Edgar Filing: CH ENERGY GROUP INC

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended......................................................June 30, 2007

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.	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 o

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 o Non-Accelerated Filer o

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 o Accelerated Filer o 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 o No x

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

Yes o No x

As of the close of business on August 1, 2007, (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).

FORM 10-Q FOR THE QUARTER ENDED June 30, 2007

INDEX


		PAGE

PART I - FINANCIAL INFORMATION

Item 1 – Consolidated Financial Statements (Unaudited)

	CH ENERGY GROUP, INC.
	Consolidated Statement of Income – Three Months Ended June 30, 2007, and 2006	1

	Consolidated Statement of Income – Six Months Ended June 30, 2007, and 2006	2

	Consolidated Statement of Comprehensive Income – Three Months Ended June 30, 2007, and 2006	3

	Consolidated Statement of Comprehensive Income – Six Months Ended June 30, 2007, and 2006	3

	Consolidated Balance Sheet – June 30, 2007, December 31, 2006, and June 30, 2006	4

	Consolidated Statement of Cash Flows – Six Months Ended June 30, 2007, and 2006	6

	CENTRAL HUDSON GAS & ELECTRIC CORPORATION
	Consolidated Statement of Income – Three Months Ended June 30, 2007, and 2006	7

	Consolidated Statement of Income – Six Months Ended June 30, 2007, and 2006	8

	Consolidated Statement of Comprehensive Income – Three Months Ended June 30, 2007, and 2006	9

	Consolidated Statement of Comprehensive Income – Six Months Ended June 30, 2007, and 2006	9

	Consolidated Balance Sheet – June 30, 2007, December 31, 2006, and June 30, 2006	10

	Consolidated Statement of Cash Flows – Six Months Ended June 30, 2007, and 2006	12

	Notes to Consolidated Financial Statements (Unaudited)	13


INDEX

	PAGE


ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	35

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	58

ITEM 4 - CONTROLS AND PROCEDURES	58

PART II – OTHER INFORMATION	59

ITEM 1 - LEGAL PROCEEDINGS	59

ITEM 1A - RISK FACTORS	59

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	60

ITEM 6 - EXHIBITS	61

SIGNATURES	62

EXHIBIT INDEX	63

CERTIFICATIONS	66

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.

PART I - FINANCIAL INFORMATION

Item I - Consolidated Financial Statements

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


	For the 3 Months Ended June 30,
	2007			2006

	(Thousands of Dollars)
Operating Revenues
Electric	$	150,445		$	107,930
Natural gas		40,242			36,458
Competitive business subsidiaries		80,296			69,503

Total Operating Revenues		270,983			213,891


Operating Expenses
Operation:
Purchased electricity and fuel used in electric generation		97,232			63,609
Purchased natural gas		27,925			25,329
Purchased petroleum		60,818			55,512
Other expenses of operation - regulated activities		39,493			29,985
Other expenses of operation - competitive business subsidiaries		17,756			15,023
Depreciation and amortization		9,026			9,124
Taxes, other than income tax		8,660			8,517

Total Operating Expense		260,910			207,099


Operating Income		10,073			6,792


Other Income and Deductions
Income from unconsolidated affiliates		349			741
Interest on regulatory assets and investment income		2,254			2,955
Other - net		(538	)		810

Total Other Income		2,065			4,506


Interest Charges
Interest on long-term debt		4,495			4,071
Interest on regulatory liabilities and other interest		923			946

Total Interest Charges		5,418			5,017


Income Before Income Taxes and Preferred Dividends of Subsidiary		6,720			6,281

Income Taxes		1,293			2,099
Minority Interest		(4	)		(128	)

Income Before Preferred Dividends of Subsidiary		5,431			4,310
Cumulative Peferred Stock Dividends of Subsidiary		242			242


Net Income		5,189			4,068
Dividends Declared on Common Stock		8,512			8,512


Balance Retained in the Business	$	(3,323	)	$	(4,444	)


Common Stock:
Average Shares Outstanding - Basic		15,762			15,762
- Diluted		15,784			15,775

Earnings Per Share - Basic	$	0.33		$	0.26
- Diluted	$	0.33		$	0.26

Dividends Declared Per Share	$	0.54		$	0.54

See Notes to Consolidated Financial Statements

PART I - FINANCIAL INFORMATION

Item I - Consolidated Financial Statements

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


	For the 6 Months Ended June 30,
	2007			2006

	(Thousands of Dollars)
Operating Revenues
Electric	$	302,120		$	243,977
Natural gas		104,433			107,267
Competitive business subsidiaries		207,809			179,879

Total Operating Revenues		614,362			531,123


Operating Expenses
Operation:
Purchased electricity and fuel used in electric generation		191,268			149,449
Purchased natural gas		71,261			77,056
Purchased petroleum		155,378			140,370
Other expenses of operation - regulated activities		77,142			58,480
Other expenses of operation - competitive business subsidiaries		36,549			30,693
Depreciation and amortization		18,131			18,077
Taxes, other than income tax		17,147			16,121

Total Operating Expense		566,876			490,246


Operating Income		47,486			40,877


Other Income and Deductions
Income from unconsolidated affiliates		1,544			931
Interest on regulatory assets and investment income		4,394			5,692
Other - net		(1,034	)		90

Total Other Income		4,904			6,713


Interest Charges
Interest on long-term debt		8,986			8,024
Interest on regulatory liabilities and other interest		1,873			1,983

Total Interest Charges		10,859			10,007


Income Before Income Taxes and Preferred Dividends of Subsidiary		41,531			37,583

Income Taxes		14,256			14,858
Minority Interest		(97	)		(128	)


Income Before Preferred Dividends of Subsidiary		27,372			22,853
Cumulative Preferred Stock Dividends of Subsidiary		485			485


Net Income		26,887			22,368
Dividends Declared on Common Stock		17,023			17,023


Balance Retained in the Business	$	9,864		$	5,345


Common Stock:
Average Shares Outstanding - Basic		15,762			15,762
- Diluted		15,784			15,776

Earnings Per Share - Basic	$	1.71		$	1.42
- Diluted	$	1.70		$	1.41

Dividends Declared Per Share	$	1.08		$	1.08

See Notes to Consolidated Financial Statements

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


	For the 3 Months Ended June 30,
	2007		2006

	(Thousands of Dollars)

Net Income	$	5,189	$	4,068

Other Comprehensive Income:

Net unrealized gains net of tax and net income realization:
FAS 133 Designated Cash Flow Hedges - net of tax of $(12) and $(4)		18		6
Investments - net of tax of $(286) and $(0)		428		—


Other comprehensive income		446		6


Comprehensive Income	$	5,635	$	4,074


	For the 6 Months Ended June 30,
	2007		2006

	(Thousands of Dollars)

Net Income	$	26,887	$	22,368

Other Comprehensive Income:

Net unrealized gains net of tax and net income realization:
FAS 133 Designated Cash Flow Hedges - net of tax of $(245) and $(10)		367		17
Investments - net of tax of $(397) and $(83)		595		126


Other comprehensive income		962		143


Comprehensive Income	$	27,849	$	22,511

See Notes to Consolidated Financial Statements

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


ASSETS	June 30, 2007		December 31, 2006		June 30, 2006

	(Thousands of Dollars)

Utility Plant
Electric	$	788,734	$	768,808	$	748,419
Natural gas		240,870		239,317		231,934
Common		113,937		112,426		109,800

		1,143,541		1,120,551		1,090,153

Less: Accumulated depreciation		348,975		344,540		342,116

		794,566		776,011		748,037

Construction work in progress		56,165		51,041		49,434

Net Utility Plant		850,731		827,052		797,471


Other Property and Plant - net		33,469		33,822		33,810


Current Assets
Cash and cash equivalents		22,039		24,121		36,968
Short-term investments - available-for-sale securities		28,950		42,611		40,200
Accounts receivable - net of allowance for doubtful accounts of $4.5 million, $5.8 million, and $5.2 million, respectively		93,485		80,862		76,026
Accrued unbilled utility revenues		6,846		9,772		5,563
Other receivables		6,186		7,706		5,871
Fuel, materials and supplies		28,955		27,930		29,239
Regulatory assets		32,525		31,332		18,719
Prepaid income taxes		—		11,244		—
Special deposits and prepayments		25,029		23,655		27,422
Accumulated deferred income tax		6,584		5,875		15,335

Total Current Assets		250,599		265,108		255,343


Deferred Charges and Other Assets
Regulatory assets - related to pension plan costs		91,532		99,281		115,564
Regulatory assets - related to other post-employment benefit (OPEB) costs		32,766		36,392		13,622
Regulatory assets		83,219		83,102		46,576
Intangible asset - pension plan		—		—		20,217
Goodwill		57,539		52,828		52,198
Other intangible assets - net		30,926		27,550		27,831
Unamortized debt expense		4,217		4,041		3,816
Investments in unconsolidated affiliates		13,417		12,651		12,504
Other		20,273		18,705		20,204

Total Deferred Charges and Other Assets		333,889		334,550		312,532


Total Assets	$	1,468,688	$	1,460,532	$	1,399,156

See Notes to Consolidated Financial Statements

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


CAPITALIZATION AND LIABILITIES	June 30, 2007			December 31, 2006			June 30, 2006

	(Thousands of Dollars)
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		216,919			207,055			203,362
Treasury stock (1,100,087 shares)		(46,252	)		(46,252	)		(46,252	)
Accumulated comprehensive income (loss)		433			(529	)		(377	)
Capital stock expense		(328	)		(328	)		(328	)

Total Common Shareholders’ Equity		523,688			512,862			509,321


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

Long-term debt		370,890			337,889			310,887

Total Capitalization		915,605			871,778			841,235


Current Liabilities
Current maturities of long-term debt		—			33,000			33,000
Notes payable		29,000			13,000			33,500
Accounts payable		38,705			41,840			32,236
Accrued interest		5,546			5,645			5,594
Dividends payable		8,754			8,754			8,754
Accrued vacation and payroll		7,198			5,963			5,936
Customer advances		12,969			25,732			10,681
Customer deposits		8,152			7,954			7,324
Regulatory liabilities		15,261			21,651			3,140
Fair value of derivative instruments		6,546			3,582			2,236
Accrued environmental remediation costs		2,604			3,400			4,000
Accrued income taxes		374			—			4,735
Deferred revenues		5,053			5,455			3,966
Other		12,790			14,112			9,972

Total Current Liabilities		152,952			190,088			165,074


Deferred Credits and Other Liabilities
Regulatory liabilities		104,762			107,796			150,016
Operating reserves		5,245			4,906			6,756
Accrued environmental remediation costs		14,678			17,354			18,529
Accrued OPEB costs		68,172			68,818			27,694
Accrued pension costs		48,760			47,299			32,854
Other		14,078			12,566			14,025

Total Deferred Credits and Other Liabilities		255,695			258,739			249,874


Minority Interest		1,369			1,481			1,494


Accumulated Deferred Income Tax		143,067			138,446			141,479


Commitments and Contingencies (Note 11)

Total Capitalization and Liabilities	$	1,468,688		$	1,460,532		$	1,399,156

See Notes to Consolidated Financial Statements

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


	For the 6 Months Ended June 30,
	2007			2006

	(Thousands of Dollars)
Operating Activities:

Net Income	$	26,887		$	22,368

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		18,131			18,077
Deferred income taxes - net		3,043			3,403
Provision for uncollectibles		2,422			3,000
Undistributed equity in earnings of unconsolidated affiliates		(844	)		(891	)
Accrued (deferred) pension costs		6,800			(6,884	)
Regulatory liability-rate moderation		(12,547	)		—
Minority interest		(97	)		(128	)
Gain on sale of property and plant		(468	)		(697	)

Changes in operating assets and liabilities - net of business acquisitions:
Accounts receivable, unbilled revenues and other receivables		(10,599	)		44,448
Fuel, materials and supplies		246			(811	)
Special deposits and prepayments		(1,374	)		(6,903	)
Prepaid income taxes		11,244			—
Accounts payable		(2,691	)		(22,864	)
Accrued taxes and interest		275			5,174
Accrued OPEB costs		2,527			2,749
Customer advances		(12,763	)		(15,051	)
Deferred natural gas and electric costs		4,605			13,834
Customer benefit fund		—			(6,412	)
Other - net		(1,077	)		(7,251	)


Net Cash Provided By Operating Activities		33,720			45,161


Investing Activities:

Proceeds from sale of property and plant		1,021			765
Purchase of short-term investments		(43,101	)		(21,000	)
Proceeds from sale of short-term investments		56,762			22,900
Additions to utility plant and other property and plant		(39,235	)		(30,614	)
Issuance of notes receivable		—			(315	)
Acquisitions made by competitive business subsidiaries		(11,585	)		(12,843	)
Other - net		1,718			(2,941	)


Net Cash Used in Investing Activities		(34,420	)		(44,048	)


Financing Activities:

Redemption of long-term debt		(33,000	)		—
Proceeds from issuance of long-term debt		33,000			—
Net borrowings of short-term debt		16,000			3,500
Dividends paid on common stock		(17,023	)		(17,023	)
Debt issuance costs		(359	)		(32	)


Net Cash Used in Financing Activities		(1,382	)		(13,555	)


Net Change in Cash and Cash Equivalents		(2,082	)		(12,442	)

Cash and Cash Equivalents - Beginning of Year		24,121			49,410


Cash and Cash Equivalents - End of Period	$	22,039		$	36,968


Supplemental Disclosure of Cash Flow Information and Non-Cash Investing Activities

Interest paid	$	9,979		$	9,986

Federal and state income tax paid	$	8,023		$	5,733

Additions to plant included in accounts payable	$	3,749		$	2,454

See Notes to Consolidated Financial Statements

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


	For the 3 Months Ended June 30,
	2007			2006

	(Thousands of Dollars)
Operating Revenues
Electric	$	150,445		$	107,930
Natural gas		40,242			36,458

Total Operating Revenues		190,687			144,388


Operating Expenses
Operation:
Purchased electricity and fuel used in electric generation		95,796			62,970
Purchased natural gas		27,925			25,329
Other expenses of operation		39,493			29,985
Depreciation and amortization		7,144			7,462
Taxes, other than income tax		8,522			8,431

Total Operating Expenses		178,880			134,177


Operating Income		11,807			10,211


Other Income and Deductions
Interest on regulatory assets and other interest income		1,634			2,121
Other - net		(317	)		(214	)

Total Other Income		1,317			1,907


Interest Charges
Interest on long-term debt		4,495			4,071
Interest on regulatory liabilities and other interest		923			945

Total Interest Charges		5,418			5,016


Income Before Income Taxes		7,706			7,102

Income Taxes		2,444			2,979


Net Income		5,262			4,123

Dividends Declared on Cumulative Preferred Stock		242			242


Income Available for Common Stock	$	5,020		$	3,881

See Notes to Consolidated Financial Statements

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


	For the 6 Months Ended June 30,
	2007			2006

	(Thousands of Dollars)
Operating Revenues
Electric	$	302,120		$	243,977
Natural gas		104,433			107,267

Total Operating Revenues		406,553			351,244


Operating Expenses
Operation:
Purchased electricity and fuel used in electric generation		189,013			148,810
Purchased natural gas		71,261			77,056
Other expenses of operation		77,142			58,480
Depreciation and amortization		14,430			14,917
Taxes, other than income tax		16,857			15,958

Total Operating Expenses		368,703			315,221


Operating Income		37,850			36,023


Other Income and Deductions
Interest on regulatory assets and other interest income		3,088			4,050
Other - net		(575	)		(333	)

Total Other Income		2,513			3,717


Interest Charges
Interest on long-term debt		8,986			8,024
Interest on regulatory liabilities and other interest		1,873			1,983

Total Interest Charges		10,859			10,007


Income Before Income Taxes		29,504			29,733

Income Taxes		10,871			12,556


Net Income		18,633			17,177

Dividends Declared on Cumulative Preferred Stock		485			485


Income Available for Common Stock	$	18,148		$	16,692

See Notes to Consolidated Financial Statements

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


	For the 3 Months Ended June 30,
	2007			2006

	(Thousands of Dollars)

Net Income		$	5,262		$	4,123

Other Comprehensive Income			—			—


Comprehensive Income		$	5,262		$	4,123


	For the 6 Months Ended June 30,
	2007			2006

	(Thousands of Dollars)

Net Income		$	18,633		$	17,177

Other Comprehensive Income			—			—


Comprehensive Income		$	18,633		$	17,177

See Notes to Consolidated Financial Statements

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


ASSETS	June 30, 2007		December 31, 2006		June 30, 2006

	(Thousands of Dollars)
Utility Plant
Electric	$	788,734	$	768,808	$	748,419
Natural gas		240,870		239,317		231,934
Common		113,937		112,426		109,800

		1,143,541		1,120,551		1,090,153

Less: Accumulated depreciation		348,975		344,540		342,116

		794,566		776,011		748,037

Construction work in progress		56,165		51,041		49,434

Net Utility Plant		850,731		827,052		797,471


Other Property and Plant - net		416		434		722


Current Assets
Cash and cash equivalents		1,810		1,710		1,738
Accounts receivable - net of allowance for doubtful accounts of $2.6 million, $3.8 million, and $3.8 million, respectively		61,136		48,611		46,953
Accrued unbilled utility revenues		6,846		9,772		5,563
Other receivables		3,299		3,034		3,190
Fuel, materials and supplies - at average cost		23,487		22,804		23,163
Regulatory assets		32,525		31,332		18,719
Prepaid income taxes		87		10,477		—
Special deposits and prepayments		21,179		21,009		22,838
Accumulated deferred income tax		5,569		4,600		14,379

Total Current Assets		155,938		153,349		136,543


Deferred Charges and Other Assets
Regulatory assets - related to pension plan costs		91,532		99,281		115,564
Regulatory assets - related to OPEB costs		32,766		36,392		13,622
Regulatory assets		83,219		83,102		46,576
Intangible asset - pension plan		—		—		20,217
Unamortized debt expense		4,217		4,041		3,816
Other		13,136		12,172		12,651

Total Deferred Charges and Other Assets		224,870		234,988		212,446


Total Assets	$	1,231,955	$	1,215,823	$	1,147,182

See Notes to Consolidated Financial Statements

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


CAPITALIZATION AND LIABILITIES	June 30, 2007			December 31, 2006			June 30, 2006

			(Thousands of Dollars)
Capitalization
Common Stock Equity:
Common stock, 30,000,000 shares authorized; 16,862,087 shares issued ($5 par value)	$	84,311		$	84,311		$	84,311
Paid-in capital		174,980			174,980			174,980
Retained earnings		86,858			68,710			51,501
Capital stock expense		(4,961	)		(4,961	)		(4,961	)

Total Common Shareholder’s Equity		341,188			323,040			305,831


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

Long-term debt		370,890			337,889			310,887

Total Capitalization		733,105			681,956			637,745


Current Liabilities
Current maturities of long-term debt		—			33,000			33,000
Notes payable		29,000			13,000			33,500
Accounts payable		29,967			32,418			24,526
Accrued interest		5,546			5,645			5,594
Dividends payable - preferred stock		242			242			242
Accrued vacation and payroll		5,121			4,682			4,759
Customer advances		4,439			15,907			5,231
Customer deposits		8,018			7,811			7,165
Regulatory liabilities		15,261			21,651			3,140
Fair value of derivative instruments		6,546			2,971			1,983
Accrued income taxes		—			—			3,825
Accrued environmental remediation costs		2,004			3,400			4,000
Other		7,699			8,884			5,470

Total Current Liabilities		113,843			149,611			132,435


Deferred Credits and Other Liabilities
Regulatory liabilities		104,762			107,796			150,016
Operating reserves		4,088			3,936			5,512
Accrued environmental remediation costs		13,573			15,457			15,500
Accrued OPEB costs		68,172			68,818			27,694
Accrued pension costs		48,760			47,299			32,854
Other		13,056			11,802			11,862

Total Deferred Credits and Other Liabilities		252,411			255,108			243,438


Accumulated Deferred Income Tax		132,596			129,148			133,564


Commitments and Contingencies (Note 11)

Total Capitalization and Liabilities	$	1,231,955		$	1,215,823		$	1,147,182

See Notes to Consolidated Financial Statements

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


	For the 6 Months Ended June 30,
	2007			2006

	(Thousands of Dollars)

Operating Activities:

Net Income	$	18,633		$	17,177

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		14,430			14,917
Deferred income taxes - net		2,251			2,675
Provision for uncollectibles		1,945			2,507
Accrued (deferred) pension costs		6,800			(6,884	)
Regulatory liability-rate moderation		(12,547	)		—
Gain on sale of property and plant		(468	)		—

Changes in operating assets and liabilities - net:
Accounts receivable, unbilled revenues and other receivables		(11,809	)		30,952
Fuel, materials and supplies		(683	)		248
Special deposits and prepayments		(170	)		(6,670	)
Prepaid income tax		10,390			—
Accounts payable		(2,007	)		(16,358	)
Accrued taxes and interest		(99	)		3,939
Accrued OPEB costs		2,527			2,749
Customer advances		(11,468	)		(10,676	)
Deferred natural gas and electric costs		4,605			13,834
Customer benefit fund		—			(6,412	)
Other - net		(566	)		(8,630	)


Net Cash Provided by Operating Activities		21,764			33,368


Investing Activities:

Proceeds from sale of property and plant		1,021			—
Additions to utility plant		(37,988	)		(29,314	)
Other - net		147			(1,031	)


Net Cash Used in Investing Activities		(36,820	)		(30,345	)


Financing Activities:

Redemption of long-term debt		(33,000	)		—
Proceeds from issuance of long-term debt		33,000			—
Net borrowings of short-term debt		16,000			3,500
Dividends paid on cumulative preferred stock		(485	)		(485	)
Dividends paid to parent - CH Energy Group		—			(8,500	)
Debt issuance costs		(359	)		(32	)


Net Cash Provided by (Used In) Financing Activities		15,156			(5,517	)


Net Change in Cash and Cash Equivalents		100			(2,494	)

Cash and Cash Equivalents - Beginning of Year		1,710			4,232


Cash and Cash Equivalents - End of Period	$	1,810		$	1,738


Supplemental Disclosure of Cash Flow Information and Non-Cash Investing Activities
Interest paid	$	9,979		$	8,117

Federal and state income tax paid	$	7,230		$	6,626

Additions to plant included in accounts payable	$	3,749		$	2,454

See Notes to Consolidated Financial Statements

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

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

This Quarterly Report on Form 10-Q is a combined report of CH Energy Group, Inc. (“CH Energy Group”) and its regulated electric and natural gas subsidiary, Central Hudson Gas & Electric Corporation (“Central Hudson”). The Notes to the Consolidated Financial Statements apply to both CH Energy Group and Central Hudson. CH Energy Group’s Consolidated Financial Statements include the accounts of CH Energy Group and its wholly owned subsidiaries, which include Central Hudson and CH Energy Group’s non-utility subsidiary, Central Hudson Enterprises Corporation (“CHEC” and, together with its subsidiaries, the “competitive business subsidiaries”). Operating results of CHEC’s wholly owned subsidiary Griffith Energy Services, Inc. (“Griffith”) and its subsidiary Lyonsdale Biomass, LLC (“Lyonsdale”) are consolidated in the financial statements of CH Energy Group. The minority interest shown on CH Energy Group’s Consolidated Financial Statements represents the minority owner’s proportionate share of the income and equity of Lyonsdale.

Unaudited Consolidated Financial Statements

The accompanying Consolidated Financial Statements of CH 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 CH Energy Group/Central Hudson Annual Report on Form 10-K for the year ended December 31, 2006 (the “Corporations’ 10-K Annual Report”).

CH Energy Group’s and Central Hudson’s balance sheets as of June 30, 2006, are not required to be included in this Quarterly Report on Form 10-Q; however, these balance sheets are included for supplemental analysis purposes.

Cash and Cash Equivalents

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

Accounting for Derivative Instruments and Hedging Activities

Central Hudson

Reference is made to the caption “Accounting for Derivative Instruments and Hedging Activities” of Note 1 – “Summary of Significant Accounting Policies” to the Consolidated Financial Statements of the Corporations’ 10-K Annual Report. At June 30, 2007, the total fair value of open Central Hudson derivatives, which hedge electric and natural gas commodity purchases, was an unrealized loss of ($6.5) million. This compares to a fair value at December 31, 2006, of ($3.0) million, a net unrealized loss, and a fair value of ($2.0) million at June 30, 2006, a net unrealized loss. At June 30, 2007, Central Hudson had open derivative contracts hedging approximately 38.2% of its projected electricity requirements for the period July 2007 through December 2007 and 15.0% of its projected natural gas requirements for the period November 2007 through March 2008. Central Hudson recorded actual net losses of ($1.3) million on such hedging activities for the quarter ended June 30, 2007, as compared to a net loss of ($1.5) million for the same period in 2006. Comparative amounts for the six months ended June 30, 2007, and 2006, were net losses of ($4.7) million and ($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 months of February and March of the heating season ended March 31, 2007, the three months of the heating season ended March 31, 2006, the three months of the cooling season ended August 31, 2007, and the months of July and August 2006. Under the terms of these weather-hedging contracts, no settlement payments were made to or from counter-parties for any of the periods covered.

Griffith

The fair value of Griffith’s open derivative positions at June 30, 2007, and 2006, was not material. The fair value of derivative instruments at December 31, 2006, was a net unrealized loss of ($0.6) million. Derivatives outstanding at June 30, 2007, include call options designated as cash flow hedges for fuel oil purchases from September 2007 through June 2008, which hedge approximately 1.6% of Griffith’s total projected fuel oil requirements for this period. Settlement amounts recorded for the quarters ended June 30, 2007, and 2006, were not material. A total actual net loss was recorded June 30, 2007, including premium expense, in the amount of ($0.6) million. A net gain was recorded during the same period in 2006 that was not material.

Griffith entered into weather derivative contracts for selected months of the heating season ended March 31, 2007, and due to weather that was colder than the contractual ceiling price paid $0.9 million to the related counter-party. The settlement amount for the weather-hedging contract covering the three-month period ended March 31, 2006, was not material.

Parental Guarantees

CH Energy Group and CHEC have issued guarantees in conjunction with certain commodity and derivative contracts that provide financial or performance assurance to third parties on behalf of a subsidiary. The guarantees are entered into primarily to support or enhance the creditworthiness otherwise attributed to a subsidiary on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish the relevant subsidiary’s intended commercial purposes. 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.”

The guarantees described above have been issued to counter-parties to assure the payment, when due, of certain obligations incurred by CH Energy Group subsidiaries in physical and financial transactions related to heating oil, propane, other petroleum products, and weather and commodity hedges. At June 30, 2007, the aggregate amount of subsidiary obligations covered by these guarantees was $5.6 million. Where liabilities exist under the commodity-related contracts subject to these guarantees, these liabilities are included in CH Energy Group’s Consolidated Balance Sheet.

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 Public Service Commission (“PSC”).

Financial Accounting Standards Board (“FASB”) SFAS No. 143, titled Accounting for Asset Retirement Obligations (“SFAS 143”), precludes the recognition of expected future retirement obligations as a component of depreciation expense or accumulated depreciation. Central Hudson, however, is required to use depreciation methods and rates approved by the PSC under regulatory accounting. In accordance with 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 $46.4 million, $44.6 million, and $95.7 million of net cost of removal as

regulatory liabilities as of June 30, 2007, December 31, 2006, and June 30, 2006, respectively. The amount of this liability as of December 31, 2006, was reduced by the transfer of $52.5 million of excess electric depreciation reserve pursuant to the Order Establishing Rate Plan (“2006 Order”) issued to Central Hudson by the PSC on July 24, 2006. For further information, see Note 1 – “Summary of Significant Accounting Policies” under the caption “Depreciation and Amortization” to the Consolidated Financial Statements of the Corporations’ 10-K Annual Report.

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

Accumulated depreciation for Griffith was $18.8 million, $17.3 million, and $16.1 million as of June 30, 2007, December 31, 2006, and June 30, 2006, respectively. Accumulated depreciation for Lyonsdale was $0.9 million, $0.6 million and $0.1 million as of June 30, 2007 and December 31, 2006, and June 30, 2006, respectively.

Amortization of intangibles (other than goodwill) is computed on the straight-line method over an asset’s expected useful life. See Note 5 – “Goodwill and Other Intangible Assets” 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 CH Energy Group’s common stock (“Common Stock”), earnings for CH Energy Group are reduced by the preferred stock dividends of Central Hudson. The average dilutive effect of CH Energy Group’s stock options and performance shares was 21,807 shares and 13,368 shares for the quarters ended June 30, 2007, and 2006, and 22,338 shares and 13,619 shares for the six months ended June 30, 2007, and 2006, respectively. Certain stock options are excluded from the calculation of diluted earnings per share because the exercise prices of those options were greater than the average market price per share of Common Stock for some of the periods presented. Excluded from the calculation were options for 18,420 shares for the three-month and six-month periods ended June 30, 2007, and 35,700 shares for the three-month and six-month periods ended June 30, 2006. For additional information regarding stock options and performance shares, see Note 10 – “Equity-Based Compensation Incentive Plans.”

Equity-Based Compensation

CH Energy Group has an equity-based employee compensation plan that is described in Note 10 – “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. CH 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.

Income Tax

On April 9, 2007, New York State enacted its 2007 – 2008 budget, which included amendments to the state income tax. Those amendments included a reduction in the Corporate Net Income Tax Rate to 7.1% from 7.5%, as well as the adoption of a single sales factor for apportioning taxable income to New York State. Both amendments are effective January 1, 2007, and are not material to CH Energy Group and Central Hudson.

Reclassification

Certain amounts in the 2006 Consolidated Financial Statements have been reclassified to conform to the 2007 presentation.

NOTE 2 – REGULATORY MATTERS

Reference is made to Note 2 – “Regulatory Matters” under captions “Expiring Rate Proceedings – Electric and Natural Gas” and “New Rate Proceedings – Electric and Natural Gas” to the Consolidated Financial Statements of the Corporations’ 10-K Annual Report.

Utility Land Sales

Central Hudson

On April 23, 2007, the PSC issued an Order approving the proposed transfer of Central Hudson’s ownership interest in its 900 kW Groveville Mills Hydroelectric facility and the deferral of any gain realized upon the transfer for the benefit of customers.

In the second quarter, Central Hudson sold utility property, including the Groveville Mills Hydroelectric facility, for $0.5 million in excess of book value plus transaction costs, which excess was recorded as a regulatory liability.

Non-Utility Land Sales

Central Hudson

During the six months ended June 30, 2007, Central Hudson sold four parcels of non-utility real property for $0.5 million in excess of book value plus transaction costs, which is recorded as a reduction to Other Expenses of Operation.

NOTE 3 – 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 Financial Statements of the Corporations’ 10-K Annual Report.

New accounting standards are summarized below, and explanations of the underlying information for all standards (except those not currently applicable to CH Energy Group and its subsidiaries) follow the chart.

Impact*

Status

Category

Reference

Title

Issued Date

Effective
Date

Under Assessment

Fair Value

SFAS 159

Establishing the Fair Value Option for Financial Assets and Liabilities

Feb-07

Jan-08

Under Assessment

Fair Value

SFAS 157

Fair Value Measurement

Sep-06

Jan-08

Implemented

Pension, Postretirement

SFAS 158

Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans

Sep-06

Dec-06

Implemented

Taxes

FIN 48

Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109

Jul-06

Jan-07

Implemented

Taxes

FIN 48-1

Definition of Settlement in FASB Interpretation
No. 48

May-07

Jan-07

Not Currently Applicable

Derivatives

SFAS 133 Issue B40

Embedded Derivatives: Application of Paragraph 13 (b) to Securitized Interests in Prepayable Financial Assets

Dec-06

Jan-07

Not Currently Applicable

Financial Assets

SFAS 156

Accounting for Servicing of Financial Assets

Mar-06

Jan-07

Not Currently Applicable

Financial Instruments

SFAS 155

Accounting for Certain Hybrid Financial Instruments, an Amendment of FASB Statements No. 133 and 140

Feb-06

Jan-07

Not Currently Applicable

Derivatives

FIN 39-1

Amendment of FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts

Apr-07

Jan-07

Not Currently Applicable

Derivatives

SFAS 133
Issue G26

Cash Flow Hedges: Hedging Interest Cash Flows on Variable-Rate Assets and Liabilities that are not Based on a Benchmark Rate

Dec-06

Apr-07


*Impact Key:

1 - No significant impact on the financial condition, results of operations and cash flows of CH Energy Group and its subsidiaries expected.

2 - Following the chart, the impacts are separately disclosed as of standard effective dates.

3 - No current impact on the financial condition, results of operations and cash flows of CH Energy Group and its subsidiaries.

Standards Under Assessment

SFAS 159 permits entities to choose to elect, at specified election dates, to measure eligible financial instruments at fair value. The election is made on an instrument-by-instrument basis, and once made is irrevocable. Eligible instruments include written loan commitments, rights and obligations under insurance contracts and warranties that are not financial instruments, and firm commitments that would otherwise not be recognized at inception and that involve only financial instruments. The statement requires that entities report in earnings unrealized gains and losses on items for which the fair value option has been elected, and recognize upfront costs and fees related to those items in earnings as incurred.

SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with General Accepted Accounting Principles, and expands disclosures about fair value measurements. 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 disclosures about fair value measurement.

Standards Implemented

SFAS 158 requires an employer that sponsors a defined benefit pension or other post-retirement plans to report the current economic status (i.e., the overfunded or underfunded status) of each such plan in its statement of financial position by measuring plan assets and benefit obligations on the same date as the employer’s

assets and liabilities. SFAS 158 became effective for fiscal years ending after December 15, 2006, with an exception for the provision to change the measurement date, which is effective and will be implemented for fiscal years ending after December 15, 2008. 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 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.”

FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS 109, Accounting for Income Taxes. FIN 48 also prescribes a recognition threshold and measurement methodology for tax positions taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, and disclosure and transition issues. Only tax positions that are more likely than not to be successful may be recognized. No adjustment to the opening balance of retained earnings was recorded upon CH Energy Group’s adoption of FIN 48 in January 2007. Due to no uncertain tax positions, no interest or penalties have been recorded in the financial statements. If CH Energy Group and its subsidiaries incur any interest or penalties on underpayment of income taxes, the amounts would be included on the line “Other liabilities” on the Consolidated Balance Sheet and on the line “Other – net” on the Consolidated Statement of Income. CH Energy Group and its subsidiaries file a consolidated Federal and New York State income tax return, which represents the major tax jurisdictions of CH Energy Group. The statute of limitations for federal tax years 2004 through 2006 are still open for audit. The New York State income tax return is currently open for audit for tax years 2002 through 2006, and tax years 2002 through 2004 are currently under audit.

FIN 48-1 clarifies the rules regarding settled tax positions. Under the approach prescribed by FIN 48-1, an enterprise must evaluate all of the following conditions when determining effective settlement: whether a tax authority has examined the tax year; whether or not the enterprise intends to appeal or litigate any aspects of the tax position; and, based on a taxing authority’s widely understood policy, whether the enterprise considers it remote that the taxing authority would subsequently examine or reexamine any of the positions once the examination process is completed.

NOTE 4 – ACQUISITIONS AND INVESTMENTS

Reference is made to Note 4 - “Acquisitions and Investments” to the Consolidated Financial Statements of the Corporations’ 10-K Annual Report.

Acquisitions

During the six months ended June 30, 2007, Griffith acquired fuel distribution companies as follows (in Millions):



3 Month Period Ended	# of Acquired Companies		Purchase Price		Total Intangible Assets⁽¹⁾		Goodwill⁽³⁾		Total Tangible Assets⁽²⁾

March 31, 2007		3	$	11.4	$	9.5	$	4.6	$	1.9

June 30, 2007		1	$	0.2	$	0.2	$	0.1		—

Total		4	$	11.6	$	9.7	$	4.7	$	1.9


⁽¹⁾	Including goodwill.

⁽²⁾	Total tangible assets include $1.3 million in liquid petroleum and spare parts inventory, and $0.6 million in vehicles.

⁽³⁾	The amount of purchase price assigned to goodwill is based upon preliminary assessment and may be subject to adjustment.

NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS

Reference is made to Note 5 – “Goodwill and Other Intangible Assets” to the Consolidated Financial Statements of the Corporations’ 10-K Annual Report.

Intangible assets include separate, identifiable, intangible assets such as customer lists and covenants not to compete. Intangible assets with finite lives are amortized over their useful lives. The estimated useful life for customer lists is 15 years, which is believed to be appropriate in view of average historical customer turnover. However, if customer turnover were to substantially increase, a shorter amortization period would be used, resulting in an increase in amortization expense. For example, if a ten-year amortization period were used, annual amortization expense would increase by approximately $1.6 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. Annually in the fourth quarter, Griffith tests the goodwill and intangible assets remaining on the balance sheet for impairment and retests between annual tests if an event should occur or circumstances arise that would more likely than not reduce the fair value below its carrying amount.

The components of amortizable intangible assets of CH Energy Group are summarized as follows (in Thousands):



	June 30, 2007					December 31, 2006				June 30, 2006

	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization

Customer Lists	$	47,427	$	17,051	$	42,479	$	15,508	$	41,315	$	14,117

Covenants Not to Compete		1,410		860		1,350		771		1,714		1,081

Total Amortizable Intangibles	$	48,837	$	17,911	$	43,829	$	16,279	$	43,029	$	15,198

Amortization expense was $1.6 million and $1.4 million for each of the six-month periods ended June 30, 2007, and 2006, respectively. The estimated annual

amortization expense for each of the next five years, assuming no new acquisitions, is approximately $3.3 million.

The carrying amount for goodwill was $57.5 million as of June 30, 2007, $52.8 million as of December 31, 2006, and $52.2 million as of June 30, 2006.

NOTE 6 – SHORT-TERM INVESTMENTS

CH 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 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. CH 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 CH Energy Group’s strategy to redeploy equity into its subsidiaries. Due to the nature of these securities with regard to their interest rate reset periods, the aggregate carrying value approximates their fair value; as such, it does not impact shareholders’ equity with regard to unrealized gains and losses. The aggregate fair value of these short-term investments was $29 million at June 30, 2007, $42.6 million at December 31, 2006, and $40.2 million at June 30, 2006. Cash flows from the purchases and liquidation of these investments are reported separately as investing activities in CH Energy Group’s Consolidated Statement of Cash Flows.

NOTE 7 – FUEL, MATERIALS AND SUPPLIES

Fuel, materials, and supplies for CH Energy Group includes the following:


Company	Valuation Method

Central Hudson	Average cost
Griffith	FIFO
Lyonsdale	Weighted average cost

The following is a summary of CH Energy Group’s and Central Hudson’s fuel, materials and supplies at June 30, 2007, December 31, 2006, and June 30, 2006:



	CH Energy Group

	June 30, 2007			December 31, 2006			June 30, 2006

				(In Thousands)


Natural gas		$	16,091		$	15,640		$	16,231


Petroleum products and propane			3,420			3,680			4,390


Fuel used in electric generation			416			393			642


Materials and supplies			9,028			8,217			7,976



Total		$	28,955		$	27,930		$	29,239



	Central Hudson

	June 30, 2007			December 31, 2006			June 30, 2006

				(In Thousands)


Natural gas		$	16,091		$	15,640		$	16,231


Petroleum products and propane			385			493			478


Fuel used in electric generation			229			233			262


Materials and supplies			6,782			6,438			6,192



Total		$	23,487		$	22,804		$	23,163

NOTE 8 – LONG-TERM DEBT

Reference is made to Note 8 – “Capitalization – Long-term Debt” to the Consolidated Financial Statements of the Corporations’ 10-K Annual Report.

On March 23, 2007, Central Hudson issued $33 million of 30-year, 5.80% Series F notes. The proceeds were used to redeem at maturity $33 million of 5-year, 5.87% Series D notes, on March 28, 2007.

NOTE 9 – POST-EMPLOYMENT BENEFITS

The following are the components of Central Hudson’s net periodic benefit costs for its pension and other postretirement benefits (“OPEB”) plans for the quarters and six months ended June 30, 2007, and 2006. The OPEB amounts for both years reflect the effect of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 under the provisions of Financial Staff Position (“FSP”) 106-2, titled Accounting and

Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.


	Quarter Ended June 30,
	Pension Benefits						OPEB

	2007			2006			2007			2006
	(In Thousands)						(In Thousands)

Service cost	$	1,977		$	1,985		$	914		$	592

Interest cost		5,928			5,577			2,078			1,752

Expected return on plan assets		(6,999	)		(6,709	)		(1,584	)		(1,560	)

Amortization of:
Prior service cost		494			542			(314	)		(314	)
Transitional obligation (asset)		—			—			641			642

Recognized actuarial loss		3,344			3,240			1,259			305


Net periodic benefit cost	$	4,744		$	4,635		$	2,994		$	1,417


	Six Months Ended June 30,
	Pension Benefits						OPEB

	2007			2006			2007			2006
	(In Thousands)						(In Thousands)

Service cost	$	3,954		$	3,970		$	1,828		$	1,662

Interest cost		11,856			11,153			4,155			4,010

Expected return on plan assets		(13,999	)		(13,418	)		(3,168	)		(2,993	)

Amortization of:
Prior service cost		988			1,084			(628	)		(628	)
Transitional obligation (asset)		—			—			1,283			1,283

Recognized actuarial loss		6,689			6,481			2,518			2,153


Net periodic benefit cost	$	9,488		$	9,270		$	5,988		$	5,487

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 Protection Act of 2006 to determine funding requirements for the near-term and future periods.

Employer contributions for OPEB totaled $3.5 million and $2.4 million during the six months ended June 30, 2007, and 2006, respectively. The total contribution for the 2006 plan year was $4.9 million including a $1.7 million contribution funded in April of 2007. The determination of future funding depends on a number of factors, including the discount rate, expected return on plan assets, medical claims assumptions used, and corporate resources. If these factors remain stable, annual funding for the 2007 plan year is expected to approximate the 2006 amount.

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 10 – 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, to the description of CH Energy Group’s Long-Term Performance-Based Incentive Plan (the “2000 Plan”), and to the description of CH Energy Group’s Long-Term Equity Incentive Plan (the “2006 Plan”) described therein.

A summary of the status of performance shares granted to executives under the 2000 Plan and 2006 Plan as of June 30, 2007 is as follows:



Plan	Grant Date	Performance Shares Granted	Performance Shares Outstanding at 6/30/07

2000 Plan	March 24, 2005	23,000	20,900

2006 Plan	April 25, 2006	20,710	18,990

2006 Plan	January 25, 2007	20,920	20,480

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. Due to the retirement of one of CH Energy Group’s executive officers on January 1, 2007, a pro-rated number of shares under the 2005 and 2006 grants were paid out in April 2007. Additionally, outstanding performance shares for all grants were reduced in the second quarter of 2007 for forfeitures.



	Quarter Ended June 30,		Six Months Ended June 30,

Description	2007	2006	2007	2006

Performance shares – compensation expense	$70,000	$276,000	$357,000	$419,000

Stock options –

Compensation expense	Not material	Not material	Not material	Not material

Balance accrued on outstanding options	$121,000	$207,000	$121,000	$207,000

Intrinsic value of outstanding options	Not material	Not material	Not material	Not material

A summary of the status of stock options awarded to executives and non-employee Directors of CH Energy Group and its subsidiaries under the 2000 Plan as of June 30, 2007, is as follows:


	Stock Option Shares		Weighted Average Exercise Price			Weighted Average Remaining Life in Years

Outstanding at 12/31/06	45,260			$	45.87	4.82
Granted	—				—	—
Exercised	(4,780	)		$	44.23
Expired/Forfeited	(180	)		$	48.62

Outstanding at 6/30/07	40,300			$	46.05	4.41

Total Shares Outstanding	15,762,000
Potential Dilution	0.3	%

A total of 4,780 non-qualified stock options with exercise prices of $44.06 and $48.62 were exercised during the six months ended June 30, 2007. Total intrinsic value of options exercised was not material.

The following table summarizes information concerning outstanding and exercisable stock options at June 30, 2007, by exercise price:


Exercise Price	Number of Options Outstanding	Weighted Average Remaining Life in Years	Number of Options Exercisable	Number of Options Remaining to Vest

$31.94	320	2.50	320	—
$44.06	21,560	3.50	21,560	—
$48.62	18,420	5.50	16,440	1,980

	40,300	4.41	38,320	1,980

NOTE 11 – COMMITMENTS AND CONTINGENCIES

Electricity Purchase Commitments

Reference is made to Note 11 – “Commitments and Contingencies” to the Consolidated Financial Statements of the Corporations’ 10-K Annual Report, to the caption “Electric Purchase Commitments.”

On November 12, 2002, Central Hudson entered into an agreement with Entergy Nuclear Indian Point 2, LLC and Entergy Nuclear Indian Point 3, LLC to purchase electricity (but not capacity) on a unit-contingent basis at defined prices from January 1, 2005 to and including December 31, 2007. On March 6, 2007, Central Hudson entered into new agreements with Entergy Nuclear Power Marketing, LLC to purchase electricity (but not capacity) on a unit-contingent basis at defined prices from January 1, 2008 through December 31, 2010. On an annual basis, the electricity purchased through the

Entergy contracts represents close to 19% of Central Hudson’s full-service customer load requirements, or 832,250 MWh.

Contingencies

CH 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 against Central Hudson and other defendants. The basis for the claimed liability of Central Hudson in these actions is that it was allegedly negligent in the supply of natural gas. The suits seek an aggregate of $528 million in compensatory damages. Central Hudson has notified its insurance carrier, 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:

Air

In October 1999, Central Hudson was informed by the New York State Attorney General (“Attorney General”) that the Danskammer Point Steam Electric Generating Station (“Danskammer Plant”) was included in an investigation by the Attorney General’s Office into the compliance of eight older New York State coal-fired power plants with federal and state air emissions rules. Specifically, the Attorney General alleged that Central Hudson “may have constructed, and continues to operate, major modifications to the Danskammer Plant without obtaining certain requisite preconstruction permits.” In March 2000, the Environmental Protection Agency (“EPA”) assumed responsibility for the investigation. Central Hudson has completed its production of documents requested by the Attorney General, the New York State Department of Environmental Conservation (“DEC”), and the EPA, and believes any permits required for these projects were obtained in a timely manner. Notwithstanding Central Hudson’s sale of the Danskammer Plant on January 30, 2001, Central Hudson could retain liability depending on the type of remedy, if any, imposed in connection with this matter. Central Hudson presently has insufficient information with which to predict the outcome of this matter.

Former Manufactured Gas Plant Facilities

Like most late 19^th and early 20^th century utilities in the northeastern United States, Central Hudson and its predecessors owned and operated manufactured gas plants (“MGPs”) to serve their customers’ heating and lighting needs. MGPs manufactured gas from coal and oil. This process produced certain by-products that may pose risks to human health and the environment.

The DEC, which regulates the timing and extent of remediation of MGP sites, has notified Central Hudson that it believes Central Hudson or its predecessors at one time owned and/or operated MGPs at eight sites in Central Hudson’s franchise territory. The DEC has further requested that Central Hudson investigate and, if necessary, remediate these sites under a Consent Order, Voluntary Cleanup Agreement, or Brownfield Cleanup Agreement. The DEC has placed five of these sites on the New York State Environmental Site Remediation Database. A number of the eight sites are now owned by third parties and have been redeveloped for other uses.

Central Hudson spent approximately $3.4 million during the six months ended June 30, 2007, related to site remediation. In addition, Central Hudson has developed estimates of the potential remediation costs for four of the eight identified MGP sites indicating that the total costs could exceed $125 million over the next 30 years. These estimates were based on DEC-approved remediation plans for two sites, and conceptual plans for the other two sites. The cost estimates involve assumptions relating to investigation expenses, remediation costs, potential future liabilities, and post-remedial monitoring costs, and are 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. These cost estimates also assume that proposed or anticipated remediation techniques are technically feasible and that proposed remediation plans receive DEC approval.

Prior to 2007, Central Hudson recorded a $19.5 million estimated liability regarding two of the four sites for which it has estimated future costs. This amount represented the low end of the range of cost estimates for these two sites since no amount within the range was considered to be most likely. As of June 30, 2007, $15.6 million of this estimated liability has not been spent; $1.0 million of this estimated liability is expected to be spent in the remainder of 2007.

Nothing has been accrued in connection with the other two sites for which Central Hudson has estimated future costs because, absent DEC-approved remediation plans, management cannot estimate what cost, if any, will be incurred. The portion of the $125 million referenced above related to these two sites is approximately $88 million.

With respect to the remaining four of the eight identified MGP sites, Central Hudson now believes that for two of these sites it has no liability. For the first site, records show that Central Hudson did not own or operate the site. Central Hudson has

submitted its findings to the DEC and is awaiting the DEC’s response. Testing performed at the second site has not revealed any data to indicate remediation is required. Central Hudson has submitted its findings to the DEC and the DEC has agreed that no further investigation or remedial action is required at that site. For one of the four sites, Central Hudson has reached agreement with the DEC on the scope of remediation work and expects to complete the $0.5 million of remediation during 2007. For the remaining site, Central Hudson estimates that it will be at least 2-3 years before sufficient data has been obtained to estimate the potential remediation costs.

Central Hudson has become aware of information contained in a DEC Internet website indicating that, in addition to the eight sites referenced above, Central Hudson is attributed with responsibility for three additional MGP sites. Central Hudson does not believe that it ever owned one of these three additional sites, and it believes that another of the identified locations was never an MGP site. Central Hudson has provided the DEC with this information about the two sites but it has not yet received a formal response. With respect to the third site, Central Hudson has provided the DEC with information that it believes demonstrates Central Hudson has no responsibility for the site, and Central Hudson is awaiting the DEC’s response.

Future remediation activities and costs may vary significantly from the assumptions used in Central Hudson’s current cost estimates, and these costs could have a material adverse effect (the extent of which cannot be reasonably determined) on the financial condition, results of operations and cash flows of CH Energy Group and Central Hudson if Central Hudson were unable to recover all or a substantial portion of these costs through insurance and/or customers via collection in rates.

Central Hudson has put its insurers on notice and intends to seek reimbursement from its insurers for the costs of any liabilities. Certain of these insurers have denied coverage. Furthermore, Central Hudson is permitted pursuant to the 2006 Order to defer for future recovery the differences between actual costs for MGP site investigation and remediation and the associated rate allowances, with carrying charges to be accrued on the deferred balances at the authorized pre-tax rate of return.

Little Britain Road

In December 1977, Central Hudson purchased property at 610 Little Britain Road, New Windsor, New York. In 1992, the DEC informed Central Hudson that the DEC was preparing to conduct a Preliminary Site Assessment (“PSA”) of the site and in 1995, the DEC issued an Order on Consent in which Central Hudson agreed to conduct the PSA. In 2000, following completion of the PSA, Central Hudson and the DEC entered into a Voluntary Cleanup Agreement (“VCA”) whereby Central Hudson removed approximately 3,100 tons of soil and has conducted a routine groundwater sampling program since that time. Groundwater sampling results show the presence of certain contaminants at levels exceeding DEC criteria. Deep groundwater wells were installed in 2005 and 2006 which also show contaminants exceeding DEC criteria. The DEC has responded with a request for a plan to address the situation. It has not been determined if groundwater remediation will be required, or if Central Hudson will be

responsible for any such remediation. At this time, Central Hudson does not have sufficient information to estimate potential remediation costs. Central Hudson has put its insurers on notice regarding this matter and intends to seek reimbursement from its insurers for amounts, if any, for which it may become liable. Neither CH Energy Group nor Central Hudson can predict the outcome of this matter.

Orange County Landfill

In 2000, the DEC informed Central Hudson that its records indicate that Central Hudson, or a predecessor entity, disposed, or may have disposed of, wastes at the Orange County Landfill (“Orange County Site”) in Goshen, New York.

Documents submitted by Central Hudson in response to the DEC’s request indicate that at least three shipments of wastes may have been disposed of by Central Hudson at the Orange County Site.

On January 31, 2007, the New York State Attorney General filed a complaint and simultaneously proposed a settlement on consent in federal court in New York City. The court approved the settlement for Central Hudson and other parties on May 16, 2007. Central Hudson has since paid its share of the settlement cost, which was $123,500.

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. No records were found which indicate that the material sold by Central Hudson 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 CH Energy Group nor Central Hudson can predict the outcome of this investigation at the present time.

Asbestos Litigation

As of June 30, 2007, of the 3,306 asbestos cases brought against Central Hudson, 1,181 remain pending. Of the cases no longer pending against Central Hudson, 1,975 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 incurred in connection with the remaining lawsuits will not have a material adverse effect on either of CH Energy Group’s or Central Hudson’s financial position, results of operations, or cash flows.

CHEC:

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. 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. During the six months ended June 30, 2007, $143,000 was spent on site remediation efforts. In addition, Griffith spent $50,000 on remediation efforts in Maryland, Virginia, and Connecticut in 2007. Griffith is to be reimbursed $406,000 from the State of Connecticut under an environmental agreement and has recorded this amount as a receivable.

Griffith has a reserve for environmental remediation which is $1.7 million as of June 30, 2007, of which approximately $0.6 million is expected to be spent in the next twelve months.

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 CH Energy Group’s or Central Hudson’s financial positions, results of operations, or cash flows.

NOTE 12 – 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.

CH Energy Group’s reportable operating segments are the regulated electric utility business and regulated natural gas utility business of Central Hudson and the unregulated fuel distribution business of Griffith. The investments and business development activities of CH Energy Group and the renewable energy and investment activities of CHEC, including its ownership interests in ethanol, wind, and biomass energy projects, are reported under the heading “Other Businesses and Investments.”

Certain additional information regarding these segments is set forth in the following tables. General corporate expenses, Central Hudson property common to both electric and natural gas segments, and the depreciation of Central Hudson’s common property have been allocated in accordance with practices established for regulatory purposes.

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

CH Energy Group, Inc. Segment Disclosure



(In Thousands, Except Earnings Per Share)	Quarter Ended June 30, 2007

	Central Hudson				Griffith			Other Businesses and Investments				Eliminations				Total

	Electric		Natural Gas

Revenues from external customers	$	150,445	$	40, 242	$	77,792			$	2,504			$	—		$	270,983

Intersegment revenues		3		35		—				—				(38	)		—

Total Revenues		150,448		40,277		77,792				2,504				(38	)		270,983

Income before income taxes		5,826		1,638		(2,430	)			1,448				—			6,482

Net income		3,840		1,180		(1,458	)			1,627				—			5,189

Earnings per share – diluted		0.24		0.08		(0.09	)			0.10	⁽¹⁾			—			0.33

Segment assets at June 30, 2007	$	932,220	$	299,735	$	159,347			$	78,119			$	(733	)⁽²⁾	$	1,468,688


⁽¹⁾	The amount of EPS attributable to CHEC’s other business units was $0.04 per share, with the balance of $0.06 per share resulting primarily from interest income.

⁽²⁾	Includes minority owner’s interest of $1,369 related to Lyonsdale and elimination of affiliates’ accounts receivable of ($2,102).

CH Energy Group, Inc. Segment Disclosure



(In Thousands, Except Earnings Per Share)	Quarter Ended June 30, 2006

	Central Hudson				Griffith			Other Businesses and Investments				Eliminations				Total

	Electric		Natural Gas

Revenues from external customers	$	107,930	$	36,458	$	68,224			$	1,279			$	—		$	213,891

Intersegment revenues		3		34		—				—				(37	)		—

Total Revenues		107,933		36,492		68,224				1,279				(37	)		213,891

Income before income taxes		4,821		2,039		(3,407	)			2,714				—			6,167

Net income		2,864		1,017		(2,044	)			2,231				—			4,068

Earnings per share – diluted		0.18		0.07		(0.13	)			0.14	⁽¹⁾			—			0.26

Segment assets at June 30, 2006	$	852,221	$	294,961	$	146,796			$	105,885