSETS                                     2006               2005               2005
                                                                   -------------      -------------      -------------
                                                                                   (Thousands of Dollars)
<S>                                                                <C>                <C>                <C>
Utility Plant
       Electric .............................................      $     754,429      $     739,775      $     718,995
       Natural gas ..........................................            234,103            226,859            221,940
       Common ...............................................            112,173            107,581            106,335
                                                                   -------------      -------------      -------------
                                                                       1,100,705          1,074,215          1,047,270

       Less:  Accumulated depreciation ......................            346,395            333,164            330,285
                                                                   -------------      -------------      -------------
                                                                         754,310            741,051            716,985

       Construction work in progress ........................             55,952             38,460             51,898
                                                                   -------------      -------------      -------------
               Net Utility Plant ............................            810,262            779,511            768,883
                                                                   -------------      -------------      -------------

Other Property and Plant - net ..............................             33,713             23,138             23,245
                                                                   -------------      -------------      -------------

Current Assets
       Cash and cash equivalents ............................             32,195             49,410             51,047
       Short-term investments - available-for-sale securities             40,281             42,100             49,600
       Accounts receivable -
             net of allowance for doubtful accounts of
             $5.1 million, $4.6 million, and $4.6 million,
             respectively ...................................             61,814             97,462             81,326
       Accrued unbilled utility revenues ....................              7,122              9,334              5,998
       Other receivables ....................................              6,017              6,326              5,119
       Fuel and materials and supplies - at average cost ....             30,530             28,350             31,189
       Regulatory assets ....................................             20,759             30,764             16,440
       Prepaid income taxes .................................                 --              1,166                572
       Fair value of derivative instruments .................                 54                 --              8,724
       Special deposits and prepayments .....................             25,666             23,184             22,995
       Accumulated deferred income tax ......................             15,925              8,836             12,056
                                                                   -------------      -------------      -------------
                Total Current Assets ........................            240,363            296,932            285,066
                                                                   -------------      -------------      -------------

Deferred Charges and Other Assets
       Regulatory assets - pension plan .....................             46,273             97,073             91,247
       Intangible asset - pension plan ......................             18,148             20,217             20,134
       Goodwill .............................................             52,742             51,333             50,898
       Other intangible assets - net ........................             27,560             28,368             28,472
       Regulatory assets ....................................             90,483             52,353             47,709
       Unamortized debt expense .............................              3,721              3,973              3,780
       Investments in unconsolidated affiliates .............             12,354              7,350             14,624
       Other ................................................             18,594             19,258             11,666
                                                                   -------------      -------------      -------------
                Total Deferred Charges and Other Assets .....            269,875            279,925            268,530
                                                                   -------------      -------------      -------------

                          Total Assets ......................      $   1,354,213      $   1,379,506      $   1,345,724
                                                                   =============      =============      =============
</TABLE>

                 See Notes to Consolidated Financial Statements


                                     - 4 -
<PAGE>

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

<TABLE>
<CAPTION>
                                                                             September 30,      December 31,       September 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 .............................................           205,821            198,017            194,857
        Treasury stock (1,100,087 shares) .............................           (46,252)           (46,252)           (46,252)
        Accumulated comprehensive income (loss) .......................              (345)              (520)              (213)
        Capital stock expense .........................................              (328)              (328)              (328)
                                                                             ------------       ------------       ------------
                Total Common Stock Equity .............................           511,812            503,833            500,980
                                                                             ------------       ------------       ------------

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

        Long-term debt ................................................           310,888            343,886            319,885
                                                                             ------------       ------------       ------------
                Total Capitalization ..................................           843,727            868,746            841,892
                                                                             ------------       ------------       ------------

Current Liabilities
        Current maturities of long-term debt ..........................            33,000                 --                 --
        Notes payable .................................................            30,000             30,000             44,000
        Accounts payable ..............................................            30,692             54,926             36,636
        Accrued interest ..............................................             3,162              5,156              2,544
        Dividends payable .............................................             8,754              8,754              8,754
        Accrued vacation and payroll ..................................             5,957              5,845              5,727
        Customer deposits .............................................             7,894              7,101              6,869
        Regulatory liabilities ........................................            20,037                373              8,525
        Fair value of derivative instruments ..........................             6,717                335                 --
        Accrued environmental remediation costs .......................             3,500                 --                 --
        Accrued income taxes ..........................................               759                 --                 --
        Deferred revenues .............................................            14,791              9,717             10,435
        Other .........................................................            11,776             11,964             14,193
                                                                             ------------       ------------       ------------
                Total Current Liabilities .............................           177,039            134,171            137,683
                                                                             ------------       ------------       ------------

Deferred Credits and Other Liabilities
        Regulatory liabilities ........................................           109,523            156,808            155,529
        Operating reserves ............................................             5,422              6,216              6,921
        Accrued environmental remediation costs .......................            17,932             22,772             22,821
        Accrued other post-employment benefit costs ...................            29,875             24,945             23,881
        Accrued pension costs .........................................            16,032             18,806             14,734
        Other .........................................................            12,903             13,258             13,386
                                                                             ------------       ------------       ------------
                Total Deferred Credits and Other Liabilities ..........           191,687            242,805            237,272
                                                                             ------------       ------------       ------------

Minority Interest .....................................................             1,501                 --                 --
                                                                             ------------       ------------       ------------

Accumulated Deferred Income Tax .......................................           140,259            133,784            128,877
                                                                             ------------       ------------       ------------

Commitments and Contingencies (Note 11)

                         Total Capitalization and Liabilities .........      $  1,354,213       $  1,379,506       $  1,345,724
                                                                             ============       ============       ============
</TABLE>

                 See Notes to Consolidated Financial Statements


                                     - 5 -

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                           For the 9 Months Ended
                                                                                                September 30,
                                                                                            2006             2005
                                                                                         ----------       ----------
Operating Activities:                                                                       (Thousands of Dollars)
<S>                                                                                      <C>              <C>
    Net Income ....................................................................      $   33,338       $   32,619

        Adjustments to reconcile net income to net cash provided by (used in)
           operating activities:
              Depreciation and amortization .......................................          26,920           27,304
              Deferred income taxes - net .........................................           7,106            7,776
              Provision for uncollectibles ........................................           4,506            2,784
              Accrued/deferred pension costs ......................................          (5,120)         (10,735)
              Minority interest ...................................................            (121)              --
              Gain on sale of property and plant ..................................          (2,913)              --

           Changes in operating assets and liabilities - net of business
           acquisitions:
              Accounts receivable, unbilled revenues and other receivables ........          35,176          (15,507)
              Fuel, materials and supplies ........................................          (2,085)          (9,639)
              Special deposits and prepayments ....................................          (5,148)           1,450
              Accounts payable ....................................................         (24,416)          (6,782)
              Accrued taxes and interest ..........................................          (1,235)          (2,085)
              Accrued OPEB costs ..................................................           4,929            7,850
              Regulatory Liability-Rate Moderation ................................          (7,976)              --
              Deferred natural gas and electric costs .............................          16,493             (781)
              Customer benefit fund ...............................................          (3,205)          (3,592)
              Other - net .........................................................          (3,474)           4,039
                                                                                         ----------       ----------

        Net Cash Provided By Operating Activities .................................          72,775           34,701
                                                                                         ----------       ----------

Investing Activities:

        Purchase of short-term investments ........................................         (29,731)         (22,750)
        Proceeds from sale of short-term investments ..............................          31,550           21,850
        Additions to utility plant and other property and plant ...................         (50,827)         (45,556)
        Proceeds from sale of property and plant ..................................           3,205               --
        Issuance of notes receivable ..............................................          (2,105)          (4,629)
        Proceeds from repayment of notes receivable ...............................           1,750               --
        Acquisitions made by competitive business subsidiaries ....................         (13,910)          (7,370)
        Other - net ...............................................................          (4,356)          (2,065)
                                                                                         ----------       ----------

        Net Cash Used in Investing Activities .....................................         (64,424)         (60,520)
                                                                                         ----------       ----------

Financing Activities:

        Redemption of preferred stock .............................................              --               (3)
        Net borrowings of short-term debt..........................................              --           32,000
        Dividends paid on common stock ............................................         (25,534)         (25,534)
        Debt issuance costs .......................................................             (32)             (14)
                                                                                         ----------       ----------

        Net Cash (Used in) Provided by Financing Activities .......................         (25,566)           6,449
                                                                                         ----------       ----------

Net Change in Cash and Cash Equivalents ...........................................         (17,215)         (19,370)

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

Cash and Cash Equivalents - End of Period .........................................      $   32,195       $   51,047
                                                                                         ==========       ==========

Supplemental Disclosure of Cash Flow Information

        Interest paid .............................................................      $   18,360       $   14,864

        Federal and State income tax paid .........................................      $   10,784       $   11,960
</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 September 30,
                                                                               2006            2005
                                                                            ----------      ----------
                                                                              (Thousands of Dollars)
<S>                                                                         <C>             <C>
Operating Revenues
  Electric ...........................................................      $  154,723      $  159,589
  Natural gas ........................................................          18,384          14,115
                                                                            ----------      ----------
      Total Operating Revenues .......................................         173,107         173,704
                                                                            ----------      ----------

Operating Expenses
  Operation:
    Purchased electricity and fuel used in electric generation .......          94,392         111,496
    Purchased natural gas ............................................          10,663           7,311
    Other expenses of operation ......................................          31,690          24,613
  Depreciation and amortization ......................................           7,070           7,502
  Taxes, other than income tax .......................................           8,877           8,505
                                                                            ----------      ----------
      Total Operating Expenses........................................         152,692         159,427
                                                                            ----------      ----------

Operating Income .....................................................          20,415          14,277
                                                                            ----------      ----------

Other Income and Deductions
  Interest on regulatory assets and other interest income ............           1,100           1,793
  Other - net ........................................................              54            (314)
                                                                            ----------      ----------
      Total Other Income..............................................           1,154           1,479
                                                                            ----------      ----------

Interest Charges
  Interest on long-term debt .........................................           4,115           3,421
  Interest on regulatory liabilities and other interest ..............           1,147             966
                                                                            ----------      ----------
      Total Interest Charges..........................................           5,262           4,387
                                                                            ----------      ----------

Income before income taxes ...........................................          16,307          11,369

Income taxes .........................................................           5,534           4,484
                                                                            ----------      ----------

Net Income ...........................................................          10,773           6,885

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

Income Available for Common Stock ....................................      $   10,531      $    6,643
                                                                            ==========      ==========
</TABLE>

                 See Notes to Consolidated Financial Statements


                                     - 7 -
<PAGE>

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

<TABLE>
<CAPTION>
                                                                     For the 9 Months Ended September 30,
                                                                             2006            2005
                                                                          ---------       ---------
                                                                            (Thousands of Dollars)
<S>                                                                       <C>             <C>
Operating Revenues
  Electric .........................................................      $ 398,700       $ 392,866
  Natural gas ......................................................        125,651         108,687
                                                                          ---------       ---------
      Total Operating Revenues .....................................        524,351         501,553
                                                                          ---------       ---------

Operating Expenses
  Operation:
    Purchased electricity and fuel used in electric generation .....        243,202         254,200
    Purchased natural gas ..........................................         87,718          71,288
    Other expenses of operation ....................................         90,170          73,472
  Depreciation and amortization ....................................         21,986          22,506
  Taxes, other than income tax .....................................         24,835          25,103
                                                                          ---------       ---------
      Total Operating Expenses......................................        467,911         446,569
                                                                          ---------       ---------

Operating Income ...................................................         56,440          54,984
                                                                          ---------       ---------

Other Income and Deductions
  Interest on regulatory assets and other interest income ..........          5,149           5,209
  Other - net ......................................................           (279)           (982)
                                                                          ---------       ---------
      Total Other Income............................................          4,870           4,227
                                                                          ---------       ---------

Interest Charges
  Interest on long-term debt .......................................         12,139          10,187
  Interest on regulatory liabilities and other interest ............          3,130           2,285
                                                                          ---------       ---------
      Total Interest Charges........................................         15,269          12,472
                                                                          ---------       ---------

Income Before Income Taxes .........................................         46,041          46,739

Income Taxes .......................................................         18,090          18,751
                                                                          ---------       ---------

Net Income .........................................................         27,951          27,988

Dividends Declared on Cumulative Preferred Stock ...................            727             727
                                                                          ---------       ---------

Income Available for Common Stock ..................................      $  27,224       $  27,261
                                                                          =========       =========
</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 September 30,
                                                           2006           2005
                                                         --------       --------
                                                          (Thousands of Dollars)
<S>                                                      <C>            <C>
Net Income .......................................       $ 10,773       $  6,885

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

Comprehensive Income .............................       $ 10,773       $  6,885
                                                         ========       ========

<CAPTION>

                                                    For the 9 Months Ended September 30,
                                                           2006           2005
                                                         --------       --------
                                                          (Thousands of Dollars)
<S>                                                      <C>            <C>
Net Income .......................................       $ 27,951       $ 27,988

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

Comprehensive Income .............................       $ 27,951       $ 27,988
                                                         ========       ========
</TABLE>

                 See Notes to Consolidated Financial Statements


                                     - 9 -
<PAGE>

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

<TABLE>
<CAPTION>
                                                                          September 30,      December 31,       September 30,
                            ASSETS                                             2006               2005               2005
                                                                          -------------      -------------      -------------
                                                                                        (Thousands of Dollars)
<S>                                                                       <C>                <C>                <C>
Utility Plant
       Electric ....................................................      $     754,429      $     739,775      $     718,995
       Natural gas .................................................            234,103            226,859            221,940
       Common ......................................................            112,173            107,581            106,335
                                                                          -------------      -------------      -------------
                                                                              1,100,705          1,074,215          1,047,270

       Less:  Accumulated depreciation .............................            346,395            333,164            330,285
                                                                          -------------      -------------      -------------
                                                                                754,310            741,051            716,985

       Construction work in progress ...............................             55,952             38,460             51,898
                                                                          -------------      -------------      -------------
               Net Utility Plant ...................................            810,262            779,511            768,883
                                                                          -------------      -------------      -------------

Other Property and Plant - net .....................................                496                723                724
                                                                          -------------      -------------      -------------

Current Assets
       Cash and cash equivalents ...................................              2,776              4,232              2,346
       Accounts receivable -
             net of allowance for doubtful accounts of $3.8 million,
             $3.4 million, and $3.6 million, respectively ..........             37,958             61,055             57,965
       Accrued unbilled utility revenues ...........................              7,122              9,334              5,998
       Other receivables ...........................................              2,584              2,868              2,426
       Fuel and materials and supplies - at average cost ...........             25,041             23,411             26,104
       Regulatory assets ...........................................             20,759             30,764             16,440
       Fair value of derivative instruments ........................                 --                 --              8,525
       Special deposits and prepayments ............................             22,085             16,168             15,996
       Accumulated deferred income tax .............................             15,165              7,997             11,217
                                                                          -------------      -------------      -------------
                Total Current Assets ...............................            133,490            155,829            147,017
                                                                          -------------      -------------      -------------

Deferred Charges and Other Assets
       Regulatory assets - pension plan ............................             46,273             97,073             91,247
       Intangible asset - pension plan .............................             18,148             20,217             20,134
       Regulatory assets ...........................................             90,483             52,353             47,709
       Unamortized debt expense ....................................              3,721              3,973              3,780
       Other .......................................................             11,153             11,653             10,631
                                                                          -------------      -------------      -------------
                Total Deferred Charges and Other Assets ............            169,778            185,269            173,501
                                                                          -------------      -------------      -------------

                          Total Assets .............................      $   1,114,026      $   1,121,332      $   1,090,125
                                                                          =============      =============      =============
</TABLE>

                 See Notes to Consolidated Financial Statements


                                     - 10 -
<PAGE>

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

<TABLE>
<CAPTION>
                                                                            September 30,       December 31,        September 30,
                     CAPITALIZATION AND LIABILITIES                              2006                2005                2005
                                                                            -------------       -------------       -------------
                                                                                            (Thousands of Dollars)
<S>                                                     <C>                 <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 ............................................             62,033              43,309              35,905
        Capital stock expense ........................................             (4,961)             (4,961)             (4,961)
                                                                            -------------       -------------       -------------
                Total Common Stock Equity ............................            316,363             297,639             290,235
                                                                            -------------       -------------       -------------

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

        Long-term Debt ...............................................            310,888             343,886             319,885
                                                                            -------------       -------------       -------------
                Total Capitalization .................................            648,278             662,552             631,147
                                                                            -------------       -------------       -------------

Current Liabilities
        Current maturities of long-term debt .........................             33,000                  --                  --
        Notes Payable ................................................             30,000              30,000              44,000
        Accounts payable .............................................             23,401              40,884              28,828
        Accrued interest .............................................              3,161               5,156               2,544
        Dividends payable - preferred stock ..........................                242                 242                 242
        Accrued vacation and payroll .................................              4,767               4,566               4,496
        Customer deposits ............................................              7,766               6,932               6,735
        Regulatory liabilities .......................................             20,037                 373               8,525
        Fair value of derivative instruments .........................              6,431                 315                  --
        Accrued income taxes .........................................              6,312                 324                 848
        Accrued environmental remediation costs ......................              3,500                  --                  --
        Other ........................................................              7,410               6,895               9,782
                                                                            -------------       -------------       -------------
                Total Current Liabilities ............................            146,027              95,687             106,000
                                                                            -------------       -------------       -------------

Deferred Credits and Other Liabilities
        Regulatory liabilities .......................................            109,523             156,808             155,529
        Operating reserves ...........................................              4,248               5,137               5,701
        Accrued environmental remediation costs ......................             16,000              19,500              19,500
        Accrued other post-employment benefit costs ..................             29,875              24,945              23,881
        Accrued pension costs ........................................             16,032              18,806              14,734
        Other ........................................................             12,169              11,094              11,195
                                                                            -------------       -------------       -------------
                Total Deferred Credits and Other Liabilities .........            187,847             236,290             230,540
                                                                            -------------       -------------       -------------

Accumulated Deferred Income Tax ......................................            131,874             126,803             122,438
                                                                            -------------       -------------       -------------

Commitments and  Contingencies (Note 11)

                Total Capitalization and Liabilities .................      $   1,114,026       $   1,121,332       $   1,090,125
                                                                            =============       =============       =============
</TABLE>

                 See Notes to Consolidated Financial Statements


                                     - 11 -
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                     For the 9 Months Ended
                                                                                          September 30,
                                                                                      2006             2005
                                                                                   ----------       ----------
Operating Activities:                                                                 (Thousands of Dollars)
<S>                                                                                <C>              <C>
     Net Income .............................................................      $   27,951       $   27,988

        Adjustments to reconcile net income to net cash provided by (used in)
           operating activities:
               Depreciation and amortization.................................          21,986           22,506
               Deferred income taxes - net...................................           5,624            6,494
               Provision for uncollectibles .................................           3,833            2,238
               Accrued/deferred pension costs ...............................          (5,120)         (10,735)
               Gain on sale of property and plant ...........................          (2,215)              --

        Changes in operating assets and liabilities - net:
               Accounts receivable, unbilled revenues and other receivables .          21,760          (18,941)
               Fuel, materials and supplies .................................          (1,630)          (8,897)
               Special deposits and prepayments .............................          (5,917)           4,358
               Accounts payable .............................................         (17,483)          (4,123)
               Accrued taxes and interest ...................................           3,993           (1,237)
               Accrued OPEB costs ...........................................           4,929            7,850
               Regulatory Liability-Rate Moderation .........................          (7,976)              --
               Deferred natural gas and electric costs ......................          16,493             (781)
               Customer benefit fund ........................................          (3,205)          (3,592)
               Other - net ..................................................          (7,723)             383
                                                                                   ----------       ----------

        Net Cash Provided by Operating Activities ...........................          55,300           23,511
                                                                                   ----------       ----------

Investing Activities:

        Proceeds from sale of property and plant ............................           2,440               --
        Additions to plant ..................................................         (48,395)         (42,681)
        Other - net .........................................................          (1,542)            (967)
                                                                                   ----------       ----------

        Net Cash Used in Investing Activities................................         (47,497)         (43,648)
                                                                                   ----------       ----------

Financing Activities:

        Redemption of preferred stock .......................................              --               (3)
        Net borrowings of short-term debt ...................................              --           32,000
        Dividends paid on cumulative preferred stock ........................            (727)            (727)
        Dividends paid to parent - Energy Group .............................          (8,500)         (17,000)
        Debt issuance costs .................................................             (32)             (14)
                                                                                   ----------       ----------

        Net Cash (Used In) Provided by Financing Activities .................          (9,259)          14,256
                                                                                   ----------       ----------

Net Change in Cash and Cash Equivalents .....................................          (1,456)          (5,881)

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

Cash and Cash Equivalents - End of Period ...................................      $    2,776       $    2,346
                                                                                   ==========       ==========

Supplemental Disclosure of Cash Flow Information

        Interest paid .......................................................      $   15,581       $   12,607

        Federal and State income tax paid ...................................      $    6,626       $   11,875
</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 sometimes 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 September 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 September 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. Demand for
electricity typically peaks


                                       13
<PAGE>

during the summer, while demand for natural gas and heating oil typically peaks
during the winter.

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 on 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 nine months ended
September 30, 2005, was a decrease of $0.9 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 $49.6
million at December 31, 2005, and September 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 September 30, 2006, the total fair value of open Central Hudson
derivatives, which hedge electric and natural gas commodity purchases, was an
unrealized loss of $6.4 million. This compares to a fair value at December 31,
2005, of ($315,000), an unrealized loss, and a fair value of $8.5 million at
September 30, 2005, an unrealized


                                       14
<PAGE>

gain. The significant decrease in the current fair value reflects the decrease
in the wholesale costs of electricity and natural gas during the quarter ended
September 30, 2006, due to changing market conditions. At September 30, 2006,
Central Hudson had open derivative contracts hedging approximately 10.5% of its
projected electricity requirements for the period October 2006 through December
2006 and 31.9% of its projected natural gas requirements for the period November
2006 through March 2007. Central Hudson recorded actual net losses of $1.3
million for the quarter ended September 30, 2006, as compared to a net gain of
$5.9 million for the same period in 2005. Comparative amounts for the nine
months ended September 30, 2006, and 2005, were a net loss of $7.0 million and a
net gain of $5.7 million, 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, the three months of the cooling
season ended August 31, 2005, and the months of July and August 2006. Settlement
payments to counter-parties during the nine-month periods ended September 30,
2006, and 2005, were $0.5 million and $1.8 million, respectively. These payments
related to the cooling season contracts and resulted from weather that was
warmer than the contractual strike points.

      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 mechanism authorized by the PSC which defers for
return to or recovery from customers any differences between actual variable
interest costs and the corresponding costs embedded in customer rates. The
premium costs and any realized benefits from the rate cap agreement also pass
through this regulatory mechanism.

Fuel Distribution Business

      The fair value of Griffith's open derivative positions at September 30,
2006, was an unrealized loss of $0.3 million as compared to an unrealized gain
at September 30, 2005, of $0.2 million. The fair value of derivative instruments
at December 31, 2005, was not material. Derivatives outstanding at September 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. These
options hedge approximately 6.7% of Griffith's total projected fuel oil
requirements for September 2006 through June 2007. Actual net losses of $0.6
million, including premium expense, were recorded during the


                                       15
<PAGE>

quarter and year-to-date ended September 30, 2006. Actual net gains recorded in
2005 were 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 September 30, 2006, and the quarter and
nine months to-date impact to earnings were not material. Griffith had
previously entered into weather derivative contracts for the three months of the
heating seasons ended March 31, 2006, and 2005. Settlement amounts for the
comparative quarters were not material.

Parental Guarantees

      Energy Group and certain of the competitive business subsidiaries have
issued guarantees in conjunction with certain commodity and derivative contracts
that provide financial or performance assurance to third-parties on behalf of a
subsidiary. The guarantees are entered into primarily to support or enhance the
creditworthiness otherwise attributed to a subsidiary on a stand-alone basis,
thereby facilitating the extension of sufficient credit to accomplish the
relevant subsidiary's intended commercial purposes. In addition, Energy Group
agreed to guarantee the post-closing obligations of former subsidiary Central
Hudson Energy Services, Inc. ("CH Services") under the agreement related to the
sale of former subsidiary CH Resources, Inc. ("CH Resources"), which guarantee
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 September 30, 2006, the
aggregate amount of subsidiary obligations (excluding obligations related to CH
Resources) covered by these guarantees was $4.9 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
September 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 at September 30, 2005, which had not changed from that
reported at December 31, 2004, which was $504,000.

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.


                                       16
<PAGE>

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

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

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                      September 30, 2006            December 31, 2005             September 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                       $41,758      $14,808        $40,448        $12,754        $39,944           $12,102
----------------------------------------------------------------------------------------------------------------------------
Covenants Not to Compete               1,734        1,124          1,669            995          1,589               959
----------------------------------------------------------------------------------------------------------------------------
Total Amortizable Intangibles        $43,492      $15,932        $42,117        $13,749        $41,533           $13,061
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

      Amortization expense was $2.2 million and $2.0 million for each of the
nine-month periods ended September 30, 2006, and 2005, respectively. 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 $52.7
million as of September 30, 2006, $51.3 million as of December 31, 2005, and
$50.9 million as of September 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.


                                       17
<PAGE>

      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 $44.1 million, $92.2 million, and $91.9 million of net cost of
removal as regulatory liabilities as of September 30, 2006, December 31, 2005,
and September 30, 2005, respectively. The amount of this liability as of
September 30, 2006, has been reduced by the transfer of $52.5 million of
electric depreciation reserve pursuant to the Order Establishing Rate Plan
("2006 Order") issued by the PSC on July 24, 2006. The transfer represents a
portion of the electric depreciation reserve that is in excess of the
theoretical book reserve based on depreciation rates approved by the PSC. For
additional information regarding the 2006 Order, see Note 3 - "Regulatory
Matters."

      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 nine months ended September 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 $16.7
million, $14.9 million, and $14.3 million as of September 30, 2006, December 31,
2005, and September 30, 2005, respectively.

      Accumulated depreciation for Lyonsdale was $0.4 million as of September
30, 2006.


                                       18
<PAGE>

      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

      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 caption "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 15,473 shares and 6,783
shares for the quarters ended September 30, 2006, and 2005, and 14,455 shares
and 5,729 shares for the nine months ended September 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 some of the periods
presented. Excluded from the above calculation were options for 36,900 shares
for the three-month period ended September 30, 2005, and 35,700 shares and
36,900 shares for the nine-month periods ended September 30, 2006, and 2005,
respectively. For additional information regarding stock options and performance
shares, see Note 8 - "Equity-Based Compensation Incentive Plans."

Equity-Based Compensation

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

FIN 46R - Consolidation of Variable Interest Entities

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

Reclassification

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


                                       19
<PAGE>

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 the 2006 Order following action to
approve the 2006 Joint Proposal at its 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 expenses to
be subject to the same shortfall true-up mechanism that applies to transmission
ROW maintenance expenses. The 2006 Order directed 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
("ROE") 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 electricity 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


                                       20
<PAGE>

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.

      On August 30, 2006, Central Hudson filed for rehearing on one element of
the 2006 Order. The filing asserts that the PSC failed to update Central
Hudson's allowed ROE using the PSC's Generic Finance Case Methodology. Central
Hudson requested that a rehearing be conducted to revise its allowed ROE to
9.9%. Neither Energy Group nor Central Hudson can predict the timing or the
final outcome of this petition.

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

Financing Petition

      On September 21, 2006, the PSC issued an Order authorizing issuance of
securities, in response to a financing petition Central Hudson filed on July 3,
2006. The Order authorizes Central Hudson to issue and sell up to $140 million
of medium-term notes through December 31, 2009, and to enter into revolving
credit agreements in an amount not to exceed $125 million and for periods not to
exceed five years.

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.

      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.

      During the three months ended September 30, 2006, Central Hudson has sold
several parcels of non-utility real property for $1.8 million in excess of book
value and transaction costs, which is recorded as a reduction to Other Expenses
of Operation.

Other Businesses

      On June 29, 2006, Energy Group (the holding company) sold real property
for $0.7 million in excess of book value and transaction cost.


                                       21
<PAGE>

NOTE 4 - ACQUISITIONS AND INVESTMENTS

      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 $1.7 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.

      During the third quarter of 2006, Griffith acquired certain assets of two
fuel distribution companies for a total of $1.0 million. The purchase price
allocated to intangible assets (including goodwill) was $942,000, of which
$478,000 was allocated to goodwill. The principal tangible assets acquired were
vehicles and spare parts.

      Subsequent to September 30, 2006, Griffith acquired certain assets of a
fuel distribution company for $300,000. The entire purchase price was allocated
to intangible assets. No amount of the purchase price was allocated to goodwill.

      On April 12, 2006, CHEC purchased a 75% interest in Lyonsdale from
Catalyst Renewables Corporation ("Catalyst") for $10.8 million, including a
working capital adjustment of $1.0 million. CHEC allocated the total purchase
price based on 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. 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 September 30, 2006, have been fully consolidated into
the financial statements of Energy Group.

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.


                                       22
<PAGE>

      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 investments are 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 $40.3 million at September 30, 2006, $42.1 million at
December 31, 2005, and $49.6 million at September 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."

      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


                                       23
<PAGE>

common property have been allocated in accordance with practices established for
regulatory purposes.

      Central Hudson's and Griffith's operations are seasonal in nature and
weather-sensitive and, as a result, financial results for interim periods are
not necessarily indicative of trends for a twelve-month period. Demand for
electricity typically peaks during the summer, while demand for natural gas and
heating oil typically peaks during the winter.


                                       24
<PAGE>


CH Energy Group, Inc. Segment Disclosure

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                             Quarter Ended September 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                         $  154,723    $  18,384     $     64,266     $    2,447       $       --        $  239,820
----------------------------------------------------------------------------------------------------------------------------
Intersegment revenues                      3           38               --             --              (41)               --
----------------------------------------------------------------------------------------------------------------------------
   Total revenues                 $  154,726    $  18,422     $     64,266     $    2,447       $      (41)       $  239,820
----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before
income taxes                      $   17,423    $  (1,358)    $     (3,882)    $    3,179       $       --        $   15,362
----------------------------------------------------------------------------------------------------------------------------
Net (loss) income                 $   11,207    $    (676)    $     (2,329)    $    2,768       $       --        $   10,970
----------------------------------------------------------------------------------------------------------------------------
Earnings (Loss) Per Share -
Diluted                           $     0.71    $   (0.04)    $      (0.15)    $     0.18(1)    $       --        $     0.70
----------------------------------------------------------------------------------------------------------------------------
Segment Assets at
September 30, 2006                $  827,095    $ 286,931     $    141,285     $   99,219       $     (317)(2)    $1,354,213
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   The amount of earnings per share ("EPS") attributable to CHEC's other
      business activities was $0.12 per share, with the balance of $0.06 per
      share resulting primarily from interest income and business development
      activities.

(2)   Includes minority interest of $1,501 related to Lyonsdale.


<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                            Nine Months Ended September 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                         $  398,700    $ 125,651     $    242,325     $    4,267       $       --        $  770,943
----------------------------------------------------------------------------------------------------------------------------
Intersegment revenues                     11          277               --             --             (288)               --
----------------------------------------------------------------------------------------------------------------------------
   Total revenues                 $  398,711    $ 125,928     $    242,325     $    4,267       $     (288)       $  770,943
----------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes      $   33,615    $  11,699     $        (92)    $    7,366       $       --        $   52,588
----------------------------------------------------------------------------------------------------------------------------
Net income                        $   20,515    $   6,709     $        (55)    $    6,169       $       --        $   33,338
----------------------------------------------------------------------------------------------------------------------------
Earnings Per Share - Diluted      $     1.30    $    0.43     $      (0.01)    $     0.39(1)    $       --        $     2.11
----------------------------------------------------------------------------------------------------------------------------
Segment Assets at
September 30, 2006                $  827,095    $ 286,931     $    141,285     $   99,219       $     (317)(2)    $1,354,213
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   The amount of EPS attributable to CHEC's other business activities was
      $0.18 per share, with the balance of $0.21 per share resulting primarily
      from interest income and business development activities.

(2)   Includes minority interest of $1,501 related to Lyonsdale.


                                       25
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
    (In Thousands, Except                                     Quarter Ended September 30, 2005
     Earnings Per Share)          ------------------------------------------------------------------------------------------
                                         Regulated                    Unregulated             Eliminations          Total
----------------------------------------------------------------------------------------------------------------------------
                                                 Natural          Fuel
                                   Electric        Gas        Distribution       Other
----------------------------------------------------------------------------------------------------------------------------
<S>                               <C>           <C>           <C>              <C>              <C>               <C>
Revenues from external
customers                         $  159,589    $  14,115     $     54,008     $      184       $       --        $  227,896
----------------------------------------------------------------------------------------------------------------------------
Intersegment revenues                      3           14               --             --              (17)               --
----------------------------------------------------------------------------------------------------------------------------
   Total revenues                 $  159,592    $  14,129     $     54,008     $      184       $      (17)       $  227,896
----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before
income taxes                      $   13,084    $  (1,957)    $     (3,967)    $      950       $       --        $    8,110
----------------------------------------------------------------------------------------------------------------------------
Net (loss) income                 $    7,750    $  (1,107)    $     (2,381)    $    1,484       $       --        $    5,746
----------------------------------------------------------------------------------------------------------------------------
Earnings (Loss) Per Share -
Diluted                           $     0.49    $   (0.07)    $      (0.15)    $     0.09(1)    $       --        $     0.36
----------------------------------------------------------------------------------------------------------------------------
Segment Assets at
September 30, 2005                $  813,955    $ 276,170     $    138,088     $  117,716       $     (205)       $1,345,724
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   Reflects Energy Group earnings of $0.09 per share attributable primarily
      to the recording of New York State income tax benefits of $0.05 per share
      related to the completion of the Energy Group tax audit as well as
      investment and business development activities.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
    (In Thousands, Except                                   Nine Months Ended September 30, 2005
     Earnings Per Share)          ------------------------------------------------------------------------------------------
                                         Regulated                    Unregulated             Eliminations          Total
----------------------------------------------------------------------------------------------------------------------------
                                                 Natural          Fuel
                                   Electric        Gas        Distribution       Other
----------------------------------------------------------------------------------------------------------------------------
<S>                               <C>           <C>           <C>              <C>              <C>               <C>
Revenues from external
customers                         $  392,866    $ 108,687     $    201,362     $      639       $       --        $  703,554
----------------------------------------------------------------------------------------------------------------------------
Intersegment revenues                      9          218               --             --             (227)               --
----------------------------------------------------------------------------------------------------------------------------
   Total revenues                 $  392,875    $ 108,905     $    201,362     $      639       $     (227)       $  703,554
----------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes      $   33,782    $  12,230     $      1,317     $    3,278       $       --        $   50,607
----------------------------------------------------------------------------------------------------------------------------
Net income                        $   20,098    $   7,163     $        789     $    4,569       $       --        $   32,619
----------------------------------------------------------------------------------------------------------------------------
Earnings Per Share - Diluted      $     1.28    $    0.45     $       0.05     $     0.29(1)    $       --        $     2.07
----------------------------------------------------------------------------------------------------------------------------
Segment Assets at
September 30, 2005                $  813,955    $ 276,170     $    138,088     $  117,716       $     (205)       $1,345,724
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


     (1) The amount of EPS attributable to CHEC's other business activities was
         $0.02 per share; the balance of $0.27 per share resulted primarily from
         the recording of New York State income tax benefits of $0.14 per share
         related to the completion of the Energy Group tax audit as well as
         investment and business development activities.


                                       26
<PAGE>

Central Hudson Gas & Electric Corporation Segment Disclosure

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                   (In Thousands)                               Quarter Ended September 30, 2006
-----------------------------------------------------------------------------------------------------------------
                                                                        Natural
                                                          Electric        Gas         Eliminations       Total
-----------------------------------------------------------------------------------------------------------------
<S>                                                      <C>           <C>            <C>              <C>
Revenues from external customers                         $  154,723    $   18,384     $         --     $  173,107
-----------------------------------------------------------------------------------------------------------------
Intersegment revenues                                             5            38              (43)            --
-----------------------------------------------------------------------------------------------------------------
   Total Revenues                                        $  154,728    $   18,422     $        (43)    $  173,107
-----------------------------------------------------------------------------------------------------------------
Earnings before income taxes                             $   17,665    $   (1,358)    $         --     $   16,307
-----------------------------------------------------------------------------------------------------------------
Net Income                                               $   11,390    $     (617)    $         --     $   10,773
-----------------------------------------------------------------------------------------------------------------
Income Available for Common Stock                        $   11,207    $     (676)    $         --     $   10,531
-----------------------------------------------------------------------------------------------------------------
Segment Assets at September 30, 2006                     $  827,095    $  286,931     $         --     $1,114,026
-----------------------------------------------------------------------------------------------------------------

<CAPTION>

-----------------------------------------------------------------------------------------------------------------
                  (In Thousands)                                   Nine Months Ended September 30, 2006
-----------------------------------------------------------------------------------------------------------------
                                                                        Natural
                                                          Electric        Gas         Eliminations       Total
-----------------------------------------------------------------------------------------------------------------
<S>                                                      <C>           <C>            <C>              <C>
Revenues from external customers                         $  398,700    $  125,651     $         --     $  524,351
-----------------------------------------------------------------------------------------------------------------
Intersegment revenues                                            11           277             (288)            --
-----------------------------------------------------------------------------------------------------------------
   Total Revenues                                        $  398,711    $  125,928     $       (288)    $  524,351
-----------------------------------------------------------------------------------------------------------------
Earnings before income taxes                             $   34,160    $   11,881     $         --     $   46,041
-----------------------------------------------------------------------------------------------------------------
Net Income                                               $   21,065    $    6,886     $         --     $   27,951
-----------------------------------------------------------------------------------------------------------------
Income Available for Common Stock                        $   20,515    $    6,709     $         --     $   27,224
-----------------------------------------------------------------------------------------------------------------
Segment Assets at September 30, 2006                     $  827,095    $  286,931     $         --     $1,114,026
-----------------------------------------------------------------------------------------------------------------

<CAPTION>

-----------------------------------------------------------------------------------------------------------------
                   (In Thousands)                                   Quarter Ended September 30, 2005
-----------------------------------------------------------------------------------------------------------------
                                                                        Natural
                                                          Electric        Gas         Eliminations       Total
-----------------------------------------------------------------------------------------------------------------
<S>                                                      <C>           <C>            <C>              <C>
Revenues from external customers                         $  159,589    $   14,115     $         --     $  173,704
-----------------------------------------------------------------------------------------------------------------
Intersegment revenues                                             3            14              (17)            --
-----------------------------------------------------------------------------------------------------------------
   Total Revenues                                        $  159,592    $   14,129     $        (17)    $  173,704
-----------------------------------------------------------------------------------------------------------------
Earnings before income taxes                             $   13,266    $   (1,897)    $         --     $   11,369
-----------------------------------------------------------------------------------------------------------------
Net Income                                               $    7,932    $   (1,047)    $         --     $    6,885
-----------------------------------------------------------------------------------------------------------------
Income Available for Common Stock                        $    7,750    $   (1,107)    $         --     $    6,643
-----------------------------------------------------------------------------------------------------------------
Segment Assets at September 30, 2005                     $  813,955    $  276,170     $         --     $1,090,125
-----------------------------------------------------------------------------------------------------------------

<CAPTION>

-----------------------------------------------------------------------------------------------------------------
                  (In Thousands)                                   Nine Months Ended September 30, 2005
-----------------------------------------------------------------------------------------------------------------
                                                                        Natural
                                                          Electric        Gas         Eliminations       Total
-----------------------------------------------------------------------------------------------------------------
<S>                                                      <C>           <C>            <C>              <C>
Revenues from external customers                         $  392,866    $  108,687     $         --     $  501,553
-----------------------------------------------------------------------------------------------------------------
Intersegment revenues                                             9           218             (227)            --
-----------------------------------------------------------------------------------------------------------------
   Total Revenues                                        $  392,875    $  108,905     $       (227)    $  501,553
-----------------------------------------------------------------------------------------------------------------
Earnings before income taxes                             $   34,327    $   12,412     $         --     $   46,739
-----------------------------------------------------------------------------------------------------------------
Net Income                                               $   20,644    $    7,344     $         --     $   27,988
-----------------------------------------------------------------------------------------------------------------
Income Available for Common Stock                        $   20,098    $    7,163     $         --     $   27,261
-----------------------------------------------------------------------------------------------------------------
Segment Assets at September 30, 2005                     $  813,955    $  276,170     $         --     $1,090,125
-----------------------------------------------------------------------------------------------------------------
</TABLE>


                                       27
<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
No. 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.


                                       28
<PAGE>

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 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


                                       29
<PAGE>

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.

      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.

Pension Protection Act of 2006

      On August 17, 2006, President Bush signed the Pension Protection Act of
2006 ("Pension Act") into law. It introduces new funding requirements for single
and multi-employer defined benefit pension plans, provides legal certainty for
cash balance and other hybrid plans, and addresses contributions to defined
contribution plans, deduction limits for contributions to retirement plans, and
investment advice provided to plan participants. The new defined benefit funding
rules are effective for plan years beginning after December 31, 2007. Certain
transition rules will apply for 2008 through 2010. Energy Group is reviewing the
potential impacts of the Pension Act. At the present time, neither Energy Group
nor Central Hudson can predict the impact that the Pension Act may have on the
financial condition, results of operations, or cash flows of Energy Group or its
subsidiaries.

Fair Value Measurements

      On September 6, 2006, FASB issued SFAS No. 157, titled Fair Value
Measurement ("SFAS 157"). SFAS 157 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements. SFAS 157 applies under other
accounting pronouncements that require or permit fair value measurements, the
FASB having previously concluded in those accounting pronouncements that fair
value is the relevant measurement attribute. Accordingly, SFAS 157 does not
require any new fair value measurements. However, for some entities, the
application of SFAS 157 will change current practice. The changes to current
practice resulting from the application of SFAS 157 relate to the definition of
fair value, the methods used to measure fair value, and the expanded disclosure
about fair value measurement.

      SFAS 157 defines fair value as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. SFAS 157 also stipulates that, as a
market-based measurement,


                                       30
<PAGE>

fair value measurement should be determined based on the assumptions that market
participants would use in pricing the asset or liability and establishes a fair
value hierarchy that distinguishes between (a) market participant assumptions
developed based on market data obtained from sources independent of the
reporting entity and (b) the reporting entity's own assumptions about market
participant assumptions developed based on the best information available in the
circumstances.

      SFAS 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years, with early adoption permitted. Energy Group does not expect SFAS 157 to
have a significant impact on the financial condition, results of operations, or
cash flows of Energy Group or its subsidiaries.

Financial Statements - Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements

      On September 13, 2006, the SEC issued Staff Accounting Bulleting ("SAB")
No. 108, titled Financial Statements - Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements ("SAB 108"). SAB 108 is intended to provide guidance on how prior
year misstatements should be taken into consideration when quantifying
misstatements in the current year financial statements for the purpose of
determining whether the current year's financial statements are materially
misstated. The SEC indicates that both the "iron curtain" and "rollover"
approaches should be used in quantifying a current year misstatement for
purposes of determining its materiality. The "iron curtain" approach focuses on
how the current year's balance sheet would be affected in correcting a
misstatement without considering the year(s) in which the misstatement
originated. The "rollover" approach focuses on the amount of the misstatement
that originated in the current year's income statement. In SAB 108, the SEC
indicates that the registrant must quantify the impact of correcting all
misstatements, including both the carry-over and reversing effects of prior year
misstatements, on the current year financial statements.

      The guidance in SAB 108 is effective the first fiscal year ending after
November 15, 2006, though early application in an interim period is encouraged.
Energy Group does not expect SAB 108 to have any impact on the financial
condition, results of operations, or cash flows of Energy Group or its
subsidiaries.

Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans

      On September 29, 2006, the FASB issued Statement No. 158, titled
Employers' Accounting for Defined Benefit Pension and Other Postretirement
Plans, an Amendment of FASB Statements No. 87, 88, 106, and 132(R) ("SFAS 158").
SFAS 158 requires 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. Moreover, SFAS 158
requires an employer to measure the plan assets and plan obligations as of the
date of its statement of financial position


                                       31
<PAGE>

rather than as of a measurement date that is up to three months before the end
of its fiscal year. As a result of SFAS 158, reported financial information will
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. Pursuant to SFAS 87 and SFAS 106,
titled Employers' Accounting for Postretirement Benefits Other Than Pensions,
the resultant change in status of the liability or prepaid asset will be
recognized as a component of other comprehensive income ("OCI").

      Pursuant to SFAS 71 and under the policy of the PSC regarding pension and
OPEB costs, Central Hudson has historically recovered its net periodic pension
and OPEB costs through customer rates, with differences from rate allowances
deferred for future recovery from or return to customers as a regulatory asset
or regulatory liability. Consistent with this policy, changes in the funded
status will be recognized as such, rather than in OCI.

      SFAS 158 is effective for fiscal years ending after December 15, 2006,
which for Energy Group would be fiscal year ended December 31, 2006, with an
exception for the provision to change the measurement date, which is effective
for fiscal years ending after December 15, 2008.

      Energy Group is currently assessing the impact that the adoption of SFAS
158 will have on the financial condition, results of operations, or cash flows
of Energy Group or its subsidiaries.

Amendment of FASB Staff Position FAS 123(R)-1

      On October 10, 2006, the FASB FSP No. FAS 123(R)-5, titled Amending
Guidance for Accounting for Modifications of Instruments in Connection with
Equity Restructuring ("FSP FAS 123(R)-5"). FSP FAS 123(R)-5 addresses whether a
modification of an instrument in connection with an equity restructuring should
be considered a modification for purposes of applying FSP No. FAS 123(R)-1. It
stipulates that for instruments that were originally issued as employee
compensation and then modified solely to reflect an equity restructuring that
occurs when the holders are no longer employees, that there is no change in the
recognition or measurement of those instruments if (a) there is no increase in
fair value of the award and (b) all holders of the same class of instruments are
treated in the same manner.

      The guidance in FSP FAS 123(R)-5 is effective in the first reporting
period beginning after October 10, 2006. Early application is permitted in
periods for which financial statements have not been issued. The provisions of
FSP FAS 123(R)-5 do not currently apply to Energy Group or its subsidiaries.

Technical Corrections of FASB Statement No. 123(R)

      On October 20, 2006, the FASB issued FSP No. FAS 123(R)-6, titled
Technical Corrections of FASB Statement No. 123(R) ("FSP FAS 123(R)-6"). FSP FAS
123(R)-6


                                       32
<PAGE>

was issued to make several technical corrections to SFAS 123(R), to the
following Paragraphs as specified: A240(d)(1) to exempt non-public entities from
disclosing the aggregate intrinsic value of outstanding fully vested share
options; A102 of Illustration 4(b) to revise the computation of the minimum
compensation cost that must be recognized; A170 of Illustration 13(e) to
indicate that at the date the illustrative awards were no longer probable of
vesting, any previously recognized compensation cost should have been reversed;
E1 to change the definition of short-term inducement to exclude an offer to
settle an award.

      The guidance in FSP FAS 123(R)-6 is effective in the first reporting
period beginning after October 20, 2006. Early application is permitted in
periods for which financial statements have not yet been issued. Energy Group is
currently assessing the impact, if any, that the adoption of FSP FAS 123(R)-6
will have 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. The 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


                                       33
<PAGE>

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 shares of the 2004 grants were awarded to him in
2004. As of September 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 September 30, 2006, and
2005, was $397,000 and $121,000, respectively. Compensation expense related to
performance shares for the nine months ended September 30, 2006, was $816,000
and was not material for the same period in 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 September 30, 2006, is as follows:

                                       34
<PAGE>

                                                Weighted        Weighted
                                                Average          Average
                            Stock Option        Exercise        Remaining
                               Shares            Price        Life in Years
                            -------------     ------------    -------------
Outstanding at 12/31/05            73,300     $      46.18             5.99
       Granted                         --               --               --
       Exercised                   (7,800)    $      43.64
       Expired/Cancelled               --               --               --
                            -------------     ------------    -------------
Outstanding at 9/30/06             65,500     $      46.49             5.34
                            =============     ============    =============

Total Shares Outstanding      15,762,000
Potential Dilution               0.4%

      A total of 7,800 non-qualified stock options with exercise prices of
$31.94, $44.06, and $48.62 were exercised during the nine months ended September
30, 2006. Total intrinsic value of options exercised was not material.

      Compensation expense related to stock options recorded for the nine months
ended September 30, 2006, and 2005, was not material. The balance accrued at
September 30, 2006, for outstanding stock options was $213,000. The intrinsic
value of options outstanding was not material.

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

<TABLE>
<CAPTION>
                      Number of        Weighted Average       Number of            Number of
                       Options             Remaining           Options         Options Remaining
Exercise Price       Outstanding         Life in Years       Exercisable            to Vest
--------------       -----------         -------------       -----------       -----------------
<S> <C>                  <C>                 <C>                <C>
    $31.94                  320              3.25                  320                   --
    $44.06               29,480              4.25               29,480                   --
    $48.62               35,700              6.25               30,525                5,175
                         ------              ----               ------                -----
                         65,500              5.34               60,325                5,175
</TABLE>

      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

      Fuel, materials, and supplies 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


                                       35
<PAGE>

method. Inventory for Lyonsdale is valued using the weighted average inventory
method.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
                                                                   Energy Group
-------------------------------------------------------------------------------------------------
                                                    September 30,   December 31,    September 30,
                                                        2006            2005            2005
-------------------------------------------------------------------------------------------------
(In Thousands)
-------------------------------------------------------------------------------------------------
<S>                                                 <C>             <C>             <C>
Natural Gas                                         $     17,794    $     16,512    $     19,014
-------------------------------------------------------------------------------------------------

Petroleum Products and Propane                             4,139           4,138           4,276
-------------------------------------------------------------------------------------------------

Fuel Used In Electric Generation                             142              --              --
-------------------------------------------------------------------------------------------------

Materials and Supplies                                     8,455           7,700           7,899
-------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------
Total                                               $     30,530    $     28,350    $     31,189
-------------------------------------------------------------------------------------------------

<CAPTION>

-------------------------------------------------------------------------------------------------
                                                                  Central Hudson
-------------------------------------------------------------------------------------------------
                                                    September 30,   December 31,    September 30,
                                                        2006            2005            2005
-------------------------------------------------------------------------------------------------
(In Thousands)
-------------------------------------------------------------------------------------------------
<S>                                                 <C>             <C>             <C>
Natural Gas                                         $     17,794    $     16,512    $     19,014
-------------------------------------------------------------------------------------------------

Petroleum Products and Propane                               745             758             764
-------------------------------------------------------------------------------------------------

Materials and Supplies                                     6,502           6,141           6,326
-------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------
Total                                               $     25,041    $     23,411    $     26,104
-------------------------------------------------------------------------------------------------
</TABLE>

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 nine months ended
September 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.


                                       36
<PAGE>

<TABLE>
<CAPTION>
                                                   Quarter Ended September 30,
                                            Pension Benefits              OPEB
                                           -------------------     -------------------
                                             2006        2005       2006        2005
                                             (In Thousands)          (In Thousands)
                                           -------------------     -------------------
<S>                                        <C>         <C>         <C>         <C>
Service cost                               $ 1,985     $ 1,837     $   830     $   667

Interest cost                                5,577       5,489       2,005       1,900

Expected return on plan assets              (6,709)     (5,808)     (1,496)     (1,659)

Amortization of:
     Prior service cost                        542         535        (314)       (868)
     Transitional (asset) or obligation         --          --         641         641

Recognized actuarial (gain) or loss          3,240       3,331       1,077       1,775
                                           -------     -------     -------     -------

Net periodic benefit cost                  $ 4,635     $ 5,384     $ 2,743     $ 2,456
                                           =======     =======     =======     =======

<CAPTION>

                                                  Nine Months Ended September 30,
                                            Pension Benefits              OPEB
                                           -------------------     -------------------
                                             2006        2005       2006        2005
                                             (In Thousands)          (In Thousands)
                                           -------------------     -------------------
<S>                                        <C>         <C>         <C>         <C>
Service cost                               $ 5,955     $ 5,511     $ 2,492     $ 2,602

Interest cost                               16,730      16,466       6,015       6,691

Expected return on plan assets             (20,127)    (17,425)     (4,489)     (4,216)

Amortization of:
     Prior service cost                      1,625       1,606        (942)       (942)
     Transitional (asset) or obligation         --          --       1,924       1,924

Recognized actuarial (gain) or loss          9,721       9,994       3,230       5,114
                                           -------     -------     -------     -------

Net periodic benefit cost                  $13,904     $16,152     $ 8,230     $11,173
                                           =======     =======     =======     =======
</TABLE>

      Decisions to fund Central Hudson's pension plan (the "Retirement Plan")
are based on several factors including the value of plan assets relative to plan
liabilities, legislative requirements, and available corporate resources. The
liabilities are affected by the discount rate used to determine benefit
obligations. Central Hudson is currently reviewing the provisions of the Pension
Act to determine funding requirements for the near-term and future periods.

      Employer contributions for OPEB totaled $3.3 million during the nine
months ended September 30, 2006. The total contribution to be made in 2006 is
expected to be


                                       37
<PAGE>

less than the 2005 amount of $6.1 million due to a reduction in expected future
medical claims as a result of recent favorable claims experience.

      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.

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 ("Neversink") 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


                                       38
<PAGE>

comments. On October 3, 2006, Neversink was transferred to the City of New York
("the City"). Prior to this transfer and pursuant to the agreement between
Central Hudson and the City for the conveyance of the Neversink, both Central
Hudson and the City certified an application to the DEC for the transfer of the
draft permit and its associated application to the City effective October 3,
2006. For additional details concerning this matter, see the caption "Neversink
Hydro Station" of this Note 11.

      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
MGP sites were identified by Central Hudson but not placed on the Registry by
the DEC. Three of the eight sites identified are in Poughkeepsie, New York (at
Laurel Street, North Water Street, and North Perry Street); the remaining five
sites are in Newburgh, Beacon, Saugerties, Kingston, and Catskill, New York.
Central Hudson studied all eight sites to determine whether or not they contain
any hazardous wastes which could pose a threat to the environment or public
health and, if wastes were located at the sites, to determine whether or not
remedial actions should be considered. The DEC subsequently removed the six
sites it had previously placed on the Registry, subject to future revisions of
its testing methods. 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.


                                       39
<PAGE>

      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 MGP site in Newburgh,
New York, the City of Newburgh's adjacent and nearby property, and the adjoining
areas of the Hudson River ("the site"). 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 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.


                                       40
<PAGE>

      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 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. In September
2006, a contract was awarded to Earthtech for the design and construction of the
remedy of a portion of the site. The value of the contract is up to $2.8
million. Earthtech's design for the remedy on a portion of the site was
submitted to the DEC on October 20, 2006.

      As of September 30, 2006, approximately $12.7 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 September 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. Provisions of the 2006 Order confirm that Central Hudson is permitted
to continue to defer these costs.

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

      Other MGP Sites: Central Hudson conducted site assessments of the
Poughkeepsie Laurel Street, North Water Street, and Beacon sites under Voluntary
Cleanup Agreements negotiated in 2000 with the DEC to determine if there are any
significant quantities of residues from the MGP operations on the sites and
whether any such residues would require remediation. In March 2002, the DEC
informed Central Hudson that both it and the DOH had approved Central Hudson's
Supplemental


                                       41
<PAGE>

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 filed the results with the DEC on September
8, 2006.

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


                                       42
<PAGE>

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 has
determined that contaminated soil must be removed from the adjacent property and
has filed a plan with the DEC for doing so. No estimate of the cost for removing
the contaminated soil at Beacon is available pending DEC approval of the cleanup
plan and obtaining bids from qualified vendors for performing the cleanup.

      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 has been executed by the DEC. As
required under the Agreement, Central Hudson has filed a draft Preliminary Site
Assessment ("PSA") plan with the DEC for its review and approval. Subject to
such approval, Central Hudson anticipates performing the PSA for the Catskill
site in 2007. 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 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


                                       43
<PAGE>

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 $3.5 million in current
liabilities and $13.5 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. Liabilities for MGP site remediation are generally recorded after
entering into an Order on Consent and a ROD with the DEC which specifies the
nature and estimated cost at such time the liability becomes probable and
estimatable.

      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 nine months ended September 30, 2006, Central Hudson spent
approximately $0.3 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 2006 Order, 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 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
were reported. In July and August 2006, Central Hudson, with DEC approval,
installed three additional deep groundwater wells. The wells were sampled in
September 2006 and showed that DEC criteria are still being exceeded in several
wells. A report on the results of the September sampling


                                       44
<PAGE>

event has been submitted to the DEC. The wells will be sampled again in 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 indicated that lead and polychlorinated
biphenyls (or "PCBs") are present at the site, and the EPA subsequently
commenced a remedial investigation and feasibility study at the site. 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 September 30, 2006, of the 3,285 cases brought against Central
Hudson, 1,161 remain pending. Of the cases no longer pending against Central
Hudson, 1,974 have been dismissed or discontinued without payment by Central
Hudson, and Central Hudson has settled 150 cases. Central Hudson is presently
unable to assess the validity of the remaining asbestos lawsuits; accordingly,
it cannot determine the ultimate liability relating to these cases. Based on
information known to Central Hudson at this time, including Central Hudson's
experience in settling asbestos cases and in obtaining dismissals of asbestos
cases, Central Hudson believes that the costs which may be


                                       45
<PAGE>

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, results of operations, or cash flows.

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, $31,000 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 $305,000
on remediation efforts in Maryland, Virginia, and Connecticut in 2006. Griffith
is to be reimbursed $422,000 from the State of Connecticut under an
environmental agreement and has recorded this amount as a receivable.

      Griffith updated the remediation assessments for its environmental sites.
Based upon the results of these assessments, Griffith reduced its environmental
reserve by $865,000 in September 2006. The reserve is $1.9 million as of
September 30, 2006.

      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, 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.


                                       46
<PAGE>

Other Matters

Central Hudson:

      Central Hudson is involved in various other legal and administrative
proceedings incidental to its business which are in various stages. While these
matters collectively could 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,
results of operations, or cash flows.

      Neversink Hydro Station

      Central Hudson's ownership interest in Neversink was governed by an
agreement between Central Hudson and 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
specified 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 were issued by the Federal Energy Regulatory
Commission and the PSC, and the plant was conveyed to the City on October 3,
2006. Central Hudson retained responsibility for environmental liabilities
related to conditions existing as of the time of transfer except to the extent
any such liabilities relate to conditions resulting from acts of the City.
Central Hudson is not presently aware of any material pre-transfer environmental
liabilities with respect to Neversink.


                                       47
<PAGE>

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.

      Central Hudson contributed approximately 68% of Energy Group's revenue and
82% of its net income for the first nine months of 2006, the fuel distribution
segment contributed approximately 31% of Energy Group's revenue and 0% of its
net income for the first nine months of 2006, and the investment segment
contributed less than 1% of Energy Group's revenue and 18% of its net income for
the first nine 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

      Since the 2001 New York State electricity restructuring Central Hudson has
delivered 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's earnings are 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 customer accounts have grown steadily in recent years due
to home construction and in-migration of residential customers to Central
Hudson's service territory, principally from higher cost areas in the New York
City metropolitan area. Employment growth and commercial account growth has also
been steady. Over time, 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.


                                       48
<PAGE>

      While these favorable trends are expected to continue in the long run,
customer consumption patterns since mid-2005 have been affected by significantly
higher prices for electricity and natural gas. This impact has been difficult to
quantify precisely due to large variations from normal weather patterns over the
same time period. It is also too soon to tell whether any customer conservation
in response to higher prices is temporary or permanent, and this will likely be
affected by the future trend in energy prices. Consumption patterns could also
be affected by an economic recession, dampening of the housing market by rising
interest rates, or other economic conditions.

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

      Central Hudson consistently ranks 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, the 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 its 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 directed 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


                                       49
<PAGE>

July 31, 2006. A copy of the 2006 Order is available on Energy Group's website
at www.CHEnergyGroup.com.

      The 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 the
benefit of customers. The 2006 Order 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 ROW
maintenance expenses, and stray voltage testing expenses. In addition, Central
Hudson is allowed to recover the expenses associated with the remediation of its
MGP sites. 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.

      On August 30, 2006, Central Hudson filed for rehearing on one element of
the 2006 Order. The filing asserts that the PSC failed to update Central
Hudson's allowed ROE using the Generic Finance Case Methodology. Central Hudson
requested that a rehearing be conducted to revise its allowed ROE from 9.6% to
9.9%. Neither Energy Group nor Central Hudson can predict the final outcome of
this petition.

      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 anticipated 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 infusions of working capital into Griffith and
have resulted in increased price sensitivity and conservation by Griffith's
customers. Customer attrition due to price sensitivity increased through 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. Griffith's earnings for the first nine
months of 2006 were down $0.05 per share, as compared to the same period in
2005. This was due to warmer weather in 2006 and greater operating expenses
primarily related to new acquisitions, partially offset by favorable adjustments
to environmental reserves and increased service contract revenue. Since 2001,
Griffith has acquired and integrated 26 small fuel distribution


                                       50
<PAGE>

businesses, including eight from January through October 2006 for an aggregate
purchase price of $3.4 million. 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, respectively. CHEC continues to
seek to invest Energy Group's available cash reserves and to utilize Energy
Group's potential debt capacity through appropriate investments in the energy
markets. CHEC's approach has been cautious, due both to Energy Group's limited
risk tolerance and to strong competition from other investors. Passage of the
2005 Energy Policy Act has increased incentives to invest in certain portions of
the energy markets, and certain state and federal legislative actions have
increased demand for renewable energy. CHEC is evaluating these opportunities
but remains cautious about undue reliance on government incentives. CHEC's
ability to find investments that provide attractive returns with acceptable
risks will be a key factor in determining whether Energy Group is able to
achieve its 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.


                                       51
<PAGE>

Corporate Governance

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

Credit Quality

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

Overview of Third Quarter Results

      Changes in regulatory provisions under Central Hudson's new rate agreement
(i.e. the 2006 Order) and a number of significant one-time and unusual favorable
items caused Energy Group's earnings to increase to $0.70 per share in the third
quarter of 2006 as compared to $0.36 per share during the same quarter of 2005.

      The implementation of a rate increase this quarter allows Central Hudson
to better cover its expenses. This quarter also benefited by a total of $0.28
per share from a number of significant one-time and unusual favorable items
recognized in the third quarter, including tax adjustments, modifications to
reserves, and the sale of property - while last year's third quarter earnings
were depressed by earnings deferrals under Central Hudson's prior rate
agreement. This further amplified the year-to-year change.

      Year-to-date earnings stand at $2.12 per share as compared to $2.07 per
share for the nine months ended September 30, 2005.

Regulated Electric and Natural Gas Businesses

      Central Hudson earned $0.67 per share in the third quarter of 2006 as
compared to $0.42 per share during the same period of 2005, an increase of $0.25
per share quarter-over-quarter. Certain items totaling $0.20 per share favorably
influenced the results, including adjustments to regulatory mechanisms resulting
from the 2006 Order and the sale of real property. Comparatively cooler summer
weather decreased earnings by approximately $0.08 per share during the quarter.


                                       52
<PAGE>

Fuel Distribution Business

      Results within the fuel distribution business were stable, at a loss of
$0.15 per share during the quarter, which was the same amount posted during the
third quarter of 2005 and which is typical during the non-heating season. Gross
profit on petroleum products was level as compared to the same quarter of 2005.
Increased service profitability and a reduction of environmental reserves offset
increased operating expenses that resulted largely from acquisitions, which are
expected to increase revenues during the upcoming heating season. The reduction
of environmental reserves was due to improvements in environmental clean-up
technology and updated estimates of remediation costs.

Other Businesses

      CHEC's investment in Lyonsdale on April 12, 2006, had a net positive
impact of $0.02 per share in the third quarter. In total, Other Income for
Energy Group (the holding company) and interests held by CHEC increased by
nearly $0.07 per share as compared to the third quarter of 2005. The reversal of
a reserve for certain operating and income tax contingent liabilities increased
income from investments in Cornhusker Holdings, and a reduction in business
development expenses contributed to that increase, though results were partially
dampened by the recording of unfavorable income tax adjustments by Energy Group
(the holding company).

REGULATORY MATTERS

      For further information regarding the 2006 Order, see Note 3 - "Regulatory
Matters."

NON-UTILITY LAND SALES

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


                                       53
<PAGE>

CAPITAL RESOURCES AND LIQUIDITY

      The growth of Energy Group's retained earnings in the nine months ended
September 30, 2006, contributed to the increase in the book value per share of
its Common Stock from $31.97 at December 31, 2005, to $32.47 at September 30,
2006; the common equity ratio increased from 56.0% at December 31, 2005, to
56.4% at September 30, 2006. Book value per share at September 30, 2005, was
$31.78 and the common equity ratio was 56.6%.

      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 the operations of its subsidiaries, subsidiary capital
expenditures and investments, the external financing of its subsidiaries, and
the dividends Energy Group pays to its shareholders.

      Central Hudson's cash flows from operating activities reflect principally
its energy deliveries and costs of operations. The volume of energy 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.

      Central Hudson's cash flows are also affected by capital expenditures,
permanent financing for its growing asset base, fluctuations in working capital
caused by weather and energy prices, and 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 nine months ended
September 30, 2006, and 2005, are summarized in the following chart:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
                                                    Nine Months     Nine 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                                $      72.8     $      34.7     $      38.1
------------------------------------------------------------------------------------------------
Investing Activities                                      (64.4)          (60.5)           (3.9)
------------------------------------------------------------------------------------------------
Financing Activities                                      (25.6)            6.4           (32.0)
------------------------------------------------------------------------------------------------
Net change for the period                                 (17.2)          (19.4)            2.2
------------------------------------------------------------------------------------------------
Balance at beginning of period                             49.4            70.4           (21.0)
------------------------------------------------------------------------------------------------
Balance at end of period                            $      32.2     $      51.0     $     (18.8)
------------------------------------------------------------------------------------------------
</TABLE>


                                       54
<PAGE>

      Energy Group's net cash flows provided by operating activities of $72.8
million during the nine months ended September 30, 2006, were $38.1 million
higher as compared to the nine months ended September 30, 2005. Increased cash
flows reflect the collection of cash and a decrease in accounts receivable
primarily due to reduced billings to Central Hudson customers as a result of
lower wholesale costs for purchased electricity, cooler summer weather as
compared to last year, and seasonally lower billings to Griffith customers. The
increase in cash flows was slightly offset by decreases in accounts payable
primarily as a result of lower wholesale costs for purchased electricity for
Central Hudson and lower volumes of petroleum products purchased by Griffith.

      Net cash flows used in investing activities were $3.9 million higher
during the nine months ended September 30, 2006, as compared to the same period
in 2005. The purchase of a majority interest in Lyonsdale and minor acquisitions
by Griffith increased expenditures in 2006. Partially offsetting the higher
expenditures were repayments made to CHEC for notes outstanding, proceeds from
sales of real property, 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
concluded that it is appropriate to classify these securities on the
Consolidated Balance Sheet for Energy Group as short-term investments -
available-for-sale securities. As a result of this revision in classification,
Energy Group has also made corresponding adjustments to its Consolidated
Statement of Cash Flows for all periods presented to reflect the gross purchases
and liquidation of these available-for-sale securities as investing activities
rather than as a component of cash and cash equivalents. This revision in
classification has no impact on previously reported total current assets, total
assets, working capital position, results of operations, or financial covenants
and does not affect previously reported cash flows from operating or financing
activities. The Consolidated Financial Statements of Central Hudson were not
affected by this revision in classification. For more information relating to
Energy Group's short-term investments, see Note 5 - "Short-Term Investments."

      Net cash flows from financing activities were $32.0 million lower for the
nine months ended September 30, 2006, as compared to the same period in 2005.
The resulting decrease in cash flows used was primarily driven by proceeds of
net borrowings of short-term debt by Central Hudson during the first nine months
of 2005 as compared to the same period in 2006.

Central Hudson - Cash Flow Summary

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


                                       55
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                                     Nine Months       Nine 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                                $        55.3     $        23.5     $        31.8
------------------------------------------------------------------------------------------------------
Investing Activities                                        (47.5)            (43.7)             (3.8)
------------------------------------------------------------------------------------------------------
Financing Activities                                         (9.2)             14.3             (23.5)
------------------------------------------------------------------------------------------------------
Net change for the period                                    (1.4)             (5.9)              4.5
------------------------------------------------------------------------------------------------------
Balance at beginning of period                                4.2               8.2              (4.0)
------------------------------------------------------------------------------------------------------
Balance at end of period                            $         2.8     $         2.3     $         0.5
------------------------------------------------------------------------------------------------------
</TABLE>

      Central Hudson's net cash flows provided by operating activities in the
nine months ended September 30, 2006, were $31.8 million higher as compared to
the nine months ended September 30, 2005. The increase in operating cash flows
reflects a decrease in accounts receivable primarily due to a decrease in
wholesale costs for purchased electricity and lower electricity purchases as a
result of cooler summer weather as compared to last year. The increase in cash
flows was slightly offset by the use of cash related to a new requirement to
make prepayments for electricity supply to the New York Independent System
Operator ("NYISO").

      Central Hudson's net cash flows related to investing activities of $47.5
million in the nine months ended September 30, 2006, reflect a decrease of $3.8
million as compared to the nine months ended September 30, 2005. The net
decrease was comprised primarily of increased construction and removal
expenditures, offset slightly by proceeds from non-utility real property sales.

      Net cash flows used for financing activities were $23.5 million higher for
the nine months ended September 30, 2006, as compared to the same period in
2005. The net increase in cash used was primarily driven by the lower amount of
net borrowings of short-term debt as compared to the same period in 2005, offset
slightly by lower dividends paid to Energy Group in 2006.

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.

      Central Hudson's actuarial consultant is currently reviewing the Pension
Act to project the funding requirements for the Retirement Plan. These
projections are expected to be available by year-end 2006.

      Employer contributions for OPEB totaled $3.3 million during the nine
months ended September 30, 2006. The total contribution to be made in 2006 is
expected to be less than the 2005 amount of $6.1 million due to a reduction in
expected future medical claims as a result of recent favorable claims
experience.


                                       56
<PAGE>

Financing Program

      At September 30, 2006, Energy Group, on a consolidated basis, had current
maturities of $33 million of long-term debt, $30 million of short-term debt
outstanding, cash and cash equivalents of $32.2 million, and short-term
investments of $40.3 million.

      Energy Group, the holding company, has a $75 million revolving credit
agreement with several commercial banks which, as of September 30, 2006, had no
outstanding balance.

      As of September 30, 2006, Central Hudson had current maturities of $33
million of long-term debt, short-term debt outstanding of $30 million, and cash
and cash equivalents of $2.8 million. The short-term debt outstanding is from
the use of uncommitted credit lines. Central Hudson has a $75 million revolving
credit agreement with a group of commercial banks which, as of September 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 under the corresponding registration statements 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. This petition requested
authorization to increase committed multi-year short-term borrowing capacity to
$125 million from the current authorization for $75 million. Additionally, this
petition requested 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 finance the redemption of maturing notes. On September 21,
2006, the PSC issued an Order approving Central Hudson's financing petition.
Central Hudson is evaluating its options for establishing a financing program
under the terms of the Order.

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

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


                                       57
<PAGE>

      CHEC has a $15.0 million line of credit with a commercial bank which, as
of September 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 nine months ended
September 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 third
quarter of 2006 were $0.70 per share as compared to $0.36 per share for the
third quarter of 2005, an increase of $0.34 per share. Details of the change in
earnings are as follows:

Three Months Ended September 30, 2006

Regulated Electric and Natural Gas Businesses

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

      o     An increase of $0.12 per share from electric and natural gas
            regulatory mechanisms due to 1) an increase of $0.07 per share
            related to reduced amounts recorded for PSC assessments for service
            interruptions and 2) $0.06 per share resulting from a reduction in
            shared earnings from electric operations - i.e., no shared earnings
            were recorded in the third quarter this year as compared to $0.06
            per share last year. The increase in earnings was partially offset
            by a $0.01 per share reduction related to annual reconciling
            adjustments for Central Hudson's natural gas supply charge.

      o     An increase of $0.07 per share from gains realized on the sale of
            real property.

      o     An increase of $0.06 per share from an increase in electric net
            operating revenues resulting primarily from the implementation of
            the 2006 Order for electric rates. This increase was the net result
            of $0.11 per share from the rate increase and a reduction of $0.05
            per share from lower electric deliveries. The reduction in
            deliveries was due to 23% fewer cooling o


                                       58
<PAGE>

            degree days compared to the third quarter of 2005, which negatively
            impacted earnings by $0.08 per share.

      o     An increase of $0.04 per share due to an increase in natural gas net
            operating revenues resulting primarily from the implementation of
            the 2006 Order for natural gas rates. Despite modest customer
            growth, billed deliveries to firm natural gas customers decreased
            3%, which had a negligible impact on earnings.

      o     A decrease of $0.03 per share due to an increase in interest charges
            on long and short-term debt. Interest costs on long-term debt
            increased due to the issuance of medium-term notes in December 2005
            and increased interest costs on variable rate debt, which was
            partially offset by favorable regulatory adjustments for the change
            in interest costs on these variable rate obligations. Additional
            short-term debt was required during the early portion of the third
            quarter of 2006 for working capital needs.

      o     A decrease of $0.01 per share due to the net effect of various other
            items including an increase in use taxes and a reduction in
            regulatory carrying charges due from customers related to pension
            costs, which were partially offset by a decrease in depreciation and
            amortization on utility plant assets.

      o     Operating expenses were flat. Earnings increased $0.08 per share
            resulting from the reduction of reserves for injuries and damages
            and environmental obligations for MGP sites. Expenses related to MGP
            sites will be recovered pursuant to the provisions of the 2006 Order
            for electric and natural gas rates. The increase in earnings was
            offset by increases in tree trimming expenses, storm expenses, and
            other operation and maintenance expenses.

Fuel Distribution Business

      Earnings from the fuel distribution business remained unchanged reflecting
the following:

      o     An increase of $0.03 per share due to an adjustment of environmental
            reserves resulting from improved remediation technology.

      o     An increase of $0.02 per share due to an increase in service
            profitability resulting primarily from an increase in service
            contract revenue.

      o     Gross margin from the sale of petroleum products was flat. Increases
            in margins per gallon in most product categories and higher volumes
            were offset by recorded losses on options used for hedging purposes.


                                       59
<PAGE>

      o     A decrease of $0.05 per share due to an increase in operating
            expenses. The increase in operating expenses is due to an increase
            in expenses associated with acquisitions made in the fourth quarter
            of 2005 and in the first nine months of 2006, which negatively
            impacted earnings by $0.03 per share, and an increase in general and
            administrative expenses.

Other Businesses

      Earnings for Energy Group, the holding company, and CHEC's interests in
partnerships and other investments increased $0.09 per share due to the
following:

      o     An increase of $0.07 per share due to the reversal of reserves for
            certain operating and income tax contingent liabilities related to
            CH Resources.

      o     An increase of $0.03 per share due to an increase in income from
            CHEC's investment interest in Cornhusker Holdings. This plant was
            under construction during the third quarter of 2005.

      o     An increase of $0.02 per share due to income from CHEC's 75%
            interest in the Lyonsdale plant. The Lyonsdale ownership stake was
            acquired in April 2006.

      o     A decrease of $0.03 per share due to the net effect of various other
            items including unfavorable New York State income tax adjustments
            related primarily to the 2005 tax year and audited tax years 2002
            through 2004, partially offset by a reduction in business
            development costs.

Nine Months Ended September 30, 2006

      Energy Group's consolidated earnings per share (basic) for the nine months
ended September 30, 2006, and 2005, reflect earnings per share (basic) of $2.12
and $2.07, respectively, an increase in earnings of $0.05 per share. Details of
the nine-month changes in earnings are as follows:

Regulated Electric and Natural Gas Businesses

      Earnings per share for Central Hudson's electric and natural gas
operations remained unchanged due to the following:

      o     An increase of $0.21 per share from electric and natural gas
            regulatory mechanisms including $0.15 per share from a decrease in
            electric shared earnings resulting from lower operating income for
            the rate year ended June 30, 2006, $0.07 per share related to
            reduced amounts recorded for PSC assessments for service
            interruptions, and a favorable reconciling adjustment of $0.03 per
            share related to Central Hudson's natural gas supply charge. These
            increases were partially offset by the absence in the


                                       60
<PAGE>

            current period of $0.04 per share related to a billing issue
            resolved by the NYISO in June 2005.

      o     An increase of $0.07 per share resulting from gains on the sale of
            real property in the third quarter of 2006.

      o     An increase of $0.02 per share from electric net operating revenues.
            This increase is the net result of $0.12 per share from the rate
            increase and a reduction of $0.10 per share from lower electric
            deliveries due to weather, net of the effect of weather-hedging
            contacts. The reduction in deliveries was due to 22% fewer cooling
            degree-days compared to the nine months ended September 30, 2005,
            which negatively impacted earnings by $0.11 per share, net of the
            effect of weather-hedging contracts.

      o     A decrease of $0.19 per share due to an increase in various
            operating expenses. This figure is net of $0.12 per share from the
            recording of electric revenues to restore earnings to the allowed
            rate of return in accordance with the provisions of the previous
            rate agreement. Expenses that increased included line clearance work
            ($0.09 per share), storm restoration efforts ($0.08 per share),
            other electric transmission and distribution maintenance expenses
            ($0.03 per share), electric transmission line inspection ($0.03 per
            share), uncollectible accounts ($0.02 per share), and other expenses
            (totaling $0.06 per share).

      o     A decrease of $0.07 per share due to an increase in interest charges
            on long and short-term debt. Interest costs on long-term debt
            increased due primarily to the issuance of medium-term notes in
            December 2005. Additional short-term debt, on average, was required
            for working capital needs.

      o     A decrease of $0.05 per share from natural gas net operating
            revenues. Natural gas deliveries lowered earnings by approximately
            $0.11 per share of which $0.09 per share was due to weather. The
            reduction in deliveries reflects an 8% decrease in heating
            degree-days. This decrease was partially offset by a $0.06 per share
            increase in earnings largely related to the implementation of the
            2006 Order for natural gas rates.

      o     An increase of $0.01 per share due to the net effect of various
            other items including a decrease in depreciation and amortization of
            utility plant assets, a decrease in income taxes, an increase in
            payroll and use taxes, and an increase in regulatory carrying
            charges due to customers.


                                       61
<PAGE>

Fuel Distribution Business

      Earnings from the fuel distribution business decreased $0.05 per share due
to the following:

      o     A decrease of $0.10 per share due to greater operating expenses
            including $0.10 per share related to acquisitions made in the fourth
            quarter of 2005 and the first nine months of 2006, as well as
            increases in marketing and other general and administrative
            expenses. The increase in operating expenses was partially offset by
            adjustments to environmental reserves, which favorably impacted
            earnings by $0.04 per share.

      o     An increase of $0.05 per share due to an increase in service
            contract revenue of $0.07 per share. This was partially offset by a
            decrease in gross margins from the sale of petroleum products of
            $0.02 per share resulting from a decrease in volumes sold due to
            warmer weather. Heating degree days, as adjusted for billing lags,
            were 15% lower than last year.

Other Businesses

      Earnings for Energy Group (the holding company) and CHEC's interests in
partnerships and other investments increased $0.10 per share due to the
following:

      o     An increase of $0.07 per share due to the reversal of reserves for
            certain operating and income tax contingent liabilities related to
            CH Resources.

      o     An increase of $0.07 per share due to an increase in income from
            CHEC's investment interest in Cornhusker Holdings.

      o     An increase of $0.02 per share due to income from CHEC's 75%
            interest in the Lyonsdale plant. The Lyonsdale ownership stake was
            acquired in April 2006.

      o     A net decrease of $0.06 per share related to Energy Group (the
            holding company) due primarily to the absence of favorable income
            tax adjustments recorded in the second quarter of 2005 related to
            the completion of a tax audit for 2001. This decrease was partially
            offset by a gain realized from the sale of real property held by
            Energy Group and a reduction in business development costs and
            injuries and damages expense.

RESULTS OF OPERATIONS

      The following discussion and analyses include explanations of significant
changes in revenues and expenses between the three and nine months ended


                                       62
<PAGE>

September 30, 2006, and the three and nine months ended September 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 $11.9 million, or
5.2%, for the three months ended September 30, 2006, as compared to the same
period in 2005. Revenues increased $67.4 million, or 9.6%, for the comparative
nine-month periods. Details of these revenue changes are presented in the
following charts and related discussions concerning the variances.


                                       63
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                                                         2006/2005 INCREASE (DECREASE)
(Thousands of Dollars)                                THREE MONTHS ENDED SEPTEMBER 30, 2006
--------------------------------------------------------------------------------------------------------------
                                                                            Fuel
                                          Electric       Natural Gas    Distribution      Other        Total
--------------------------------------------------------------------------------------------------------------
<S>                                       <C>              <C>             <C>           <C>          <C>
Customer Deliveries                       $    8,827 (a)   $1,183 (b)      $10,258 (c)   $  (76)      $20,192
--------------------------------------------------------------------------------------------------------------
Sales to Other Utilities                       (218)        4,056               --           --         3,838
--------------------------------------------------------------------------------------------------------------
Energy Cost Adjustment(d)                   (16,742)         (654)              --           --       (17,396)
--------------------------------------------------------------------------------------------------------------
Deferred Revenues(e)                          3,242          (299)              --           --         2,943
--------------------------------------------------------------------------------------------------------------
Lyonsdale Sales                                  --            --               --        2,339         2,339
--------------------------------------------------------------------------------------------------------------
Miscellaneous                                    25           (17)              --           --             8
--------------------------------------------------------------------------------------------------------------
       Total                              $  (4,866)       $4,269          $10,258       $2,263       $11,924
--------------------------------------------------------------------------------------------------------------

<CAPTION>

--------------------------------------------------------------------------------------------------------------
                                                          2006/2005 INCREASE (DECREASE)
(Thousands of Dollars)                                 NINE MONTHS ENDED SEPTEMBER 30, 2006
--------------------------------------------------------------------------------------------------------------
                                                                            Fuel
                                          Electric       Natural Gas    Distribution      Other        Total
--------------------------------------------------------------------------------------------------------------
<S>                                       <C>             <C>              <C>           <C>        <C>
Customer Deliveries                       $   6,009 (a)   $(1,855) (b)     $40,963 (c)   $  136     $  45,253
--------------------------------------------------------------------------------------------------------------
Sales to Other Utilities                       (589)       13,059              --            --        12,470
--------------------------------------------------------------------------------------------------------------
Energy Cost Adjustment(d)                   (10,180)        5,538              --            --        (4,642)
--------------------------------------------------------------------------------------------------------------
Deferred Revenues(e)                          8,821           158              --            --         8,979
--------------------------------------------------------------------------------------------------------------
Lyonsdale Sales                                  --            --              --         3,492         3,492
--------------------------------------------------------------------------------------------------------------
Miscellaneous                                 1,773            64              --            --         1,837
--------------------------------------------------------------------------------------------------------------
       Total                              $   5,834       $16,964          $40,963       $3,628     $  67,389
--------------------------------------------------------------------------------------------------------------
</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 ceased 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 rate
      agreements with the PSC (described in Note 2 - "Regulatory Matters" to the
      Consolidated Financial Statements of the Corporations' 10-K Annual
      Report).

Regulated Electric and Natural Gas Businesses

      For the three months ended September 30, 2006, utility electric and
natural gas operating revenues decreased slightly from $173.7 million in 2005 to
$173.1 million in 2006. Electric revenues decreased $4.9 million, or 3.0%, and
natural gas revenues increased $4.3 million or 30.2%. The $16.7 million decrease
in electric energy cost adjustment revenues is due to cooler weather and a
decrease in wholesale costs. This decrease was largely offset by an increase of
$8.8 million in revenues largely resulting from the implementation of the 2006
Order for electric rates effective July 1, 2006, and an increase of $3.4 million
in revenues related to the resetting of regulatory mechanisms for service
interruptions and shared earnings. No shared earnings were recorded in the third
quarter of 2006. Natural gas revenues reflect an increase of $4.1


                                       64
<PAGE>

million in revenues from sales of natural gas to retail marketers and for
electric generation. These sales for resale revenues do not impact earnings
since any related profits or losses are returned or charged, respectively, to
customers. The balance of the increase is due to an increase in delivery
revenues resulting from the implementation of the 2006 Order, partially offset
by a decrease in revenues related to the recovery of natural gas supply costs.

      For the nine months ended September 30, 2006, utility electric and natural
gas operating revenues increased $22.8 million, or 4.5%, from $501.6 million in
2005 to $524.4 million in 2006. Electric revenues increased $5.8 million, or
1.5%, from $392.9 million in 2005 to $398.7 million in 2006 and natural gas
operating revenues increased $17.0 million, or 15.6%, from $108.7 million in
2005 to $125.7 million in 2006. The change in revenues includes an increase in
revenues from natural gas sales for resale of $13.1 million due to an increase
in the wholesale cost of natural gas and an increase in sales for electric
generation and to retail marketers. In addition, electricity delivery revenues
increased $6.0 million, largely due to the 2006 Order for electric rates, and
electric deferred revenues increased $8.8 million primarily due to the resetting
of regulatory mechanisms for service interruptions and shared earnings.

Fuel Distribution Business

      For the three months ended September 30, 2006, fuel oil distribution
revenues increased $10.3 million, or 19.1%, from $54.0 million in 2005 to $64.3
million in 2006 due to a significant increase in the price of petroleum
products. Revenues from petroleum products increased $9.3 million, or 19.0%,
from $49.0 million in 2005 to $58.3 million in 2006. Motor fuel revenues
increased $5.8 million, or 14.9%, from $39.0 million in 2005 to $44.8 million in
2006. Heating oil revenues also increased $3.5 million, or 38.5%, from $9.1
million in 2005 to $12.6 million in 2006. Other revenues related to service and
installations and energy services increased $1.0 million.

      For the nine months ended September 30, 2006, fuel oil distribution
revenues increased $40.9 million, or 20.3%, from $201.4 million in 2005 to
$242.3 million in 2006. Revenues from petroleum products increased $38.0
million, or 20.3%, from $187.3 million in 2005 to $225.3 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 $28.3 million, or 29%, while heating oil revenues increased
$9.0 million, or 10.4%. Other revenues related to the sale of petroleum products
increased $0.7 million, while other revenues related to energy service and
service and installations increased $2.9 million.

SALES VOLUMES

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


                                       65
<PAGE>

Regulated Electric and Natural Gas Businesses

          The following chart reflects the change in the level of electric and
natural gas deliveries (sales) for the quarter and nine months ended September
30, 2006, as compared to the same period for 2005. Deliveries of electricity and
natural gas to residential and commercial customers contribute the most to
Central Hudson's earnings. Industrial sales and interruptible sales have a
negligible impact on earnings.

<TABLE>
<CAPTION>
                                      INCREASE (DECREASE) FROM 2005     INCREASE (DECREASE) FROM 2005
                                      -----------------------------     ------------------------------
                                             3 MONTHS ENDED                     9 MONTHS ENDED
                                             ---------------                    --------------
                                            SEPTEMBER 30, 2006                SEPTEMBER 30, 2006
                                            ------------------                ------------------
                                     Electric          Natural Gas       Electric             Natural Gas
                                     --------          -----------       --------             -----------
<S>                                    <C>                   <C>           <C>                   <C>
Residential..................          (4)%                  (11)%         (5)%                  (12)%
Commercial...................          (2)%                    4%          (3)%                  (10)%
Industrial...................          (3)%                  (17)%         (2)%                  (25)%
Other(a).....................           1%                   (78)%          1%                   (12)%
                                        --                   -----          --                   -----
                       Total           (3)%                   (3)%         (4)%                  (12)%
</TABLE>

(a)   Includes interruptible natural gas deliveries.

      Third quarter 2006 electric deliveries to residential and commercial
customers decreased due mostly to weather, which was partially offset by modest
customer growth. Residential cooling degree-days decreased 23% over the prior
year but were 19% higher than normal.

      Natural gas deliveries to residential customers decreased due to lower
usage, which was partially offset by modest customer growth. Commercial
deliveries increased due to both customer growth and increased usage. Natural
gas sales in the third quarter, which is a non-heating season, represent only 8%
of annual natural gas sales.

      For the nine months ended September 30, 2006, deliveries of electricity to
residential and commercial customers decreased as a result of less usage due to
cooler weather and some conservation in the first five months of the year and
cooler weather in June, August, and September. The decrease in deliveries was
partially offset by some customer growth. As compared to the same period in
2005, residential heating degree-days decreased 7% and cooling degree-days
decreased 22%.

      Deliveries of natural gas to firm Central Hudson customers for the nine
months ended September 30, 2006, decreased due to warm weather and conservation
in the first five months of the year, as evidenced by an 8% decrease in
residential heating degree-days for this period. Industrial deliveries decreased
due to the loss of several customers.


                                       66
<PAGE>

Fuel Distribution Business

      For the three months ended September 30, 2006, sales of petroleum products
for the fuel distribution business increased 2.0 million gallons, or 8.5%, to
24.9 million gallons in the third quarter of 2006 from 22.9 million gallons in
the third quarter of 2005. Sales of heating oil to residential customers
increased 1.2 million gallons, or 29.4%, from 4.2 million gallons in 2005 to 5.4
million in 2006. The increase resulted from a 20% increase in sales from
acquisitions made in the fourth quarter of 2005 and the second and third
quarters of 2006. Motor fuel sales increased 0.7 million gallons, or 3.9%, from
18.4 million gallons in 2005 to 19.1 million gallons in 2006 while sales of
propane remained relatively flat at 0.3 million gallons in 2005 and 2006. Motor
fuel sales increased primarily from the gain of one large volume customer and
acquisitions in 2005 and in the second quarter of 2006.

      For the nine months ended September 30, 2006, sales of petroleum products
decreased 1.1 million gallons, or 1.0%, from 99.1 million gallons in 2005 to 98
million gallons in 2006. This was due to a decrease of 3.7 million gallons, or
8.2%, in sales of heating oil from 44.7 million gallons in 2005 to 41 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 15%
decrease in heating degree-days, adjusted for billing lags. Nearly one-half of
the decrease in volume was offset by an increase in sales from acquisitions made
in the fourth quarter of 2005 and in 2006. Motor fuel sales increased 2.9
million gallons, or 5.5%, from 52.6 million gallons in 2005 to 55.5 million
gallons in 2006, 80% of the increase was due to acquisitions made in 2005 and
2006, while sales of propane decreased slightly from 1.8 million gallons in 2005
to 1.5 million gallons in 2006 due to warmer weather in 2006.

OPERATING EXPENSES

Regulated Electric and Natural Gas Businesses

      For the three months ended September 30, 2006, total utility operating
expenses decreased $6.7 million, or 4.2%, from $159.4 million in 2005 to $152.7
million in 2006. The reduction results from a $17.1 million decrease in
purchased electricity expense due to decreases in wholesale costs and volumes
purchased, the latter due primarily to cooler weather in 2006. This decrease was
partially offset by an increase in purchased natural gas expense of $3.4 million
and an increase of $7.1 million in other expenses of operation. Natural gas
expense increased due to an increase in volumes purchased, most of which was
sold for electric generation. The increase in other operating expenses is
largely due to an increase in the level of pension and OPEB costs recorded in
accordance with the implementation of the 2006 Order for electric and natural
gas rates. The overall increase in other operating expenses is also partially
offset by $1.8 million in gains realized on the sale of real property in the
third quarter of 2006.


                                       67
<PAGE>

      For the nine months ended September 30, 2006, operating expenses increased
by $21.3 million, or 4.8%, from $446.6 million in 2005 to $467.9 million in
2006. Purchased electricity costs decreased $11 million, or 4.3%, due primarily
to decreases in volumes purchased and wholesale costs. Purchased natural gas
costs increased $16.4 million, or 23%, primarily due to an increase in wholesale
costs, an increase in volumes purchased, mostly sold for electric generation,
and a change in amounts recorded related to the recovery of these costs via
Central Hudson's energy cost adjustment mechanisms, which were partially offset
by a decrease in natural gas delivery volumes. Other operating expenses
increased $15.9 million, or 13.1%, from $121.1 million in 2005 to $137.0 million
in 2006 due to an increase in storm restoration costs mostly from severe wind
storms in January and February 2006 and an increase in the level of pension and
OPEB costs, recorded in accordance with the 2006 Order. This increase was
partially offset by $1.8 million in gains realized on the sale of real property
in the third quarter of 2006.

Fuel Distribution Business

      For the three months ended September 30, 2006, operating expenses for
CHEC's fuel distribution business increased $10.2 million, or 18.1%, from $56.5
million in 2005 to $66.7 million in 2006. The cost of petroleum increased $9.4
million, or 21.8%, due to higher wholesale market prices and increased volumes.
Other operating expenses increased $0.8 million, or 6.1%, in 2006 largely due to
acquisitions made in the fourth quarter of 2005 and in 2006. Partially
offsetting the increase in other operating expenses was a favorable adjustment
to environmental reserves.

      For the nine months ended September 30, 2006, operating expenses increased
$41.9 million, or 21%, from $200.9 million in 2005 to $242.8 million in 2006.
The cost of petroleum products increased $38.5 million, or 25%, due to higher
wholesale market prices. Other operating expenses increased $3.4 million in 2006
primarily due to a $2.6 million increase resulting from expenses associated with
the acquisitions made in the fourth quarter of 2005 and in 2006. The balance of
$0.8 million reflects increases in marketing and other general and
administrative expenses.

Other Businesses

      Revenues and Operating Expenses

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

      The third quarter results for Lyonsdale resulted in a net income of $0.3
million which includes operating revenues of $2.3 million, operating expenses of
$2.4 million, an income tax credit of $0.4 million, and a minority interest
amount of ($7,000).


                                       68
<PAGE>

      The consolidation of 100% of the revenue and expenses of Lyonsdale
resulted in year-to-date net income of $0.2 million. Operating revenues were
$3.5 million and operating expenses were $4.1 million. The expenses are
comprised of $1.9 million of fuel used in electric generation, $0.7 million in
labor expenses, $1.0 million of other expenses of operation, $0.4 million of
depreciation expense, and $0.1 million of interest expense. In addition, there
was an income tax credit of $0.7 million, mostly due to production tax credits,
and a minority interest of $0.1 million.

OTHER INCOME

Regulated Electric and Natural Gas Businesses

      Other income for Central Hudson decreased $0.3 million for the quarter
ended September 30, 2006, reflecting a decrease in regulatory carrying charges
due from customers related to pension costs partially offset by the recording of
favorable regulatory adjustments for the change in interest costs on Central
Hudson's variable rate long-term debt. The latter adjustment partially offsets
the increase in interest costs on the variable rate debt, as discussed under the
caption "Interest Charges." The decrease in regulatory carrying charges results
from the reduction of interest-bearing pension related balances in accordance
with the 2006 Order for electric and natural gas rates.

      For the nine months ended September 30, 2006, as compared to the nine
months ended September 30, 2005, other income increased $0.6 million due to the
recording of favorable regulatory adjustments for the change in interest costs
on the variable rate long-term debt. This increase was partially offset by a
decrease in regulatory carrying charges due from customers related to pension
costs.

Other Businesses

      Other income relating primarily to Energy Group (the holding company) and
CHEC's investments in partnerships and interests other than fuel distribution
operations increased $0.6 million for the quarter ended September 30, 2006. This
was due to an increase in income from CHEC's interest in Cornhusker Holdings and
a reduction in Energy Group expenses, primarily business development costs.

      For the nine months ended September 30, 2006, other income increased $2.4
million largely due to a $1.7 million increase in income from Cornhusker
Holdings, a $0.7 million pre-tax gain on the sale of real property held by
Energy Group, and reductions in Energy Group expenses related to business
development and injuries and damages expense. These increases were partially
offset by an increase in other taxes for Energy Group and losses on other
investments held by CHEC.

INTEREST CHARGES

      Interest charges (which are solely related to Central Hudson) increased
$0.9 million and $2.8 million for the quarter and nine months ended September
30, 2006,


                                       69
<PAGE>

respectively. The increase is due to the issuance of medium-term notes in
December 2005 and increased interest charges on Central Hudson's variable rate
debt. Additional short-term debt was required for working capital needs due to
higher fuel prices.

INCOME TAXES

      Income taxes for Energy Group increased $2.0 million, or 85.8%, from $2.4
million in the third quarter of 2005 to $4.4 million in the third quarter of
2006. This increase was primarily due to income before income taxes increasing
$7.3 million, or 86.9%.

      For the nine months ended September 30, 2006, income taxes for Energy
Group increased $1.3 million, or 7.0%, from $18.0 million in 2005 to $19.3
million in 2006. This increase was primarily due to income before income taxes
increasing $1.9 million, or 3.7%, in 2006 and an increase in the effective tax
rate in 2006 to 36.2% from 35.0% in 2005. The increase in the effective tax rate
was primarily due to the absence of favorable income tax adjustments recorded in
2005, related to the completion of income tax audits, which were partially
offset by production tax credits recognized in 2006.

      Income taxes for Central Hudson increased $1.1 million, or 23.4%, from
$4.5 million in the third quarter of 2005 to $5.5 million in the third quarter
of 2006. This increase was primarily due to income before income taxes
increasing $4.9 million, or 43.4%, which was partially offset by a reduction to
income tax expense in the third quarter of 2006 related to the closeout of
Internal Revenue Service ("IRS") income tax audits for multiple years.

      For the nine months ended September 30, 2006, income taxes for Central
Hudson decreased $0.7 million, or 3.5%, from $18.8 million in 2005 to $18.1
million in 2006. This decrease was primarily due to income before income taxes
decreasing $0.7 million, or 1.5%, in 2006 and a reduction to income tax expense
in the third quarter of 2006 related to the closeout of IRS income tax audits
for multiple years.

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. On
September 28, 2006, the Board of Directors of Energy Group declared a quarterly
dividend of $0.54 per share, payable November 1, 2006, to shareholders of record
as of October 10, 2006.


                                       70
<PAGE>

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 nine 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 nine 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 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 nine months of 2006, Griffith experienced
year-over-year volume decreases that were partially driven by price-sensitive
conservation, energy efficiency efforts, and fuel switching. If fuel oil prices
remain high during the upcoming heating season, 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.


                                       71
<PAGE>

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 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


                                       72
<PAGE>

(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 was only one change to the Registrants' internal control over
financial reporting that occurred during the Registrants' last fiscal quarter.
In July 2006, Central Hudson completed the implementation of a new fixed asset
software application. The general computer controls and business controls
related to this new application are in the process of being tested for design
and operational effectiveness. It is not expected that this change has
materially affected, or is likely to materially affect, the Registrants'
internal control over financial reporting.


                                       73
<PAGE>

      PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Central Hudson:

Former Manufactured Gas Plant Facilities

      For information about investigations and remediation efforts involving 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 incorporated herein by reference.

Orange County Landfill

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


                                       74
<PAGE>

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 and Item 1A -
Risk Factors of the combined Energy Group/Central Hudson Quarterly Report on
Form 10-Q for the quarter ended June 30, 2006.

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

      On September 30, 2006, the average wholesale price of fuel oil, as
measured by the closing price on the NYMEX, was $1.88 per gallon. This is a
15.1% increase over the $1.64 per gallon price on September 30, 2005, and a
67.8% increase over the $1.12 per gallon price on September 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


                                       75
<PAGE>

consequence could be a material reduction in profitability that could, in turn,
lead to an impairment of the goodwill included in the intangible assets on
Griffith's and Energy Group's balance sheet. Additionally, if customer attrition
were to accelerate significantly the remaining value of the customer list could
be impaired or subject to accelerated amortization.

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.

99                New York State Public Service Commission Order Establishing
                  Rate Plan dated July 24, 2006.*

* Incorporated herein by reference to the combined Energy Group/Central Hudson
Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.


                                       76
<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: November 7, 2006


                                       77
<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.

99                New York State Public Service Commission Order Establishing
                  Rate Plan dated July 24, 2006.*

* Incorporated herein by reference to the combined Energy Group/Central Hudson
Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.


                                       78