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 _________________________________________________ June 30, 2008

OR

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 12601-4879 (845) 452-2000	14-1804460

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

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, 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):

Large Accelerated Filer x Accelerated Filer o

Non-Accelerated Filer o Smaller Reporting Company o

Indicate by check mark whether Central Hudson Gas & Electric Corporation 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):

Large Accelerated Filer o Accelerated Filer o

Non-Accelerated Filer x Smaller Reporting Company o

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, 2008, (i) CH Energy Group, Inc. had outstanding 15,783,083 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, 2008

TABLE OF CONTENTS


		PAGE

	PART I – FINANCIAL INFORMATION

Item 1 – Consolidated Financial Statements (Unaudited)

	CH ENERGY GROUP, INC.
	Consolidated Statement of Income – Three Months Ended June 30, 2008 and 2007	1

	Consolidated Statement of Income – Six Months Ended June 30, 2008 and 2007	2

	Consolidated Statement of Comprehensive Income – Three Months Ended June 30, 2008 and 2007	3

	Consolidated Statement of Comprehensive Income – Six Months Ended June 30, 2008 and 2007	3

	Consolidated Statement of Cash Flows – Six Months Ended June 30, 2008 and 2007	4

	Consolidated Balance Sheet – June 30, 2008, December 31, 2007 and June 30, 2007	5

	CENTRAL HUDSON GAS & ELECTRIC CORPORATION

	Consolidated Statement of Income – Three Months Ended June 30, 2008 and 2007	7

	Consolidated Statement of Income – Six Months Ended June 30, 2008 and 2007	8

	Consolidated Statement of Comprehensive Income – Three Months Ended June 30, 2008 and 2007	9

	Consolidated Statement of Comprehensive Income – Six Months Ended June 30, 2008 and 2007	9

	Consolidated Statement of Cash Flows – Six Months Ended June 30, 2008 and 2007	10

	Consolidated Balance Sheet – June 30, 2008, December 31, 2007 and June 30, 2007	11

	Notes to Consolidated Financial Statements (Unaudited)	13

TABLE OF CONTENTS


		PAGE


ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	49

ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	87

ITEM 4	CONTROLS AND PROCEDURES	88

	PART II – OTHER INFORMATION

ITEM 1	LEGAL PROCEEDINGS	89

ITEM 1A	RISK FACTORS	89

ITEM 4	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	90

ITEM 6	EXHIBITS	91

SIGNATURES		92

EXHIBIT INDEX		93

CERTIFICATIONS		96

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 1 – FINANCIAL INFORMATION

Item 1 – Consolidated Financial Statements

CH ENERGY GROUP CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(In Thousands, except per share amounts)


	For the 3 Months Ended June 30,
	2008			2007

Operating Revenues
Electric	$	145,844		$	150,445
Natural gas		44,275			40,242
Competitive business subsidiaries		123,533			80,296

Total Operating Revenues		313,652			270,983

Operating Expenses
Operation:
Purchased electricity and fuel used in electric generation		90,441			97,232
Purchased natural gas		31,465			27,925
Purchased petroleum		102,122			60,818
Other expenses of operation - regulated activities		41,254			39,501
Other expenses of operation - competitive business subsidiaries		21,540			17,756
Depreciation and amortization		9,549			9,026
Taxes, other than income tax		9,327			8,660

Total Operating Expenses		305,698			260,918

Operating Income		7,954			10,065

Other Income and Deductions
Income from unconsolidated affiliates		66			349
Interest on regulatory assets and investment income		1,792			2,254
Other - net		(559	)		(530	)

Total Other Income	$	1,299		$	2,073

Interest Charges
Interest on long-term debt	$	5,049		$	4,495
Interest on regulatory liabilities and other interest		1,343			923

Total Interest Charges		6,392			5,418

Income before income taxes, preferred dividends of subsidiary and minority interest		2,861			6,720
Income Taxes		972			1,293
Minority Interest		(23	)		(4	)

Income before preferred dividends of subsidiary		1,912			5,431
Cumulative preferred stock dividends of subsidiary		242			242

Net Income		1,670			5,189
Dividends Declared on Common Stock		8,523			8,512

Change in Retained Earnings	$	(6,853	)	$	(3,323	)

Common Stock:
Average shares outstanding
Basic		15,768			15,762
Diluted		15,812			15,784
Earnings per share
Basic	$	0.11		$	0.33
Diluted	$	0.11		$	0.33
Dividends Declared Per Share	$	0.54		$	0.54

The Notes to Consolidated Financial Statements are an integral part hereof.

- 1 -

CH ENERGY GROUP CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(In Thousands, except per share amounts)


	For the 6 Months Ended June 30,
	2008			2007

Operating Revenues
Electric	$	289,658		$	302,120
Natural gas		120,494			104,433
Competitive business subsidiaries		313,292			207,809

Total Operating Revenues		723,444			614,362

Operating Expenses
Operation:
Purchased electricity and fuel used in electric generation		174,775			191,268
Purchased natural gas		84,603			71,261
Purchased petroleum		252,980			155,378
Other expenses of operation - regulated activities		84,167			77,150
Other expenses of operation - competitive business subsidiaries		45,207			36,549
Depreciation and amortization		19,009			18,131
Taxes, other than income tax		18,790			17,147

Total Operating Expenses		679,531			566,884

Operating Income		43,913			47,478

Other Income and Deductions
Income from unconsolidated affiliates		335			1,544
Interest on regulatory assets and investment income		3,065			4,394
Other - net		(118	)		(1,026	)

Total Other Income	$	3,282		$	4,912

Interest Charges
Interest on long-term debt	$	10,138		$	8,986
Interest on regulatory liabilities and other interest		2,631			1,873

Total Interest Charges		12,769			10,859

Income before income taxes, preferred dividends of subsidiary and minority interest		34,426			41,531
Income Taxes		12,909			14,256
Minority Interest		61			(97	)

Income before preferred dividends of subsidiary		21,456			27,372
Cumulative preferred stock dividends of subsidiary		485			485

Net Income		20,971			26,887
Dividends Declared on Common Stock		17,041			17,023

Change in Retained Earnings	$	3,930		$	9,864

Common Stock:
Average shares outstanding
Basic		15,765			15,762
Diluted		15,809			15,784
Earnings per share
Basic	$	1.33		$	1.71
Diluted	$	1.33		$	1.70
Dividends Declared Per Share	$	1.08		$	1.08

The Notes to Consolidated Financial Statements are an integral part hereof.

- 2 -

CH ENERGY GROUP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
(In Thousands)


	For the 3 Months Ended June 30,
	2008			2007


Net Income	$	1,670		$	5,189

Other Comprehensive Income:

Fair value of cash flow hedges - FAS 133: Unrealized gains (losses) - net of tax of ($273) and $16		410			(24	)

Reclassification for (gains) losses realized in net income - net of tax of $340 and ($28)		(511	)		42

Net unrealized gains on investments held by equity method investees - net of tax of ($33) and ($286)		50			428


Other comprehensive (loss) income		(51	)		446


Comprehensive Income	$	1,619		$	5,635


	For the 6 Months Ended June 30,
	2008			2007


Net Income	$	20,971		$	26,887

Other Comprehensive Income:


Fair value of cash flow hedges - FAS 133: Unrealized gains (losses) - net of tax of ($455) and $11		682			(17	)

Reclassification for (gains) losses realized in net income - net of tax of $806 and ($256)		(1,208	)		384

Net unrealized (losses) gains on investments held by equity method investees - net of tax of $153 and ($397)		(230	)		595


Other comprehensive (loss) income		(756	)		962


Comprehensive Income	$	20,215		$	27,849

The Notes to Consolidated Financial Statements are an integral part hereof.

- 3 -

CH ENERGY GROUP CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(In Thousands)


	For the 6 Months Ended June 30,
	2008			2007

Operating Activities:
Net Income	$	20,971		$	26,887
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		19,009			18,131
Deferred income taxes - net		13,434			3,043
Provision for uncollectibles		4,596			2,422
Undistributed equity in earnings of unconsolidated affiliates		488			(844	)
Pension expense		6,565			6,800
OPEB expense		5,226			5,419
Regulatory liability - rate moderation		(5,900	)		(12,547	)
Regulatory asset amortization		2,765			—
Minority interest		61			(97	)
Gain on sale of property and plant		(27	)		(468	)
Changes in operating assets and liabilities - net of business acquisitions:
Accounts receivable, unbilled revenues and other receivables		4,153			(10,599	)
Fuel and materials and supplies		2,148			246
Special deposits and prepayments		4,110			(1,374	)
Prepaid income taxes		(9,828	)		11,244
Accounts payable		6,954			(2,691	)
Accrued taxes and interest		(997	)		275
Customer advances		(12,544	)		(12,763	)
Pension plan contribution		(12,762	)		—
OPEB contribution		(4,200	)		(3,461	)
Regulatory asset - MGP site remediations		(789	)		3,434
Deferred natural gas and electric costs		(8,790	)		4,605
Customer benefit fund		(366	)		(610	)
Other - net		931			(3,332	)

Net cash provided by operating activities		35,208			33,720

Investing Activities:
Purchase of short-term investments	$	—		$	(43,101	)
Proceeds from sale of short-term investments		3,545			56,762
Proceeds from sale of property and plant		45			1,021
Additions to utility and other property and plant		(39,545	)		(39,235	)
Acquisitions made by competitive business subsidiaries		(9,259	)		(11,585	)
Other - net		712			1,718

Net cash used in investing activities		(44,502	)		(34,420	)

Financing Activities:
Redemption of long-term debt		—			(33,000	)
Proceeds from issuance of long-term debt		—			33,000
Borrowings of short-term debt - net		33,500			16,000
Dividends paid on common stock		(17,036	)		(17,023	)
Debt issuance costs		(7	)		(359	)

Net cash provided by (used in) financing activities		16,457			(1,382	)

Net Change in Cash and Cash Equivalents		7,163			(2,082	)
Cash and Cash Equivalents at Beginning of Period		11,313			24,121

Cash and Cash Equivalents at End of Period	$	18,476		$	22,039

Supplemental Disclosure of Cash Flow Information:
Interest paid	$	11,447		$	9,979
Federal and state income tax paid	$	9,852		$	8,023
Additions to plant included in liabilities	$	12,523		$	3,749

The Notes to Consolidated Financial Statements are an integral part hereof.

- 4 -

CH ENERGY GROUP CONSOLIDATED BALANCE SHEET (UNAUDITED)
(In Thousands)


	June 30, 2008		December 31, 2007		June 30, 2007

ASSETS
Utility Plant
Electric	$	832,509	$	807,412	$	788,734
Natural gas		257,348		248,894		240,870
Common		117,247		113,494		113,937

		1,207,104		1,169,800		1,143,541

Less: Accumulated depreciation		362,363		354,353		348,975

		844,741		815,447		794,566

Construction work in progress		70,346		75,866		56,165

Net Utility Plant		915,087		891,313		850,731


Other Property and Plant - net		31,292		31,236		33,469

Current Assets
Cash and cash equivalents		18,476		11,313		22,039
Short-term investments - available-for-sale securities		—		3,545		28,950
Accounts receivable from customers - net of allowance for doubtful accounts of $5.6 million, $4.8 million, and $4.5 million, respectively		134,288		139,107		93,485
Accrued unbilled utility revenues		7,372		12,022		6,846
Other receivables		7,288		6,568		6,186
Fuel and materials and supplies		31,580		33,321		28,955
Regulatory assets		46,090		35,012		32,525
Prepaid income tax		9,828		—		—
Fair value of derivative instruments		9,997		1,218		—
Special deposits and prepayments		24,014		28,108		25,012
Accumulated deferred income tax		1,088		7,378		6,584

Total Current Assets		290,021		277,592		250,582


Deferred Charges and Other Assets
Regulatory assets - pension plan		44,078		51,393		91,532
Regulatory assets - OPEB		—		15,967		32,766
Regulatory assets		103,816		86,821		83,219
Goodwill		67,559		63,433		57,539
Other intangible assets - net		38,065		35,720		30,926
Unamortized debt expense		4,161		4,345		4,217
Investments in unconsolidated affiliates		10,799		12,226		13,417
Other investments		9,797		8,613		8,560
Other		14,628		16,089		11,730

Total Deferred Charges and Other Assets		292,903		294,607		333,906


Total Assets	$	1,529,303	$	1,494,748	$	1,468,688

The Notes to Consolidated Financial Statements are an integral part hereof.

- 5 -

CH ENERGY GROUP CONSOLIDATED BALANCE SHEET (CONT’D) (UNAUDITED)
(In Thousands)


	June 30, 2008			December 31, 2007			June 30, 2007

CAPITALIZATION AND LIABILITIES
Capitalization
Common Stock, 30,000,000 shares authorized: $0.10 par value - 15,782,774 shares outstanding at June 30, 2008 15,762,000 shares outstanding at December 31, and June 30, 2007; 16,862,087 shares issued	$	1,686		$	1,686		$	1,686
Paid-in capital		350,783			351,230			351,230
Retained earnings		219,569			215,639			216,919
Treasury stock (1,079,313 shares June 30, 2008; 1,100,087 shares December 31, and June 30, 2007)		(45,397	)		(46,252	)		(46,252	)
Accumulated other comprehensive income		417			1,173			433
Capital stock expense		(328	)		(328	)		(328	)

Total Common Shareholders’ Equity		526,730			523,148			523,688

Cumulative Preferred Stock
Not subject to mandatory redemption		21,027			21,027			21,027
Long-term debt		383,892			403,892			370,890

Total Capitalization		931,649			948,067			915,605

Current Liabilities
Current maturities of long-term debt		20,000			—			—
Notes payable		76,000			42,500			29,000
Accounts payable		50,448			44,880			38,705
Accrued interest		5,964			6,127			5,546
Dividends payable		8,765			8,760			8,754
Accrued vacation and payroll		8,080			7,640			7,198
Customer advances		10,501			23,045			12,969
Customer deposits		8,328			8,126			8,152
Regulatory liabilities		11,225			9,392			15,261
Fair value of derivative instruments		—			1,235			6,546
Accrued environmental remediation costs		7,075			2,703			2,604
Accrued income taxes		—			834			374
Deferred revenues		6,528			7,437			5,053
Accumulated deferred income tax		4,173			—			—
Other		23,019			16,820			14,159

Total Current Liabilities		240,106			179,499			154,321

Deferred Credits and Other Liabilities
Regulatory liabilities		123,024			111,663			104,762
Regulatory liabilities - OPEB		9,804			—			—
Operating reserves		5,222			5,212			5,245
Accrued environmental remediation costs		23,393			15,027			14,678
Accrued OPEB costs		29,470			55,560			68,172
Accrued pension costs		6			11,202			48,760
Other		12,389			19,805			12,709

Total Deferred Credits and Other Liabilities		203,308			218,469			254,326

Minority Interest		1,406			1,345			1,369

Accumulated Deferred Income Tax		152,834			147,368			143,067

Commitments and Contingencies
Total Capitalization and Liabilities	$	1,529,303		$	1,494,748		$	1,468,688

The Notes to Consolidated Financial Statements are an integral part hereof.

- 6 -

CENTRAL HUDSON CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(In Thousands)


	For the 3 Months Ended June 30,
	2008			2007

Operating Revenues
Electric	$	145,844		$	150,445
Natural gas		44,275			40,242

Total Operating Revenues		190,119			190,687


Operating Expenses
Operation:
Purchased electricity and fuel used in electric generation		89,138			95,796
Purchased natural gas		31,465			27,925
Other expenses of operation		41,254			39,501
Depreciation and amortization		7,450			7,144
Taxes, other than income tax		9,132			8,522

Total Operating Expenses		178,439			178,888


Operating Income		11,680			11,799


Other Income and Deductions
Interest on regulatory assets and other interest income		1,436			1,634
Other - net		(158	)		(309	)

Total Other Income		1,278			1,325


Interest Charges
Interest on other long-term debt		5,049			4,495
Interest on regulatory liabilities and other interest		1,114			923

Total Interest Charges		6,163			5,418


Income Before Income Taxes		6,795			7,706

Income Taxes		2,604			2,444


Net Income		4,191			5,262

Dividends Declared on Cumulative Preferred Stock		242			242


Income Available for Common Stock	$	3,949		$	5,020

The Notes to Consolidated Financial Statements are an integral part hereof.

- 7 -

CENTRAL HUDSON CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(In Thousands)


	For the 6 Months Ended June 30,
	2008		2007

Operating Revenues
Electric	$	289,658	$	302,120
Natural gas		120,494		104,433

Total Operating Revenues		410,152		406,553


Operating Expenses
Operation:
Purchased electricity and fuel used in electric generation		171,744		189,013
Purchased natural gas		84,603		71,261
Other expenses of operation		84,167		77,150
Depreciation and amortization		14,814		14,430
Taxes, other than income tax		18,434		16,857

Total Operating Expenses		373,762		368,711


Operating Income		36,390		37,842


Other Income and Deductions
Interest on regulatory assets and other interest income		2,328		3,088
Other - net		438		(567	)

Total Other Income		2,766		2,521


Interest Charges
Interest on other long-term debt		10,138		8,986
Interest on regulatory liabilities and other interest		2,214		1,873

Total Interest Charges		12,352		10,859


Income Before Income Taxes		26,804		29,504

Income Taxes		10,866		10,871


Net Income		15,938		18,633

Dividends Declared on Cumulative Preferred Stock		485		485


Income Available for Common Stock	$	15,453	$	18,148

The Notes to Consolidated Financial Statements are an integral part hereof.

- 8 -

CENTRAL HUDSON CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
(In Thousands)


	For the 3 Months Ended June 30,
	2008		2007


Net Income	$	4,191	$	5,262
Other Comprehensive Income		—		—


Comprehensive Income	$	4,191	$	5,262


	For the 6 Months Ended June 30,
	2008		2007


Net Income	$	15,938	$	18,633
Other Comprehensive Income		—		—


Comprehensive Income	$	15,938	$	18,633

The Notes to Consolidated Financial Statements are an integral part hereof.

- 9 -

CENTRAL HUDSON CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(In Thousands)


	For the 6 Months Ended June 30,
	2008			2007

Operating Activities:
Net Income	$	15,938		$	18,633
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		14,814			14,430
Deferred income taxes - net		11,450			2,251
Provision for uncollectibles		3,059			1,945
Pension expense		6,565			6,800
OPEB expense		5,226			5,419
Regulatory liability - rate moderation		(5,900	)		(12,547	)
Regulatory asset amortization		2,765			—
Gain on sale of property and plant		—			(468	)
Changes in operating assets and liabilities - net:
Accounts receivable, unbilled revenues and other receivables		10,198			(11,809	)
Fuel and materials and supplies		(212	)		(683	)
Special deposits and prepayments		5,375			(170	)
Prepaid income taxes		(5,904	)		10,390
Accounts payable		11,660			(2,007	)
Accrued taxes and interest		(3,506	)		(99	)
Customer advances		(9,179	)		(11,468	)
Pension plan contribution		(12,762	)		—
OPEB contribution		(4,200	)		(3,461	)
Regulatory asset - MGP site remediations		(789	)		3,434
Deferred natural gas and electric costs		(8,790	)		4,605
Customer benefit fund		(366	)		(610	)
Other - net		572			(2,821	)

Net cash provided by operating activities		36,014			21,764

Investing Activities:
Proceeds from sale of property and plant		—			1,021
Additions to utility plant		(37,730	)		(37,988	)
Other - net		(1,093	)		147

Net cash used in investing activities		(38,823	)		(36,820	)

Financing Activities:
Redemption of long-term debt		—			(33,000	)
Proceeds from issuance of long-term debt		—			33,000
Borrowings of short-term debt - net		4,500			16,000
Dividends paid on cumulative preferred stock		(485	)		(485	)
Debt issuance costs		(7	)		(359	)

Net cash provided by financing activities		4,008			15,156

Net Change in Cash and Cash Equivalents		1,199			100
Cash and Cash Equivalents - Beginning of Period		3,592			1,710

Cash and Cash Equivalents - End of Period	$	4,791		$	1,810

Supplemental Disclosure of Cash Flow Information:
Interest paid	$	10,955		$	9,979
Federal and State income tax paid	$	8,642		$	7,230
Plant additions in liabilities	$	12,523		$	3,749

The Notes to Consolidated Financial Statements are an integral part hereof.

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CENTRAL HUDSON CONSOLIDATED BALANCE SHEET (UNAUDITED)
(In Thousands)


	June 30, 2008		December 31, 2007		June 30, 2007

ASSETS

Utility Plant
Electric	$	832,509	$	807,412	$	788,734
Natural gas		257,348		248,894		240,870
Common		117,247		113,494		113,937

		1,207,104		1,169,800		1,143,541

Less: Accumulated depreciation		362,363		354,353		348,975

		844,741		815,447		794,566

Construction work in progress		70,346		75,866		56,165

Net Utility Plant		915,087		891,313		850,731


Other Property and Plant - net		414		415		416


Current Assets
Cash and cash equivalents		4,791		3,592		1,810
Accounts receivable from customers - net of allowance for doubtful accounts of $3.2 million, $2.8 million, and $2.6 million, respectively		71,834		81,264		61,136
Accrued unbilled utility revenues		7,372		12,022		6,846
Other receivables		3,681		2,858		3,299
Fuel and materials and supplies - at average cost		24,482		24,270		23,487
Regulatory assets		46,090		35,012		32,525
Prepaid income tax		5,904		—		87
Fair value of derivative instruments		9,656		—		—
Special deposits and prepayments		19,122		24,481		21,179
Accumulated deferred income tax		—		6,676		5,569

Total Current Assets		192,932		190,175		155,938


Deferred Charges and Other Assets
Regulatory assets - pension plan		44,078		51,393		91,532
Regulatory assets - OPEB		—		15,967		32,766
Regulatory assets		103,816		86,821		83,219
Unamortized debt expense		4,161		4,345		4,217
Other investments		9,719		8,570		8,543
Other		2,854		3,695		4,593

Total Deferred Charges and Other Assets		164,628		170,791		224,870


Total Assets	$	1,273,061	$	1,252,694	$	1,231,955

The Notes to Consolidated Financial Statements are an integral part hereof.

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CENTRAL HUDSON CONSOLIDATED BALANCE SHEET (CONT’D) (UNAUDITED)
(In Thousands)


	June 30, 2008			December 31, 2007			June 30, 2007

CAPITALIZATION AND LIABILITIES

Capitalization
Common Stock, 30,000,000 shares authorized; 16,862,087 shares issued and outstanding, $5 par value	$	84,311		$	84,311		$	84,311
Paid-in capital		174,980			174,980			174,980
Retained earnings		108,129			92,676			86,858
Capital stock expense		(4,961	)		(4,961	)		(4,961	)

Total Common Shareholders’ Equity		362,459			347,006			341,188

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

Long-term debt		383,892			403,892			370,890

Total Capitalization		767,378			771,925			733,105

Current Liabilities
Current maturities of long-term debt		20,000			—			—
Notes payable		47,000			42,500			29,000
Accounts payable		40,045			29,771			29,967
Accrued interest		5,910			6,127			5,546
Dividends payable - preferred stock		242			242			242
Accrued vacation and payroll		5,330			5,235			5,121
Customer advances		1,663			10,842			4,439
Customer deposits		8,188			7,990			8,018
Regulatory liabilities		11,225			9,392			15,261
Fair value of derivative instruments		—			1,235			6,546
Accrued income taxes		—			3,289			—
Accrued environmental remediation costs		6,838			2,450			2,004
Accumulated deferred income tax		4,173			—			—
Other		15,696			10,695			9,068

Total Current Liabilities		166,310			129,768			115,212

Deferred Credits and Other Liabilities
Regulatory liabilities		123,024			111,663			104,762
Regulatory liabilities - OPEB		9,804			—			—
Operating reserves		4,214			4,243			4,088
Accrued environmental remediation costs		22,148			13,679			13,573
Accrued OPEB costs		29,470			55,560			68,172
Accrued pension costs		6			11,202			48,760
Other		11,843			19,390			11,687

Total Deferred Credits and Other Liabilities		200,509			215,737			251,042

Accumulated Deferred Income Tax		138,864			135,264			132,596

Commitments and Contingencies
Total Capitalization and Liabilities	$	1,273,061		$	1,252,694		$	1,231,955

The Notes to Consolidated Financial Statements are an integral part hereof.

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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”). Operating results of CHEC’s wholly owned subsidiary Griffith Energy Services, Inc. (“Griffith”) and CHEC’s Lyonsdale Biomass, LLC (“Lyonsdale”) subsidiary 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. Intercompany balances and transactions have been eliminated in consolidation.

The Consolidated Financial Statements were prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which for regulated public utilities, includes the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 71, Accounting for the Effects of Certain Types of Regulation (“SFAS 71”).

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, 2007 (the “Corporations’ 10-K Annual Report”).

CH Energy Group’s and Central Hudson’s balance sheets as of June 30, 2007, are not required to be included in this Quarterly Report on Form 10-Q; however, these balance sheets are included for supplemental analysis purposes.

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Reclassification

Certain amounts in the 2007 Consolidated Financial Statements have been reclassified to conform to the 2008 presentation.

Cash and Cash Equivalents

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

Revenue Recognition

Reference is made to the caption “Revenue Recognition” of Note 1 – “Summary of Significant Accounting Policies” to the Consolidated Financial Statements of the Corporations’ 10-K Annual Report. CH Energy Group’s deferred revenue balances as of June 30, 2008, December 31, 2007 and June 30, 2007 were $6.5 million, $7.4 million, and $5.1 million, respectively. The deferred revenue balance will be recognized in competitive business subsidiaries operating revenues over the 12-month term of the respective customer contract.

As required by the New York State Public Service Commission (“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).

Depreciation and Amortization

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

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

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accordance with SFAS 143, Central Hudson has classified $49.6 million, $47.8 million, and $46.4 million of net cost of removal as regulatory liabilities as of June 30, 2008, December 31, 2007, and June 30, 2007, respectively. 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.

CH Energy Group’s depreciation expense, which includes Central Hudson, Griffith, and Lyonsdale, was $17.0 million and $16.5 million for the six months ended June 30, 2008, and June 30, 2007, respectively.

Accumulated depreciation for Griffith was $22.0 million, $20.5 million, and $18.8 million as of June 30, 2008, December 31, 2007, and June 30, 2007, respectively.

Accumulated depreciation for Lyonsdale was $1.8 million, $1.3 million, and $0.9 million as of June 30, 2008, December 31, 2007, and June 30, 2007, respectively.

Amortization of intangibles (other than goodwill) is computed on the straight-line method over an asset’s expected useful life. See Note 6 – “Goodwill and Other Intangible Assets” for further discussion.

Earnings Per Share

Reference is made to the caption “Earnings Per Share” of Note 1 – “Summary of Significant Accounting Policies” to the Consolidated Financial Statements of the Corporations’ 10-K Annual Report.

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, performance shares and restricted shares was 43,728 shares and 21,807 shares for the quarters ended June 30, 2008 and 2007, respectively. The average dilutive effect of CH Energy Group’s stock options, performance shares and restricted shares was 43,734 shares and 22,338 shares for the six months ended June 30, 2008 and 2007, 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

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periods presented. Excluded from the calculation were options for 39,980 shares for the three and six months ended June 30, 2008, and 18,420 shares for the three and six months ended June 30, 2007. For additional information regarding stock options and performance shares, see Note 11 – “Equity-Based Compensation.”

Equity-Based Compensation

CH Energy Group has an equity-based employee compensation plan that is described in Note 11 – “Equity-Based Compensation.”

Parental Guarantees

Reference is made to the caption “Parental Guarantees” of Note 1 – “Summary of Significant Accounting Policies” to the Consolidated Financial Statements of the Corporations’ 10-K Annual Report. 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.

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, 2008, the aggregate amount of subsidiary obligations covered by these guarantees was $21.7 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.

Other Guarantees

Central Hudson has a reimbursement obligation with respect to a $6.8 million standby letter of credit issued by a financial institution to support a real estate transaction that is expected to close in mid-2009. No premium has been received or is receivable by Central Hudson in connection with this letter of credit. This uncollateralized letter of credit was issued February 29, 2008 and expires September 30, 2009. The maximum potential amount of future payments Central Hudson could be required to make under this guarantee is $6.8 million. As of June 30, 2008, no events or circumstances had arisen that would require Central Hudson to perform under this guarantee, and the carrying amount of the liability was zero.

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Product Warranties

Griffith offers a multi-year warranty on heating system installations and has recorded liabilities for the estimated costs of fulfilling its obligations under these warranty and service contracts. CH Energy Group’s approximate aggregate potential liability for product warranties at June 30, 2008, December 31, 2007 and June 30, 2007 was not material. CH Energy Group’s liabilities for these product warranties were determined by accruing the present value of future warranty expense based on the number and type of contracts outstanding and historical costs for these contracts.

FASB Interpretation Number (FIN) 46R – Consolidation of Variable Interest Entities

Reference is made to the caption “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 do not have material affiliations with any variable interest entities that require consolidation under the provisions of FIN 46R.

Fair Value Measurements

CH Energy Group adopted SFAS No. 157, Fair Value Measurements (“SFAS 157”) on January 1, 2008. The guidance in SFAS 157 establishes a framework for measuring fair value in GAAP, improves consistency and comparability in reporting fair value, and expands disclosures regarding fair value measurements.

SFAS 157 establishes a fair value hierarchy to prioritize the inputs used in valuation techniques based on observable and unobservable data, but not the valuation techniques themselves. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or a liability. Classification of inputs is determined based on the lowest level input that is significant to the overall valuation. The fair value hierarchy prioritizes the inputs to valuation techniques into the three categories described below.


§	Level 1 Inputs: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

§	Level 2 Inputs: Directly or indirectly observable (market-based) information. This includes quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

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§	Level 3 Inputs: Unobservable inputs for the asset or liability for which there is either no market data, or for which asset and liability values are not correlated with market value.

On June 30, 2008, CH Energy Group reported one major category of assets at fair value: derivative contracts. Derivative contracts are measured on a recurring basis. The fair value of CH Energy Group’s reportable assets and liabilities at June 30, 2008 by category and hierarchy level follows.


Fair Value Measure at June 30, 2008 Using

Asset or Liability Category	Fair Value as of June 30, 2008		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

	(In Thousands)
Assets
Derivative Contracts
Central Hudson - Electric	$	8,362	$	—	$	—	$	8,362
Central Hudson - Natural Gas		1,294		1,294		—		—
Griffith - Heating Oil		341		341		—		—


TOTAL ASSETS	$	9,997	$	1,635	$	—	$	8,362

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The table listed below provides a reconciliation of the beginning and ending net balances for assets and liabilities measured at fair value and classified as Level 3 in the fair value hierarchy for the three and six months ended June 30, 2008:


	Three Months Ended June 30, 2008		Six Months Ended June 30, 2008

	(in Thousands)


Balance at Beginning of Period	$	591	$	77

Unrealized gains and (losses)		6,623		7,137
Realized gains and (losses)		1,148		1,148
Purchases, issuances, sales and settlements		—		—
Transfers in and/or out of Level 3		—		—


Balance at End of Period	$	8,362	$	8,362


The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to derivatives still held at June 30, 2008	$	—	$	—

Derivative Contracts – CH Energy Group’s derivative contracts are typically either exchange-traded or over-the counter (“OTC”) instruments. Exchange-traded and OTC derivatives are valued based on listed market prices. On June 30, 2008, Central Hudson’s derivative contracts were comprised of wholesale electric contracts for differences (“Swap Contracts”) and natural gas swaps. Electric swap contracts are valued using the NYMEX Clearport and the New York Independent System Operator (“NYISO”) Swap Futures Closing Price and have been classified as Level 3 assets in the fair value hierarchy since Clearport provides clearing, not trading services and is not an active market for these swaps. Management believes these prices approximate fair value for these instruments. Natural gas swaps are valued using the NYMEX Natural Gas Futures Closing Price plus the NYMEX Clearport Natural Gas Basis Swap Futures Closing Price or the Platts M2M Modeled Natural Gas Curves Basis, and have been classified within Level 1 of the fair value hierarchy. For swaps valued using the NYMEX Natural Gas Futures Closing Price plus the NYMEX Clearport Natural Gas Basis Swap Futures Closing Price, the latter component is immaterial. Unrealized gains and losses on Central Hudson’s derivative contracts have no impact on earnings. Realized gains and losses on Central Hudson’s derivative instruments are conveyed to or recovered from customers through PSC-authorized deferral accounting mechanisms, with no impact on

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	cash flows, results of operations, or liquidity. Central Hudson’s derivative contracts also include weather hedging instruments and interest rate call options, the fair values of which are immaterial.

	Griffith’s open derivative positions on June 30, 2008 were comprised entirely of contracts for heating oil call options. For these options, the underlying is valued using listed market prices (the NYMEX Heating Oil Futures Closing Price). The option premium is valued using counterparty quotes. These options can be either Level 1 or Level 2, depending on whether the option is in the money or out of the money. For the period ended June 30, 2008, the contracts for these options have been classified within Level 1 of the fair value hierarchy since they are in the money, and the input to valuing the underlying instrument is the most significant component to the overall valuation. The option premium component was immaterial. In accordance with the hedge accounting provisions of SFAS 133, titled Accounting for Derivatives, unrealized gains and losses on Griffith’s derivative contracts are deferred through other comprehensive income. Settlement amounts recorded for the six months ended June 30, 2008 were $2.0 million. A total actual net gain including premium expense was recorded during the six months ended June 30, 2008, in the amount of $1.9 million. A net loss of ($0.6) million was recorded during the same period in 2007.

	For Central Hudson, realized gains and losses on Level 3 energy derivative assets are reported as part of purchased electricity and fuel used in electric generation in the consolidated income statement. Central Hudson generally recovers these costs in accordance with rate provisions approved by the PSC.

For additional information about CH Energy Group’s derivative contracts, see Note 14 – “Accounting for Derivative Instruments and Hedging Activities.”

Income Tax

Reference is made to Note 4 – “Income Tax” to the Consolidated Financial Statements of the Corporations’ 10-K Annual Report.

Common Stock Dividends

CH Energy Group’s ability to pay dividends may be 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. Central Hudson’s dividend would be reduced below 100% of its annual average 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 CH Energy Group or any of Central Hudson’s affiliates. Central Hudson is currently rated “A” or the equivalent. As of June 30, 2008, the amount of Central Hudson’s retained earnings that

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were free of restrictions was $32.6 million. CH Energy Group’s other subsidiaries do not have restrictions on their ability to pay dividends.

On May 22, 2008, the Board of Directors of CH Energy Group declared a quarterly dividend of $0.54 per share, payable August 1, 2008, to shareholders of record as of July 10, 2008.

NOTE 2 – REGULATORY MATTERS

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

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Summary of Regulatory Assets and Liabilities

The following table sets forth Central Hudson’s regulatory assets and liabilities:


	June 30, 2008		December 31, 2007			June 30, 2007

			(In Thousands)
Regulatory Assets (Debits):

Current:
Deferred purchased electric and natural gas costs	$	38,268		$	29,477	$	21,562
FAS 133 - deferred unrealized losses		—			1,235		6,547
Residual natural gas deferred balances		4,346			4,300		—
FAS 109 - income taxes		3,476			—		4,416

		46,090			35,012		32,525

Long-term:
Deferred pension costs	$	44,078		$	51,393	$	91,532
Carrying charges - pension reserve		8,549			6,477		4,266
Deferred costs - manufactured gas sites		31,077			17,386		15,195
Deferred OPEB costs		—			15,967		32,766
Deferred debt expense on re-acquired debt		5,737			6,032		6,327
Residual natural gas deferred balances		22,663			25,298		30,914
Income taxes recoverable through future rates		25,888			22,399		17,568
Other		9,902			9,229		8,949

		147,894			154,181		207,517


Total Regulatory Assets	$	193,984		$	189,193	$	240,042

Regulatory Liabilities (Credits):

Current:
Rate moderation - excess electric depreciation reserve	$	—		$	5,930	$	11,789
Income taxes refundable through future rates		1,569			3,462		3,472
FAS 133 - deferred unrealized gains		9,656			—		—

		11,225			9,392		15,261

Long-term:
Customer benefit fund	$	4,500		$	4,865	$	5,148
Deferred cost of removal		49,590			47,819		46,408
Excess electric depreciation reserve		32,401			32,371		33,017
Income taxes refundable through future rates		15,348			9,488		9,290
Deferred OPEB costs		9,804			—		—
Other		21,185			17,120		10,899

		132,828			111,663		104,762


Total Regulatory Liabilities	$	144,053		$	121,055	$	120,023


Net Regulatory Assets	$	49,931		$	68,138	$	120,019

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NOTE 3 - NEW ACCOUNTING STANDARDS AND OTHER FASB PROJECTS

Reference is made to the captions “Standards Under Assessment” and “Standards Implemented” of Note 3 – “New Accounting Standards and Other FASB Projects” 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

Derivative Instruments

SFAS 161

Disclosures About Derivative Instruments and Hedging Activities

Mar-08

Jan-09

Under Assessment

Business Combinations

SFAS 141R

Business Combinations - Revised

Dec-07

Jan-09

Under Assessment

Noncontrolling Interests

SFAS 160

Noncontrolling Interest in Consolidated Financial Statements

Dec-07

Jan-09