Edgar Filing: CENTRAL HUDSON GAS & ELECTRIC CORP

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2013

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________

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


0-30512	CH Energy Group, Inc. (Incorporated in New York) 284 South Avenue Poughkeepsie, New York 12601-4839 (845) 452-2000	14-1804460


1-3268	Central Hudson Gas & Electric Corporation (Incorporated in New York) 284 South Avenue Poughkeepsie, New York 12601-4839 (845) 452-2000	14-0555980

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

CH Energy Group, Inc.	Yes þ		No o
Central Hudson Gas & Electric Corporation	Yes þ		No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

CH Energy Group, Inc.	Yes þ		No o
Central Hudson Gas & Electric Corporation	Yes þ		No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

CH Energy Group, Inc.		Central Hudson Gas & Electric Corporation
Large Accelerated Filer þ		Large Accelerated Filer o
Accelerated Filer o		Accelerated Filer o
Non-Accelerated Filer o		Non-Accelerated Filer þ
Smaller Reporting Company o		Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

CH Energy Group, Inc.	Yes o		No þ
Central Hudson Gas & Electric Corporation	Yes o		No þ

As of the close of business on April 30, 2013 (i) CH Energy Group, Inc. had outstanding 14,973,794 shares of Common Stock ($0.10 per share par value) and (ii) all of the outstanding 16,862,087 shares of Common Stock ($5 per share par value) of Central Hudson Gas & Electric Corporation were held by CH Energy Group, Inc.

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

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2013

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

ITEM 1 – Financial Statements (Unaudited)

CH Energy Group, Inc.		PAGE
	Consolidated Statement of Income –
	Three Months Ended March 31, 2013 and 2012	1

	Consolidated Statement of Comprehensive Income –
	Three Months Ended March 31, 2013 and 2012	2

	Consolidated Statement of Cash Flows –
	Three Months Ended March 31, 2013 and 2012	3

	Consolidated Balance Sheet –
	March 31, 2013, December 31, 2012 and March 31, 2012	4

	Consolidated Statement of Equity –
	Three Months Ended March 31, 2013 and 2012	6

Central Hudson Gas & Electric Corporation
	Statement of Income –
	Three Months Ended March 31, 2013 and 2012	7

	Statement of Comprehensive Income –
	Three Months Ended March 31, 2013 and 2012	7

	Statement of Cash Flows –
	Three Months Ended March 31, 2013 and 2012	8

	Balance Sheet –
	March 31, 2013, December 31, 2012 and March 31, 2012	9

	Statement of Equity –
	Three Months Ended March 31, 2013 and 2012	11

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

	TABLE OF CONTENTS
		PAGE

ITEM 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	52

ITEM 3	Quantitative and Qualitative Disclosure About Market Risk	79

ITEM 4	Controls and Procedures	79

PART II – OTHER INFORMATION

ITEM 1	Legal Proceedings	80

ITEM 1A	Risk Factors	80

ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	81

ITEM 4	Mine Safety Disclosures	81

ITEM 6	Exhibits	81

SIGNATURES		82

EXHIBIT INDEX		83

_______________________________________________

FILING FORMAT

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

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1 – Financial Statements (Unaudited)

CH ENERGY GROUP CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)

(In Thousands, except per share amounts)

	Three Months Ended March 31,
	2013		2012
Operating Revenues
Electric	$	138,163	$	129,272
Natural gas		56,300		55,850
Competitive business subsidiaries:
Petroleum products		99,019		84,632
Other		4,892		4,318
Total Operating Revenues		298,374		274,072
Operating Expenses
Operation:
Purchased electricity and fuel used in electric generation		50,409		45,059
Purchased natural gas		23,399		24,614
Purchased petroleum		81,529		70,305
Other expenses of operation - regulated activities		66,792		59,886
Other expenses of operation - competitive business subsidiaries		13,303		12,422
Merger related costs		387		5,219
Depreciation and amortization		11,187		10,624
Taxes, other than income tax		14,947		13,730
Total Operating Expenses		261,953		241,859
Operating Income		36,421		32,213
Other Income and Deductions
Income from unconsolidated affiliates		199		52
Interest on regulatory assets and other interest income		1,385		1,719
Regulatory adjustments for interest costs		324		319
Other - net		127		(9	)
Total Other Income (Deductions)		2,035		2,081
Interest Charges
Interest on long-term debt		6,430		6,218
Interest on regulatory liabilities and other interest		1,915		1,584
Total Interest Charges		8,345		7,802

Income before income taxes, non-controlling interest and preferred dividends of subsidiary		30,111		26,492
Income Taxes		11,165		11,669

Net Income		18,946		14,823

Net Income attributable to non-controlling interest:
Dividends declared on Preferred Stock of subsidiary		92		242
Preferred Stock Redemption Premium		764		-
Net Income Attributable to CH Energy Group		18,090		14,581

Dividends declared on Common Stock		8,310		8,279
Change in Retained Earnings	$	9,780	$	6,302

The Notes to Financial Statements are an integral part hereof.

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Table of Contents

CH ENERGY GROUP CONSOLIDATED STATEMENT OF INCOME (CONT'D) (UNAUDITED)

(In Thousands, except per share amounts)

	Three Months Ended March 31,
	2013		2012
Common Stock:
Average shares outstanding - Basic		14,942		14,882
Average shares outstanding - Diluted		15,156		15,143

Amounts attributable to CH Energy Group common shareholders:
Earnings per share - Basic	$	1.21	$	0.98
Earnings per share - Diluted	$	1.19	$	0.96
Dividends Declared per Share	$	0.555	$	0.555

CH ENERGY GROUP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

(In Thousands)

	Three Months Ended March 31,
	2013			2012
Net Income	$	18,946		$	14,823

Other Comprehensive Income:

Net unrealized losses on investments held by equity method investees - net of tax of $8 and $38, respectively		(12	)		(58	)

Other comprehensive loss		(12	)		(58	)

Comprehensive Income		18,934			14,765

Comprehensive income attributable to non-controlling interest		856			242

Comprehensive income attributable to CH Energy Group	$	18,078		$	14,523

The Notes to Financial Statements are an integral part hereof.

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CH ENERGY GROUP CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

(In Thousands)

	Three Months Ended March 31,
	2013			2012
Operating Activities:
Net income	$	18,946		$	14,823
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		9,940			9,499
Amortization		1,247			1,125
Deferred income taxes - net		3,156			11,598
Bad debt expense		964			2,500
Undistributed equity in earnings of unconsolidated affiliates		(199	)		(52	)
Pension expense		6,022			7,233
Other post-employment benefits ("OPEB") expense		1,989			1,996
Regulatory liability - rate moderation		-			(1,033	)
Revenue decoupling mechanism recorded		4,203			(950	)
Regulatory asset amortization		1,682			1,722
Regulatory asset storm deferral adjustment		4,000			-
Gain on sale of assets		(22	)		(79	)
Changes in operating assets and liabilities - net of business acquisitions:
Accounts receivable, unbilled revenues and other receivables		(28,872	)		(7,932	)
Fuel, materials and supplies		6,842			5,425
Special deposits and prepayments		(5,100	)		(4,407	)
Income and other taxes		5,657			17
Accounts payable		(3,369	)		(2,144	)
Accrued interest		2,944			997
Customer advances		(12,587	)		(5,212	)
Pension plan contribution		(26,165	)		(28,165	)
Revenue decoupling mechanism collected (refunded)		1,485			(1,310	)
Regulatory asset - storm deferral		(2,813	)		(3,042	)
Regulatory asset - manufactured gas plant ("MGP") site remediation		(2,214	)		951
Regulatory asset - Temporary State Assessment		(2,526	)		(3,332	)
Deferred natural gas and electric costs		(4,376	)		7,883
Other - net		14,231			4,500
Net cash (used in) provided by operating activities		(4,935	)		12,611
Investing Activities:
Proceeds from sale of assets		26			96
Additions to utility and other property and plant		(28,478	)		(25,887	)
Other - net		38			(637	)
Net cash used in investing activities		(28,414	)		(26,428	)
Financing Activities:
Redemption of long-term debt		-			(36,000	)
Proceeds from issuance of long-term debt		-			48,000
Borrowings of short-term debt - net		36,500			64,500
Dividends paid on Common Stock		(8,301	)		(8,269	)
Redemption of Preferred Stock		(9,625	)		-
Dividends paid on Preferred Stock of subsidiary		(92	)		(242	)
Shares repurchased		-			(2,993	)
Other - net		(95	)		(593	)
Net cash provided by financing activities		18,387			64,403
Net Change in Cash and Cash Equivalents		(14,962	)		50,586
Cash and Cash Equivalents at Beginning of Period		30,508			15,281
Cash and Cash Equivalents at End of Period	$	15,546		$	65,867

Supplemental Disclosure of Cash Flow Information:
Interest paid	$	3,667		$	5,351
Federal and state income taxes paid	$	-		$	16
Additions to plant included in liabilities	$	3,783		$	4,126

The Notes to Financial Statements are an integral part hereof.

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CH ENERGY GROUP CONSOLIDATED BALANCE SHEET (UNAUDITED)

(In Thousands)

	March 31,		December 31,		March 31,
	2013		2012		2012
ASSETS
Utility Plant
Electric	$	1,074,858	$	1,067,352	$	1,017,986
Natural gas		326,061		320,258		301,609
Common		163,993		162,352		151,086
Gross Utility Plant		1,564,912		1,549,962		1,470,681

Less: Accumulated depreciation		420,696		414,137		400,894
Net		1,144,216		1,135,825		1,069,787

Construction work in progress		61,367		58,053		66,518
Net Utility Plant		1,205,583		1,193,878		1,136,305

Non-Utility Property & Plant
Griffith non-utility property & plant		33,808		33,574		31,456
Other non-utility property & plant		524		524		524
Gross Non-Utility Property & Plant		34,332		34,098		31,980

Less: Accumulated depreciation - Griffith		23,223		23,001		22,220
Net Non-Utility Property & Plant		11,109		11,097		9,760

Current Assets
Cash and cash equivalents		15,546		30,508		65,867
Accounts receivable from customers - net of allowance for doubtful accounts of $6.0 million, $6.5 million and $7.0 million, respectively		120,237		91,457		96,574
Accrued unbilled utility revenues		16,428		17,155		14,283
Other receivables		8,331		9,582		9,096
Fuel, materials and supplies		17,654		24,496		19,689
Regulatory assets		35,165		32,329		49,683
Fair value of derivative instruments		2,944		121		9
Unamortized debt expense		428		344		407
Special deposits and prepayments		26,559		21,362		25,777
Accumulated deferred income tax		8,182		12,205		8,456
Total Current Assets		251,474		239,559		289,841

Deferred Charges and Other Assets
Regulatory assets - pension plan		140,349		146,935		151,737
Regulatory assets - other		109,710		109,779		119,559
Fair value of derivative instruments		2,881		693		-
Goodwill		38,981		38,981		37,752
Other intangible assets - net		11,663		12,324		12,564
Unamortized debt expense		4,682		4,764		4,628
Investments in unconsolidated affiliates		2,241		2,536		2,559
Other investments		18,240		17,847		15,212
Other		5,478		6,556		5,884
Total Deferred Charges and Other Assets		334,225		340,415		349,895
Total Assets	$	1,802,391	$	1,784,949	$	1,785,801

The Notes to Financial Statements are an integral part hereof.

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CH ENERGY GROUP CONSOLIDATED BALANCE SHEET (CONT'D) (UNAUDITED)

(In Thousands, except share amounts)

	March 31,			December 31,			March 31,
	2013			2012			2012
CAPITALIZATION AND LIABILITIES
Capitalization
CH Energy Group Common Shareholders' Equity
Common Stock (30,000,000 shares authorized: $0.10 par value; 16,862,087 shares issued) 14,960,976 shares, 14,954,884 shares and 14,914,853 shares, respectively	$	1,686		$	1,686		$	1,686
Paid-in capital		349,514			349,428			348,306
Retained earnings		257,883			248,103			248,693
Treasury stock - 1,901,111 shares, 1,907,203 shares and 1,947,234 shares, respectively		(89,891	)		(90,141	)		(91,978	)
Accumulated other comprehensive income		368			380			296
Capital stock expense		-			(166	)		(328	)
Total Equity		519,560			509,290			506,675
Preferred Stock of subsidiary		-			9,027			21,027
Long-term debt		479,926			486,926			494,002
Total Capitalization		999,486			1,005,243			1,021,704
Current Liabilities
Current maturities of long-term debt		38,076			31,076			1,006
Notes payable		56,000			19,500			71,000
Accounts payable		39,155			52,812			36,183
Accrued interest		8,875			5,931			7,330
Dividends payable		8,310			8,301			8,521
Accrued vacation and payroll		8,187			7,984			7,291
Customer advances		15,722			28,309			17,315
Customer deposits		7,115			7,135			7,235
Regulatory liabilities		14,568			10,736			8,959
Fair value of derivative instruments		517			1,259			22,118
Accrued environmental remediation costs		4,267			7,117			7,064
Accrued income and other taxes		6,146			635			817
Deferred revenues		3,936			4,801			3,853
Other		21,170			15,105			16,200
Total Current Liabilities		232,044			200,701			214,892
Deferred Credits and Other Liabilities
Regulatory liabilities - OPEB		9,696			7,975			8,974
Regulatory liabilities - other		108,704			97,485			101,535
Operating reserves		3,456			3,827			3,181
Fair value of derivative instruments		93			218			1,688
Accrued environmental remediation costs		8,250			8,324			10,559
Accrued OPEB costs		58,730			58,412			53,757
Accrued pension costs		88,170			113,227			95,896
Tax reserve		2,047			2,000			3,174
Other		21,028			20,643			20,520
Total Deferred Credits and Other Liabilities		300,174			312,111			299,284
Accumulated Deferred Income Tax		270,687			266,894			249,921
Commitments and Contingencies
Total Capitalization and Liabilities	$	1,802,391		$	1,784,949		$	1,785,801

The Notes to Financial Statements are an integral part hereof.

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Table of Contents

CH ENERGY GROUP CONSOLIDATED STATEMENT OF EQUITY (UNAUDITED)

(In Thousands, except share amounts)

	CH Energy Group Common Shareholders
	Common Stock				Treasury Stock
	Shares Issued		Amount		Shares (Repurchased) / Issued			Amount			Paid-In Capital			Capital Stock Expense			Retained Earnings			Accumulated Other Comprehensive Income / (Loss)			Non-controlling Interest		Total Equity
Balance at December 31, 2011		16,862,087	$	1,686		(1,967,123	)	$	(92,908	)	$	351,053		$	(328	)	$	242,391		$	354		$	-	$	502,248
Comprehensive income:
Net income																		14,823								14,823
Dividends declared on Preferred Stock of subsidiary																		(242	)							(242	)
Change in fair value:
Investments																					(58	)				(58	)
Dividends declared on common stock																		(8,279	)							(8,279	)
Treasury shares activity - net						19,889			930			(2,747	)													(1,817	)
Balance at March 31, 2012		16,862,087	$	1,686		(1,947,234	)	$	(91,978	)	$	348,306		$	(328	)	$	248,693		$	296		$	-	$	506,675

Balance at December 31, 2012		16,862,087	$	1,686		(1,907,203	)	$	(90,141	)	$	349,428		$	(166	)	$	248,103		$	380		$	-	$	509,290
Comprehensive income:
Net income																		18,946								18,946
Preferred Stock Redemption												(28	)		166			(764	)							(626	)
Dividends declared on Preferred Stock of subsidiary																		(92	)							(92	)
Change in fair value:
Investments																					(12	)				(12	)
Dividends declared on common stock																		(8,310	)							(8,310	)
Treasury shares activity - net						6,092			250			114														364
Balance at March 31, 2013		16,862,087	$	1,686		(1,901,111	)	$	(89,891	)	$	349,514		$	-		$	257,883		$	368		$	-	$	519,560

The Notes to Financial Statements are an integral part hereof.

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Table of Contents

CENTRAL HUDSON STATEMENT OF INCOME (UNAUDITED)

(In Thousands)

	Three Months Ended March 31,
	2013		2012
Operating Revenues
Electric	$	138,163	$	129,272
Natural gas		56,300		55,850
Total Operating Revenues		194,463		185,122

Operating Expenses
Operation:
Purchased electricity and fuel used in electric generation		50,409		45,059
Purchased natural gas		23,399		24,614
Other expenses of operation		66,792		59,886
Depreciation and amortization		9,955		9,468
Taxes, other than income tax		14,750		13,491
Total Operating Expenses		165,305		152,518

Operating Income		29,158		32,604

Other Income and Deductions
Interest on regulatory assets and other interest income		1,373		1,706
Regulatory adjustments for interest costs		324		319
Other - net		99		112
Total Other Income		1,796		2,137

Interest Charges
Interest on long-term debt		5,956		5,728
Interest on regulatory liabilities and other interest		1,845		1,527
Total Interest Charges		7,801		7,255

Income Before Income Taxes		23,153		27,486

Income Taxes		8,784		10,753

Net Income		14,369		16,733

Preferred Stock Redemption Premium		764		-
Dividends Declared on Cumulative Preferred Stock		92		242

Income Available for Common Stock	$	13,513	$	16,491

CENTRAL HUDSON STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

(In Thousands)

	Three Months Ended March 31,
	2013		2012
Net Income	$	14,369	$	16,733
Other Comprehensive Income		-		-
Comprehensive Income	$	14,369	$	16,733

The Notes to Financial Statements are an integral part hereof.

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CENTRAL HUDSON STATEMENT OF CASH FLOWS (UNAUDITED)

(In Thousands)

	Three Months Ended March 31,
	2013			2012
Operating Activities:
Net income	$	14,369		$	16,733
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		9,369			8,977
Amortization		586			491
Deferred income taxes - net		3,466			12,071
Bad debt expense		589			2,125
Pension expense		6,022			7,233
OPEB expense		1,989			1,996
Regulatory liability - rate moderation		-			(1,033	)
Revenue decoupling mechanism recorded		4,203			(950	)
Regulatory asset amortization		1,682			1,722
Regulatory asset storm deferral adjustment		4,000			-
Changes in operating assets and liabilities - net:
Accounts receivable, unbilled revenues and other receivables		(17,846	)		(7,437	)
Fuel, materials and supplies		5,069			4,648
Special deposits and prepayments		(3,926	)		(3,203	)
Income and other taxes		5,492			(942	)
Accounts payable		(5,075	)		(2,855	)
Accrued interest		2,466			504
Customer advances		(7,841	)		(3,374	)
Pension plan contribution		(26,165	)		(28,165	)
Revenue decoupling mechanism collected (refunded)		1,485			(1,310	)
Regulatory asset - storm deferral		(2,813	)		(3,042	)
Regulatory asset - MGP site remediation		(2,214	)		951
Regulatory asset - Temporary State Assessment		(2,526	)		(3,332	)
Deferred natural gas and electric costs		(4,376	)		7,883
Other - net		10,909			1,478
Net cash (used in) provided by operating activities		(1,086	)		11,169

Investing Activities:
Additions to utility plant		(27,890	)		(25,783	)
Other - net		(408	)		(777	)
Net cash used in investing activities		(28,298	)		(26,560	)

Financing Activities:
Redemption of long-term debt		-			(36,000	)
Proceeds from issuance of long-term debt		-			48,000
Borrowings of short-term debt - net		27,000			57,500
Redemption of Preferred Stock		(9,653	)		-
Dividends paid to parent - CH Energy Group		(5,000	)		-
Dividends paid on cumulative Preferred Stock		(92	)		(242	)
Other - net		(108	)		(602	)
Net cash provided by financing activities		12,147			68,656

Net Change in Cash and Cash Equivalents		(17,237	)		53,265
Cash and Cash Equivalents - Beginning of Period		24,352			2,521
Cash and Cash Equivalents - End of Period	$	7,115		$	55,786

Supplemental Disclosure of Cash Flow Information:
Interest paid	$	3,601		$	5,312
Federal and state income taxes paid	$	-		$	-
Additions to plant included in liabilities	$	3,783		$	4,126

The Notes to Financial Statements are an integral part hereof.

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CENTRAL HUDSON BALANCE SHEET (UNAUDITED)

(In Thousands)

	March 31,		December 31,		March 31,
	2013		2012		2012
ASSETS
Utility Plant
Electric	$	1,074,858	$	1,067,352	$	1,017,986
Natural gas		326,061		320,258		301,609
Common		163,993		162,352		151,086
Gross Utility Plant		1,564,912		1,549,962		1,470,681

Less: Accumulated depreciation		420,696		414,137		400,894
Net		1,144,216		1,135,825		1,069,787

Construction work in progress		61,367		58,053		66,518
Net Utility Plant		1,205,583		1,193,878		1,136,305

Non-Utility Property and Plant		524		524		524
Net Non-Utility Property and Plant		524		524		524

Current Assets
Cash and cash equivalents		7,115		24,352		55,786
Accounts receivable from customers - net of allowance for doubtful accounts of $4.2 million, $4.6 million and $5.4 million, respectively		77,609		60,155		65,922
Accrued unbilled utility revenues		16,428		17,155		14,283
Other receivables		4,630		5,206		6,086
Fuel, materials and supplies - at average cost		14,194		19,264		16,389
Regulatory assets		35,165		32,329		49,683
Fair value of derivative instruments		2,941		95		-
Unamortized debt expense		428		344		407
Special deposits and prepayments		22,496		18,473		21,311
Accumulated deferred income tax		1,256		5,313		2,019
Total Current Assets		182,262		182,686		231,886

Deferred Charges and Other Assets
Regulatory assets - pension plan		140,349		146,935		151,737
Regulatory assets - other		109,710		109,779		119,559
Fair value of derivative instruments		2,881		693		-
Unamortized debt expense		4,682		4,764		4,628
Other investments		17,743		17,368		14,745
Other		2,734		3,740		2,218
Total Deferred Charges and Other Assets		278,099		283,279		292,887

Total Assets	$	1,666,468	$	1,660,367	$	1,661,602

The Notes to Financial Statements are an integral part hereof.

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CENTRAL HUDSON BALANCE SHEET (CONT'D) (UNAUDITED)

(In Thousands, except share amounts)

	March 31,			December 31,			March 31,
	2013			2012			2012
CAPITALIZATION AND LIABILITIES
Capitalization
Common Stock (30,000,000 shares authorized: $5 par value; 16,862,087 shares issued and outstanding)	$	84,311		$	84,311		$	84,311
Paid-in capital		199,952			199,980			199,980
Retained earnings		198,682			190,169			182,456
Capital stock expense		(4,633	)		(4,799	)		(4,961	)
Total Equity		478,312			469,661			461,786

Cumulative Preferred Stock not subject to mandatory redemption		-			9,027			21,027

Long-term debt		452,950			459,950			465,950
Total Capitalization		931,262			938,638			948,763

Current Liabilities
Current maturities of long-term debt		37,000			30,000			-
Notes payable		27,000			-			59,000
Accounts payable		29,639			45,002			27,299
Accrued interest		8,249			5,782			6,686
Dividends payable - Preferred Stock		-			-			242
Accrued vacation and payroll		6,424			6,708			5,671
Customer advances		10,243			18,084			11,231
Customer deposits		7,042			7,069			7,170
Regulatory liabilities		14,568			10,736			8,959
Fair value of derivative instruments		517			1,259			22,118
Accrued environmental remediation costs		3,838			6,660			6,562
Accrued income and other taxes		8,635			3,142			1,564
Other		14,549			12,095			10,764
Total Current Liabilities		167,704			146,537			167,266

Deferred Credits and Other Liabilities
Regulatory liabilities - OPEB		9,696			7,975			8,974
Regulatory liabilities - other		108,704			97,485			101,535
Operating reserves		2,647			2,696			2,148
Fair value of derivative instruments		93			218			1,688
Accrued environmental remediation costs		7,240			7,293			9,407
Accrued OPEB costs		58,730			58,412			53,757
Accrued pension costs		88,170			113,227			95,896
Tax reserve		2,047			2,000			3,174
Other		20,071			19,705			19,564
Total Deferred Credits and Other Liabilities		297,398			309,011			296,143

Accumulated Deferred Income Tax		270,104			266,181			249,430

Commitments and Contingencies

Total Capitalization and Liabilities	$	1,666,468		$	1,660,367		$	1,661,602

The Notes to Financial Statements are an integral part hereof.

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CENTRAL HUDSON STATEMENT OF EQUITY (UNAUDITED)

(In Thousands, except share amounts)

	Central Hudson Common Shareholders
	Common Stock				Treasury Stock
	Shares Issued		Amount		Shares Repurchased		Amount		Paid-In Capital			Capital Stock Expense			Retained Earnings			Accumulated Other Comprehensive Income / (Loss)		Total Equity
Balance at December 31, 2011		16,862,087	$	84,311		-	$	-	$	199,980		$	(4,961	)	$	165,965		$	-	$	445,295
Net income																16,733					16,733
Dividends declared:
On cumulative Preferred Stock																(242	)				(242	)
Balance at March 31, 2012		16,862,087	$	84,311		-	$	-	$	199,980		$	(4,961	)	$	182,456		$	-	$	461,786

Balance at December 31, 2012		16,862,087	$	84,311		-	$	-	$	199,980		$	(4,799	)	$	190,169		$	-	$	469,661
Net income																14,369					14,369
Preferred Stock Redemption										(28	)		166			(764	)				(626	)
Dividends declared:
On cumulative Preferred Stock																(92	)				(92	)
On Common Stock to parent - CH Energy Group																(5,000	)				(5,000	)
Balance at March 31, 2013		16,862,087	$	84,311		-	$	-	$	199,952		$	(4,633	)	$	198,682		$	-	$	478,312

The Notes to Financial Statements are an integral part hereof.

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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 – Summary of Significant Accounting Policies

The Financial Statements were prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), which for regulated public utilities, includes specific accounting guidance for regulated operations. For additional information regarding regulatory accounting, see Note 2 – "Regulatory Matters."

Pending Acquisition by Fortis Inc.

On February 21, 2012, CH Energy Group announced that it had entered into an agreement and plan of merger under which it agreed, subject to shareholder approval and the approval of applicable regulatory authorities, to be acquired by Fortis Inc. ("Fortis") for $65 per share of common stock in cash. On June 19, 2012, shareholders of CH Energy Group approved the proposed acquisition of the Company by Fortis. On July 3, 2012, the Federal Energy Regulatory Commission ("FERC") approved the acquisition of CH Energy Group by Fortis. On July 17, 2012, the Committee on Foreign Investment in the United States approved the acquisition of CH Energy Group by Fortis. On October 2, 2012, the Federal Trade Commission permitted the 30-day waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 with respect to the acquisition of the Company by Fortis to expire. On April 20, 2012, CH Energy Group, Central Hudson, Fortis, FortisUS Inc. ("FortisUS"), and Cascade Acquisition Sub Inc. ("Petitioners"), submitted a joint petition to the New York State Public Service Commission ("PSC" or "Commission") for approval of the proposed transaction under Section 70 of the Public Service Law. Pursuant to a procedure schedule established by the Administrative Law Judges, the PSC Staff and other parties to the proceeding filed testimony and comments on October 12, 2012. On January 25, 2013, a Joint Proposal with the Company, Fortis, PSC Staff, Multiple Intervenors, the Department of State Utility Intervention Unit, and Dutchess, Orange and Ulster counties as signatories, was submitted to the PSC. The signatory parties have concluded that, based on the terms of the Joint Proposal, the acquisition is in the public interest pursuant to New York State Public Service Law, Section 70, and recommend approval by the Commission. The deadline for submission of public comments in the proceeding was extended to May 1, 2013 by the Commission in a notice issued March 22, 2013. On April 24, 2013, the Commission issued a notice stating that the Administrative Law Judges ("ALJs") assigned to this matter would prepare a Recommended Decision ("RD") for the Commission. On May 3, 2013 the Recommended Decision of the two Administrative Law Judges – an advisory document – was issued by the PSC. The RD states that, in its current form, the Joint Proposal does not meet the public interest test as required by New York State Public Service Law, Section 70, but also states that the ALJs recommend the Commission consider adopting the Joint Proposal subject to modifications that would alter the transaction's balance of risks and benefits. Briefs on exceptions to the RD are due May 17, 2013 and briefs opposing exceptions are due on May 24, 2013. While no assurance regarding the closing can be given until a final PSC Order is issued, the Company continues to anticipate that the Commission will review and approve the merger in the second quarter of 2013. Under the terms of the merger agreement, Fortis must close the transaction if all conditions precedent are met, including PSC approval, and a material adverse effect has not occurred. Closing of the transaction would follow shortly after issuance of the final PSC Order approving the merger. Management believes this will occur in the second quarter of 2013.

Unaudited Financial Statements

The accompanying Consolidated Financial Statements of CH Energy Group and Financial Statements of Central Hudson are unaudited but, in the opinion of management, reflect adjustments (which include normal recurring adjustments) necessary for a fair statement of the results for the interim periods presented. These unaudited quarterly Financial Statements do not contain all footnote disclosures concerning accounting policies and other matters which would be included in annual Financial Statements and, accordingly, should be read in conjunction with the audited Financial Statements (including the Notes thereto) included in the combined CH Energy Group/Central Hudson Annual Report on Form 10-K for the year ended December 31, 2012 (the "Corporations' 10-K Annual Report").

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CH Energy Group's and Central Hudson's balance sheets as of March 31, 2012 are not required to be included in this Quarterly Report on Form 10-Q; however, these balance sheets are included for supplemental analysis purposes.

Reclassification

Certain amounts in the 2012 Financial Statements have been reclassified to conform to the 2013 presentation.

The Company reclassified amounts related to in-process work for cost of removal of plant assets from accumulated depreciation to deferred costs, regulatory liabilities. This reclassification resulted in a reduction to the March 31, 2012 balance of $10.6 million.

Revenue Recognition

CH Energy Group's deferred revenue balances as of March 31, 2013, December 31, 2012 and March 31, 2012 were $3.9 million, $4.8 million and $3.9 million, respectively. The deferred revenue balance will be recognized in CH Energy Group's operating revenues over the 12-month term of the respective customer contract.

As required by the PSC, Central Hudson records gross receipts tax revenues and expenses on a gross income statement presentation basis (i.e., included in both revenue and expenses). Sales and use taxes for both Central Hudson and Griffith are accounted for on a net basis (excluded from revenue).

Fuel, Materials & Supplies

The following is a summary of CH Energy Group's and Central Hudson's inventories (In Thousands):

	CH Energy Group						Central Hudson
	March 31,		December 31,		March 31,		March 31,		December 31,		March 31,
	2013		2012		2012		2013		2012		2012
Natural gas	$	2,759	$	7,638	$	7,322	$	2,759	$	7,638	$	7,322
Petroleum products and propane		2,098		3,942		2,115		-		-		-
Fuel used in electric generation		293		295		286		293		295		286
Materials and supplies		12,504		12,621		9,966		11,142		11,331		8,781
Total	$	17,654	$	24,496	$	19,689	$	14,194	$	19,264	$	16,389

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Depreciation and Amortization

Current accounting guidance related to asset retirements precludes the recognition of expected future retirement obligations as a component of depreciation expense or accumulated depreciation. Central Hudson, however, is required to use depreciation methods and rates approved by the PSC under regulatory accounting. These depreciation rates include a charge for the cost of future removal and retirement of fixed assets. In accordance with current accounting guidance for regulated operations, Central Hudson continues to accrue for the future cost of removal for its rate-regulated natural gas and electric utility assets. In accordance with current accounting guidance related to asset retirements, Central Hudson has classified $44.8 million, $43.4 million, and $42.7 million of cost of removal as regulatory liabilities as of March 31, 2013, December 31, 2012, and March 31, 2012, respectively. This liability represents the portion of the cost of removal charge in excess of the amount reported as an Asset Retirement Obligation under GAAP.

See Note 6 - "Goodwill and Other Intangible Assets" for further discussion of amortization of intangibles (other than goodwill).

Earnings Per Share

In the calculation of earnings per share (basic and diluted) of CH Energy Group's Common Stock, earnings for CH Energy Group are reduced by the Preferred Stock dividends of Central Hudson.

The average dilutive effect of CH Energy Group's stock options, performance shares and restricted shares are as follows:

	Three Months Ended
	March 31,
	2013		2012
Shares		213,908		260,259

Certain stock options can be 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. As of December 31, 2012, no stock options are outstanding. There were no options excluded during the three months ended March 31, 2012.

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Parental Guarantees

CH Energy Group and CHEC have issued guarantees to counterparties to assure the payment, when due, of certain obligations incurred by CH Energy Group subsidiaries, in physical and financial transactions.

	March 31, 2013
Transaction Description	Maximum Potential Payments		Outstanding Liabilities⁽¹⁾
Heating oil, propane, other petroleum products, weather and commodity hedges (In Thousands)	$	30,650	$	8,555

(1)	Balance included in CH Energy Group's Consolidated Balance Sheet.

Management is not aware of any existing condition that would require payment under the guarantees.

Common Stock Dividends

On March 27, 2013, the Board of Directors of CH Energy Group declared a quarterly dividend of 55.5 cents per share payable May 1, 2013, to shareholders of record as of April 10, 2013.

CH Energy Group's ability to pay dividends is affected by the ability of its subsidiaries to pay dividends. The Federal Power Act limits the payment of dividends by Central Hudson to its retained earnings. More restrictive is the PSC's limit on the dividends Central Hudson may pay to CH Energy Group which is 100% of the average annual income available for common stock, calculated on a two-year rolling average basis. Based on this calculation, Central Hudson was restricted to a maximum payment of $45.1 million in dividends to CH Energy Group for the year ended December 31, 2012. Central Hudson's dividend would be reduced to 75% of its average annual income in the event of a downgrade of its senior debt rating below "BBB+" by more than one rating agency if the stated reason for the downgrade is related to any of CH Energy Group's or Central Hudson's affiliates. Further restrictions are imposed for any downgrades below this level. During the three months ended March 31, 2013, Central Hudson had declared and paid dividends of $5.0 million to parent CH Energy Group. CH Energy Group's other subsidiaries do not have express restrictions on their ability to pay dividends.

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NOTE 2 – Regulatory Matters

Summary of Regulatory Assets and Liabilities

The following table sets forth Central Hudson's regulatory assets and liabilities (In Thousands):

	March 31,		December 31,		March 31,
	2013		2012		2012
Regulatory Assets (Debits):
Current:
Deferred purchased electric and natural gas costs (Note 1)	$	15,743	$	11,367	$	2,892
Deferred unrealized losses on derivatives (Note 14)		517		1,259		22,118
PSC General and Temporary State Assessment and carrying charges		8,854		6,260		11,547
RDM and carrying charges		-		3,393		3,068
Residual natural gas deferred balances		4,554		4,554		4,554
Deferred debt expense on re-acquired debt		601		601		628
Deferred and accrued costs - MGP site remediation and carrying charges (Note 12)		4,605		4,605		4,586
Other		291		290		290
		35,165		32,329		49,683
Long-term:
Deferred pension costs (Note 10)		140,349		146,935		151,737
Deferred unrealized losses on derivatives (Note 14)		93		218		1,688
Carrying charges - pension reserve		10,303		9,182		6,158
Deferred and accrued costs - MGP site remediation and carrying charges (Note 12)		10,109		10,739		13,459
Deferred debt expense on re-acquired debt		4,586		4,737		5,172
Deferred Medicare Subsidy taxes		7,933		7,808		7,450
Residual natural gas deferred balances and carrying charges		3,809		5,443		8,168
Income taxes recoverable through future rates		37,119		29,908		47,820
Energy efficiency incentives		2,719		2,719		2,719
Deferred storm costs and carrying charges		19,717		23,274		15,178
Other		13,322		15,751		11,747
		250,059		256,714		271,296
Total Regulatory Assets	$	285,224	$	289,043	$	320,979

Regulatory Liabilities (Credits):
Current:
Excess electric depreciation reserve	$	-	$	-	$	74
RDM and carrying charges		2,330		-		-
Deferred unrealized gains on derivatives (Note 14)		2,941		95		-
Income taxes refundable through future rates		4,431		4,669		5,120
Deferred unbilled gas revenues		4,866		5,972		3,765
		14,568		10,736		8,959
Long-term:
Customer benefit fund		2,419		2,390		2,566
Deferred cost of removal (Note 1)		44,795		43,392		42,748
Rate Base impact of tax repair project and carrying charges		9,159		9,099		8,083
Excess electric depreciation reserve carrying charges		1,586		1,586		2,688
Deferred unrealized gains on derivatives (Note 14)		2,881		693		-
Income taxes refundable through future rates		24,194		21,062		33,769
Deferred OPEB costs		9,696		7,975		8,974
Carrying charges - OPEB reserve		11,222		9,949		6,482
Other		12,448		9,314		5,199
		118,400		105,460		110,509
Total Regulatory Liabilities	$	132,968	$	116,196	$	119,468

Net Regulatory Assets	$	152,256	$	172,847	$	201,511

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2010 Rate Order

From July 1, 2010 through June 30, 2013, Central Hudson is operating under the terms of the 2010 Rate Order, which provides for the following:

Description		2010 Rate Order
Electric delivery revenue increases		$11.8 million⁽¹⁾ 7/1/10 $9.3 million⁽¹⁾ 7/1/11 $9.1 million 7/1/12
Natural gas delivery revenue increases		$5.7 million 7/1/10 $2.4 million 7/1/11 $1.6 million 7/1/12
ROE		10.0%
Earnings sharing		Yes⁽²⁾
Capital structure – common equity		48%
Targets with true-up provisions - % of revenue requirement to defer for shortfalls
Net plant balances		100%
Transmission and distribution ROW maintenance		100%
RDMs – electric and natural gas⁽³⁾		Yes
New deferral accounting for full recovery
Fixed debt costs		Yes⁽⁴⁾
Transmission sag mitigation		Yes
New York State Temporary Assessment		Yes
Material regulatory actions⁽⁵⁾		Yes⁽⁵⁾
Property taxes – Deferral for 90% of excess/deficiency relative to revenue requirement		Yes⁽⁶⁾

(1)	Moderated by $12 million and $4 million bill credits, respectively.

(2)	ROE > 10.5%, 50% to customers, > 11.0%, 80% to customers, > 11.5%, 90% to customers.

(3)	Electric is based on revenue dollars; gas is based on usage per customer.

(4)	Deferral authorization in RY2 and RY3 only.

(5)	Legislative, governmental or regulatory actions with individual impacts greater than or equal to 2% of net income of the applicable department.

(6)	The Company's pre-tax gain or loss limited to $0.7 million per rate year.

Other PSC Proceedings

On April 20, 2012, CH Energy Group, Central Hudson, Fortis, FortisUS, and Cascade Acquisition Sub Inc., submitted a joint petition to the PSC for approval of the acquisition of CH Energy Group by Fortis and related transactions. The petition describes how the acquisition of Central Hudson by Fortis will produce benefits for constituencies that include customers, employees and communities in Central Hudson's service territory as well as positive public benefits. The petition categorizes the public benefits into three major areas: 1) FortisUS' commitments and intention to preserve and build on the existing strength of Central Hudson, 2) mitigation of any potential negative aspects of the merger consistent with the PSC's disposition of specific issues that have arisen in prior utility merger proceedings in New York State and 3) identifiable monetary benefits resulting from assignment of costs to shareholders and cost savings made possible by the merger. The petition includes proposals and commitments that effectively mitigate any potential risks to Central Hudson's customers from foreign holding company ownership and excess rate risk. On January 25, 2013, a Joint Proposal with the Company, Fortis, PSC Staff, Multiple Intervenors, the Department of State Utility Intervention Unit, and Dutchess, Orange and Ulster counties as signatories, was submitted to the PSC. The signatory parties have concluded that, based on the terms of the Joint Proposal, the acquisition is in the public interest pursuant to the New York State Public Service Law, Section 70, and recommended approval by the Commission. On May 3, 2013 the Recommended Decision of the two Administrative Law Judges – an advisory document – was issued by the PSC. The RD states that, in its current form, the Joint Proposal does not meet the public interest test as required by New York State Public Service Law, Section 70, but also states that the ALJs recommend the Commission consider adopting the Joint Proposal subject to modifications that would alter the transaction's balance of risks and benefits. Briefs on exceptions to the RD are due May 17, 2013 and briefs opposing exceptions are due on May 24, 2013. While no assurance regarding the closing can be given until a PSC Order is issued by the Commission, a decision from the PSC regarding the Joint Proposal and a subsequent closing is expected in the second quarter of 2013. See Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the caption "Regulatory Matters – PSC Proceedings" for further discussion regarding the terms of the Joint Proposal and schedule.

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On October 29, 2012, Central Hudson's service territory was impacted by Superstorm Sandy, and approximately 103,000 electric customers were affected. The Sandy storm costs were included in the estimate of $22 million storm costs identified in the $35 million of regulatory liabilities to be funded by Fortis. Consistent with the Joint Proposal, on February 6, 2013, Central Hudson filed a petition with the PSC seeking expedited Commission approval to recover $9.7 million of incremental electric storm restoration expense, with carrying charges. These storm costs represent the amount Central Hudson deferred on its books as of December 31, 2012 based on actual costs incurred, bills received and an estimate for bills outstanding and are above the respective rate allowance during the twelve months ended June 30, 2013, which is the third rate year established by the PSC in its approval of a Joint Proposal in Case 09-E-0588. The Company believes the incremental costs associated with this storm meet the PSC's criteria for deferral: 1) the amount is incremental to the amount in rates; 2) the incremental amount is material and extraordinary in nature and 3) the utility's earnings are below the authorized rate of return on common equity. As of March 31, 2013, the deferred balance related to this storm event was $9.8 million.

On October 29, 2011, Central Hudson experienced an unusual fall storm with snow accumulations of up to 20 inches in the service territory, resulting in electric service outages to over 150,000 customers, extensive damage to the electric system and significant restoration costs. Following Tropical Storm Irene, the October snowstorm represented the second extraordinary storm event that occurred within the rate year. Central Hudson filed a petition with the PSC to defer for future recovery with carrying charges the $8.6 million of total incremental electric storm restoration expense. However, because the petition requested the PSC to deviate from its prior precedents, the Company was aware that the amount the PSC granted could have been lower. Accordingly, management deferred only the portion of the incremental costs that strictly follows Commission practice used in the Company's previous requests to defer incremental storm costs. Approximately $3.7 million and $3.3 million of incremental restoration expense associated with this storm was expensed in 2011 and 2012, respectively, so that the return on common equity for the twelve months ending June 30, 2012 did not exceed the authorized rate of return of 10%.

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In late August 2011, Central Hudson's service territory was affected by Tropical Storm Irene, disrupting service to approximately 180,000 customers. On November 28, 2011 Central Hudson filed a petition with the PSC seeking to defer for future recovery with carrying charges for the estimated $11.4 million of incremental electric storm restoration expense above the respective rate allowance during the twelve months ended June 30, 2012. The Company believes the incremental costs associated with this storm meet the PSC's criteria for deferral.

On April 22, 2013, the Commission issued Orders approving deferral of $8.9 million and denying deferral of $3.7 million of the incremental electric storm restoration expense related to Tropical Storm Irene and the October snowstorm. Regarding the majority of the disallowed costs, the PSC's decision stated that the Company did not meet the third prong requirement which requires the Company not be in an over earnings position. The Commission adopted a staff recommendation to exclude ratemaking normalization adjustments for purposes of calculating authorized electric regulatory earnings, and therefore denied a portion of these petitioned deferrals based on this third prong criterion. In addition, the PSC's Order stated that approximately $0.6 million of the costs related to Tropical Storm Irene should have been allocated to a separate storm, Tropical Storm Lee, and that this separate amount did not meet the materiality threshold for recovery. Central Hudson expects to file a petition for reconsideration and rehearing on the PSC's April 22, 2013 Orders challenging the exclusion of the Company's normalization adjustments used to measure earnings. The petition will seek rehearing for reconsideration and recovery of $3.7 million of costs denied by the Commission for deferral accounting treatment. The Company believes that it is entitled to fully recover all of these incremental electric storm restoration expenses; however Central Hudson cannot predict the final outcome of this proceeding.

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NOTE 3 - New Accounting Guidance

Newly adopted and soon to be adopted accounting guidance is summarized below, including explanations for any new guidance issued in 2013 (except that which is not currently applicable) and the expected impact on CH Energy Group and its subsidiaries.

Impact	Category	Accounting Reference	Title	Issued Date	Effective Date
1	Balance Sheet (Topic 210)	ASU No. 2011-11	Disclosures about Offsetting Assets and Liabilities	Dec-11	Jan-13
1	Balance Sheet (Topic 210)	ASU No. 2013-01	Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities	Jan-13	Jan-13
1	Comprehensive Income (Topic 220)	ASU No. 2013-02	Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income	Feb-13	Dec-12
2	Liabilities (Topic 405)	ASU No. 2013-04	Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date	Feb-13	Dec-13

Impact Key:
(1)	No current impact on the financial condition, results of operations and cash flows of CH Energy Group and its subsidiaries when adopted on the effective date noted. Additional disclosures have been added or presentation of information modified where required.
(2)	No anticipated impact on the financial condition, results of operations and cash flows of CH Energy Group and its subsidiaries upon future adoption.

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NOTE 4 – Income Tax

In September of 2010, Central Hudson filed a request with the Internal Revenue Service ("IRS") to change the Company's tax accounting method related to costs to repair and maintain utility assets. The change was effective for the tax year ending December 31, 2009. This change allows Central Hudson to take a current tax deduction for a significant amount of repair costs that were previously capitalized for tax purposes.

In September 2012, Central Hudson filed corporate income tax returns for the year ended December 31, 2011. With that filing, the Company included an election to adopt the provisions of Revenue Procedure 2011-43 ("Rev Proc"), which provided IRS guidance related to the repair deduction previously taken on electric transmission and distribution property. Adoption of the provisions of the Rev Proc resulted in reduced federal and state net operating income tax loss ("NOL") carryforwards. The Company believes the remaining electric repair deduction meets and complies with the requirements included in the Rev Proc. As such, tax reserves related to the electric transmission and distribution repair deductions have been reclassified to deferred tax liability accounts.

IRS guidance with respect to repairs taken on Gas Transmission and Distribution repairs is still pending. Therefore, remaining reserves related to the gas repair deduction continue to be shown as "Tax Reserve" under the Deferred Credits and Other Liabilities section of the Central Hudson Balance Sheet.

Other than the uncertain tax position related to the Company's accounting method change for gas transmission and distribution repairs, there are no other uncertain tax positions. The following is a summary of activity related to uncertain tax positions (In Thousands):

	Three Months Ended March 31,
	2013		2012
Balance at the beginning of the period	$	2,000	$	3,172
Adjustments related to tax accounting method change		47		2
Balance at the end of the period	$	2,047	$	3,174

Jurisdiction		Tax Years Open for Audit
Federal⁽¹⁾		2007 - 2012
New York State		2009 - 2012

(1) Federal tax filings for the years 2007 - 2011 are currently under audit.

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Table of Contents

Reconciliation - CH Energy Group

The following is a reconciliation between the amount of federal income tax computed on income before taxes at the statutory rate and the amount reported in CH Energy Group's Consolidated Statement of Income (In Thousands):

	Three Months Ended March 31,
	2013			2012
Net income attributable to CH Energy Group	$	18,090		$	14,581
Preferred Stock dividends of Central Hudson		92			242
Preferred Stock Redemption Premium		764			-
Federal income tax		7,465			-
State income tax		544			408
Deferred federal income tax		2,833			10,452
Deferred state income tax		323			809
Income before taxes	$	30,111		$	26,492

Computed federal tax at 35% statutory rate	$	10,539		$	9,272
State income tax net of federal tax benefit		879			1,293
Depreciation flow-through		891			797
Cost of Removal		(616	)		(596	)
Merger Transaction Costs		84			1,705
Other		(612	)		(802	)
Total income tax	$	11,165		$	11,669

Effective tax rate - federal		34.2	%		39.4	%
Effective tax rate - state		2.9	%		4.6	%
Effective tax rate - combined		37.1	%		44.0	%

The decrease in the effective tax rate for the three months ended March 31, 2013 as compared to 2012 was primarily driven by the decrease in merger related costs. Merger related transaction costs that are facilitative in nature are considered nondeductible for tax purposes. Merger related transaction costs incurred for the three months ended March 31, 2013 were $0.2 million and for the three months ended March 31, 2012 were $4.3 million which have been determined to be facilitative and therefore nondeductible.

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Table of Contents

Reconciliation - Central Hudson

The following is a reconciliation between the amount of federal income tax computed on income before taxes at the statutory rate and the amount reported in Central Hudson's Statement of Income (In Thousands):