CH ENERGY GROUP, INC. & CENTRAL HUDSON GAS & ELECTRIC CORP. QUARTERLY FINANCIAL REPORT. for the period ended

Transcription

1 CH ENERGY GROUP, INC. & CENTRAL HUDSON GAS & ELECTRIC CORP. QUARTERLY FINANCIAL REPORT for the period ended JUNE 30, 2015

2 FINANCIAL STATEMENTS QUARTER ENDED JUNE 30, 2015 TABLE OF CONTENTS CH Energy Group, Inc. PAGE Consolidated Statement of Income Three and Six Months Ended June 30, 2015 and Consolidated Statement of Comprehensive Income Three and Six Months Ended June 30, 2015 and Consolidated Statement of Cash Flows Six Months Ended June 30, 2015 and Consolidated Balance Sheet June 30, 2015, December 31, 2014 and June 30, Consolidated Statement of Equity Six Months Ended June 30, 2015 and Central Hudson Gas & Electric Corporation Statement of Income Three and Six Months Ended June 30, 2015 and Statement of Comprehensive Income Three and Six Months Ended June 30, 2015 and Statement of Cash Flows Six Months Ended June 30, 2015 and Balance Sheet June 30, 2015, December 31, 2014 and June 30, Statement of Equity Six Months Ended June 30, 2015 and NOTES TO FINANCIAL STATEMENTS 14

3 Financial Statements CH ENERGY GROUP CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (In Thousands) Three Months Ended Six Months Ended June 30, June 30, Operating Revenues Electric $ 125,819 $ 131,960 $ 290,837 $ 306,376 Natural gas 30,765 41, , ,099 Total Operating Revenues 156, , , ,475 Operating Expenses Operation: Purchased electricity and fuel used in electric generation 42,317 49, , ,582 Purchased natural gas 10,299 22,894 44,262 61,788 Other expenses of operation - regulated activities 59,734 60, , ,945 Other expenses (income) of operation - non-regulated (5) 34 (51) 100 Merger related costs - (513) - (99) Depreciation and amortization 11,291 10,683 22,476 21,368 Taxes, other than income tax 13,067 13,378 28,735 29,027 Total Operating Expenses 136, , , ,711 Operating Income 19,881 17,737 55,990 48,764 Other Income and Deductions Income from unconsolidated affiliates Interest on regulatory assets and other interest income ,149 2,225 Regulatory adjustments for interest costs Other - net (127) (96) (102) (304) Total Other Income 1,243 1,331 2,681 3,105 Interest Charges Interest on long-term debt 5,928 5,898 11,702 11,845 Interest on regulatory liabilities and other interest 1,925 2,237 4,182 4,619 Total Interest Charges 7,853 8,135 15,884 16,464 Income before income taxes 13,271 10,933 42,787 35,405 Income Tax Expense 5,382 5,164 17,963 13,994 Net Income from Continuing Operations 7,889 5,769 24,824 21,411 Discontinued Operations Income from discontinued operations before tax ,907 Gain from sale of discontinued operations - (38) - 8,036 Income tax expense (benefit) from discontinued operations - (10) - 7,255 Net Income (loss) from Discontinued Operations - (13) - 7,688 Net Income Attributable to CH Energy Group 7,889 5,756 24,824 29,099 Dividends declared on Common Stock 5,500 5,000 11,000 10,000 Change in Retained Earnings $ 2,389 $ 756 $ 13,824 $ 19,099 The Notes to Financial Statements are an integral part hereof

4 CH ENERGY GROUP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (In Thousands) Three Months Ended June 30, Six Months Ended June 30, Net Income $ 7,889 $ 5,756 $ 24,824 $ 29,099 Other Comprehensive Income: 1 Net unrealized losses on investments held by equity method investees net of tax of $0 and $210 in the three and six months ended June 30, 2015 and $0 in 2014, respectively - - (316) - Other comprehensive income (loss) - - (316) - Comprehensive income 7,889 5,756 24,508 29,099 Comprehensive income attributable to CH Energy Group $ 7,889 $ 5,756 $ 24,508 $ 29,099 The Notes to Financial Statements are an integral part hereof

5 CH ENERGY GROUP CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (In Thousands) Six Months Ended June 30, Operating Activities: Net income $ 24,824 $ 29,099 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 20,972 19,800 Amortization 1,504 1,568 Deferred income taxes - net (16,477) (8,988) Bad debt expense 3,296 2,273 Undistributed equity in earnings of unconsolidated affiliates (1) (289) Pension expense 10,819 10,820 Other post-employment benefits ("OPEB") expense 3,573 3,573 Revenue decoupling mechanism recorded 10,688 9,545 Regulatory asset amortization 27 2,809 Gain on sale of assets - (8,073) Changes in operating assets and liabilities - net: Accounts receivable, unbilled revenues and other receivables 2,351 (25,727) Fuel, materials and supplies 1,820 2,829 Special deposits and prepayments 10,966 8,231 Income and other taxes 33,202 14,416 Accounts payable (8,070) (1,189) Accrued interest (190) (154) Customer advances (5,542) (11,055) Pension plan contribution (8,881) (16,711) OPEB contribution (1,536) (2,238) Revenue decoupling mechanism collected (3,660) (2,972) Regulatory asset - storm deferral 10 - Regulatory asset - manufactured gas plant ("MGP") site remediation 1,738 1,866 Regulatory asset - Temporary State Assessment 2,843 1,542 Deferred natural gas and electric costs 23,393 5,477 Other - net (11,319) 8,674 Net cash provided by (used in) operating activities 96,350 45,126 Investing Activities: Proceeds from sale of assets - 95,281 Additions to utility and other property and plant (54,205) (44,873) Other - net (5,479) 1,006 Net cash (used in) provided by investing activities (59,684) 51,414 Financing Activities: Redemption of long-term debt (604) (14,066) Proceeds from issuance of long-term debt 20,000 30,000 Dividends paid on Common Stock (11,000) (10,000) Other - net (157) (161) Net cash provided by financing activities 8,239 5,773 Net Change in Cash and Cash Equivalents 44, ,313 Cash and Cash Equivalents at Beginning of Period 22,647 20,570 Cash and Cash Equivalents at End of Period $ 67,552 $ 122,883 Supplemental Disclosure of Cash Flow Information: Interest paid $ 11,595 $ 12,265 Federal and state income taxes paid $ 14,110 $ 15,615 Additions to plant included in liabilities $ 7,738 $ 5,018 The Notes to Financial Statements are an integral part hereof

6 CH ENERGY GROUP CONSOLIDATED BALANCE SHEET (UNAUDITED) (In Thousands) June 30, December 31, June 30, ASSETS Utility Plant Electric $ 1,182,961 $ 1,160,643 $ 1,137,180 Natural gas 390, , ,893 Common 192, , ,664 Gross Utility Plant 1,765,617 1,726,413 1,678,737 Less: Accumulated depreciation 471, , ,412 Net 1,294,190 1,268,258 1,229,325 Construction work in progress 62,994 57,543 50,025 Net Utility Plant 1,357,184 1,325,801 1,279,350 Non-utility property & plant Net Non-Utility Property & Plant Current Assets Cash and cash equivalents 67,552 22, ,883 Accounts receivable from customers - net of allowance for doubtful accounts of $5.3 million, $4.8 million and $4.2 million, respectively. 64,073 68,568 75,094 Accounts receivable - affiliates 3-6 Accrued unbilled utility revenues 11,235 16,866 11,389 Other receivables 5,765 5,208 4,714 Fuel, materials and supplies 15,726 17,546 15,926 Regulatory assets 28,255 56,272 25,795 Income tax receivable - 10,694 - Fair value of derivative instruments 33-16,800 Unamortized debt expense Special deposits and prepayments 14,510 25,473 12,885 Accumulated deferred income tax 31,364 11,955 15,943 Total Current Assets 238, , ,784 Deferred Charges and Other Assets Regulatory assets - pension plan 92,778 94,426 38,932 Regulatory assets - other 155, , ,173 Fair value of derivative instruments ,253 Unamortized debt expense 3,716 3,749 3,918 Investments in unconsolidated affiliates 1,324 1,726 2,329 Other investments 33,977 27,666 27,418 Other 2,728 3,001 3,033 Total Deferred Charges and Other Assets 290, , ,056 Total Assets $ 1,886,748 $ 1,888,342 $ 1,864,714 The Notes to Financial Statements are an integral part hereof

7 CH ENERGY GROUP CONSOLIDATED BALANCE SHEET (CONT'D) (UNAUDITED) (In Thousands, except share amounts) June 30, December 31, June 30, CAPITALIZATION AND LIABILITIES Capitalization CH Energy Group Common Shareholders' Equity Common Stock (30,000,000 shares authorized: $0.01 par value; 15,961,400 shares issued and outstanding) $ 160 $ 160 $ 160 Paid-in capital 325, , ,906 Retained earnings 211, , ,218 Accumulated other comprehensive income Total Equity 537, , ,788 Long-term debt 535, , ,670 Total Capitalization 1,072,922 1,048,060 1,108,458 Current Liabilities Current maturities of long-term debt 9,272 1,230 8,189 Accounts payable 35,294 44,312 26,717 Accounts payable - affiliates Accrued interest 5,483 5,673 5,740 Accrued vacation and payroll 8,665 9,513 6,654 Customer advances 8,625 14,167 6,508 Customer deposits 8,210 6,948 7,024 Regulatory liabilities 32,287 16,058 31,367 Fair value of derivative instruments 5,591 7, Accrued environmental remediation costs 21,440 13,425 2,805 Accrued income and other taxes 22,520-19,062 Other 5,847 17,966 10,781 Total Current Liabilities 163, , ,465 Deferred Credits and Other Liabilities Regulatory liabilities - OPEB 23,551 47,339 53,684 Regulatory liabilities - other 144, , ,971 Operating reserves 3,558 4,118 3,809 Fair value of derivative instruments 3, Accrued environmental remediation costs 86,804 93, ,446 Accrued OPEB costs 23,362 24,836 16,572 Accrued pension costs 61,379 68,507 1,655 Tax reserve 3,281 2,693 2,726 Other 18,911 19,651 17,531 Total Deferred Credits and Other Liabilities 369, , ,394 Accumulated Deferred Income Tax 281, , ,397 Commitments and Contingencies Total Capitalization and Liabilities $ 1,886,748 $ 1,888,342 $ 1,864,714 The Notes to Financial Statements are an integral part hereof

8 CH ENERGY GROUP CONSOLIDATED STATEMENT OF EQUITY (UNAUDITED) (In Thousands, except share amounts) Common Stock Treasury Stock CH Energy Group Common Shareholders Shares (Repurchased) / Issued Amount Capital Stock Expense Accumulated Other Comprehensive Income Noncontrolling Interest Paid-In Retained Total Shares Issued Amount Capital Earnings Equity Balance at December 31, ,961,400 $ $ - $ 325,906 $ - $ 238,119 $ 504 $ - $ 564,689 Comprehensive income: Net income 29,099 29,099 Dividends declared on common stock (10,000) (10,000) Balance at June 30, ,961,400 $ $ - $ 325,906 $ - $ 257,218 $ 504 $ - $ 583,788 Balance at December 31, ,961,400 $ $ - $ 325,906 $ - $ 197,439 $ 510 $ - $ 524,015 Comprehensive income: Net income 24,824 24,824 Change in fair value: Investments (316) (316) Dividends declared on common stock (11,000) (11,000) Balance at June 30, ,961,400 $ $ - $ 325,906 $ - $ 211,263 $ 194 $ - $ 537,523 The Notes to Financial Statements are an integral part hereof

9 CENTRAL HUDSON STATEMENT OF INCOME (UNAUDITED) (In Thousands) Three Months Ended Six Months Ended June 30, June 30, Operating Revenues Electric $ 125,819 $ 131,960 $ 290,837 $ 306,376 Natural gas 30,765 41, , ,099 Total Operating Revenues 156, , , ,475 Operating Expenses Operation: Purchased electricity and fuel used in electric generation 42,317 49, , ,582 Purchased natural gas 10,299 22,894 44,262 61,788 Other expenses of operation 59,734 60, , ,945 Depreciation and amortization 11,291 10,683 22,476 21,368 Taxes, other than income tax 13,091 13,061 28,553 28,388 Total Operating Expenses 136, , , ,071 Operating Income 19,852 17,575 56,121 49,404 Other Income and Deductions Interest on regulatory assets and other interest income ,132 2,202 Regulatory adjustments for interest costs Other - net 151 (52) Total Other Income 1,449 1,170 2,996 2,842 Interest Charges Interest on long-term debt 5,602 5,531 11,046 11,023 Interest on regulatory liabilities and other interest 1,913 2,240 4,170 4,619 Total Interest Charges 7,515 7,771 15,216 15,642 Income Before Income Taxes 13,786 10,974 43,901 36,604 Income Tax Expense 5,596 4,423 17,571 13,801 Net Income 8,190 6,551 26,330 22,803 Income Available for Common Stock $ 8,190 $ 6,551 $ 26,330 $ 22,803 CENTRAL HUDSON STATEMENT OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (In Thousands) Three Months Ended June 30, Six Months Ended June 30, Net Income $ 8,190 $ 6,551 $ 26,330 $ 22,803 Other Comprehensive Income Comprehensive Income $ 8,190 $ 6,551 $ 26,330 $ 22,803 The Notes to Financial Statements are an integral part hereof

10 CENTRAL HUDSON STATEMENT OF CASH FLOWS (UNAUDITED) (In Thousands) Six Months Ended June 30, Operating Activities: Net income $ 26,330 $ 22,803 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 20,972 19,800 Amortization 1,504 1,568 Deferred income taxes - net (16,585) (8,850) Bad debt expense 3,296 2,273 Pension expense 10,819 10,820 OPEB expense 3,573 3,573 Revenue decoupling mechanism recorded 10,688 9,545 Regulatory asset amortization 27 2,809 Changes in operating assets and liabilities - net: Accounts receivable, unbilled revenues and other receivables (1,121) (8,642) Fuel, materials and supplies 1,820 2,706 Special deposits and prepayments 10,936 7,643 Income and other taxes 32,918 22,855 Accounts payable (8,123) (2,975) Accrued interest (188) (66) Customer advances (5,542) (8,493) Pension plan contribution (8,575) (16,711) OPEB contribution (1,536) (2,238) Revenue decoupling mechanism collected (refunded) (3,660) (2,972) Regulatory asset - storm deferral 10 - Regulatory asset - MGP site remediation 1,738 1,866 Regulatory asset - Temporary State Assessment 2,843 1,542 Deferred natural gas and electric costs 23,393 5,477 Other - net (7,826) 5,832 Net cash provided by (used in) operating activities 97,711 70,165 Investing Activities: Additions to utility plant (54,205) (44,742) Other - net (5,347) 1,014 Net cash used in investing activities (59,552) (43,728) Financing Activities: Redemption of long-term debt - (7,000) Proceeds from issuance of long-term debt 20,000 30,000 Dividends paid to parent - CH Energy Group (12,262) (5,000) Other - net (157) (203) Net cash provided by financing activities 7,581 17,797 Net Change in Cash and Cash Equivalents 45,740 44,234 Cash and Cash Equivalents - Beginning of Period 18,303 14,379 Cash and Cash Equivalents - End of Period $ 64,043 $ 58,613 Supplemental Disclosure of Cash Flow Information: Interest paid $ 10,938 $ 11,355 Federal and state income taxes paid $ 15,519 $ - Additions to plant included in liabilities $ 7,738 $ 5,018 The Notes to Financial Statements are an integral part hereof

11 CENTRAL HUDSON BALANCE SHEET (UNAUDITED) (In Thousands) June 30, December 31, June 30, ASSETS Utility Plant Electric $ 1,182,961 $ 1,160,643 $ 1,137,180 Natural gas 390, , ,893 Common 192, , ,664 Gross Utility Plant 1,765,617 1,726,413 1,678,737 Less: Accumulated depreciation 471, , ,412 Net 1,294,190 1,268,258 1,229,325 Construction work in progress 62,994 57,543 50,025 Net Utility Plant 1,357,184 1,325,801 1,279,350 Non-Utility Property and Plant Net Non-Utility Property and Plant Current Assets Cash and cash equivalents 64,043 18,303 58,613 Accounts receivable from customers - net of allowance for doubtful accounts of $5.3 million, $4.8 million and $4.2, respectively. 64,073 68,568 75,094 Accrued unbilled utility revenues 11,235 16,866 11,389 Other receivables 8,230 4,200 3,165 Fuel, materials and supplies - at average cost 15,726 17,546 15,926 Regulatory assets 28,255 56,272 25,795 Income tax receivable - 12,668 - Fair value of derivative instruments 33-16,800 Unamortized debt expense Special deposits and prepayments 14,482 25,418 12,817 Accumulated deferred income tax 25,039 5,603 10,170 Total Current Assets 231, , ,118 Deferred Charges and Other Assets Regulatory assets - pension plan 92,778 94,426 38,932 Regulatory assets - other 155, , ,173 Fair value of derivative instruments ,253 Unamortized debt expense 3,716 3,749 3,918 Other investments 33,158 26,856 26,621 Other 2,164 2,387 2,352 Total Deferred Charges and Other Assets 287, , ,249 Total Assets $ 1,876,641 $ 1,875,407 $ 1,789,241 The Notes to Financial Statements are an integral part hereof

12 CENTRAL HUDSON BALANCE SHEET (CONT'D) (UNAUDITED) (In Thousands, except share amounts) June 30, December 31, June 30, CAPITALIZATION AND LIABILITIES Capitalization Common Stock (30,000,000 shares authorized: $5 par value; 16,862,087 shares issued and outstanding) $ 84,311 $ 84,311 $ 84,311 Paid-in capital 239, , ,952 Retained earnings 230, , ,415 Capital stock expense (4,633) (4,633) (4,633) Total Equity 550, , ,045 Long-term debt 517, , ,950 Total Capitalization 1,068,104 1,042,036 1,030,995 Current Liabilities Current maturities of long-term debt 8,000-7,000 Accounts payable 35,366 44,446 26,078 Accrued interest 5,430 5,618 5,684 Accrued vacation and payroll 7,485 6,400 6,654 Customer advances 8,625 14,167 6,508 Customer deposits 8,210 6,948 7,024 Regulatory liabilities 32,287 16,058 31,367 Fair value of derivative instruments 5,591 7, Accrued environmental remediation costs 21,417 13,345 2,656 Accrued income and other taxes 20,250-18,477 Other 5,288 15,992 9,949 Total Current Liabilities 157, , ,015 Deferred Credits and Other Liabilities Regulatory liabilities - OPEB 23,551 47,339 53,684 Regulatory liabilities - other 144, , ,971 Operating reserves 3,558 4,118 3,809 Fair value of derivative instruments 3, Accrued environmental remediation costs 86,704 93, ,346 Accrued OPEB costs 23,362 24,836 16,572 Accrued pension costs 61,130 67,952 1,655 Tax reserve 3,281 2,693 2,726 Other 17,262 17,870 16,570 Total Deferred Credits and Other Liabilities 367, , ,333 Accumulated Deferred Income Tax 283, , ,898 Commitments and Contingencies Total Capitalization and Liabilities $ 1,876,641 $ 1,875,407 $ 1,789,241 The Notes to Financial Statements are an integral part hereof

13 CENTRAL HUDSON STATEMENT OF EQUITY (UNAUDITED) (In Thousands, except share amounts) Central Hudson Common Shareholders Common Stock Treasury Stock Accumulated Other Comprehensive Shares Issued Shares Amount Repurchased Amount Paid-In Capital Capital Stock Expense Retained Earnings Income Total Equity Balance at December 31, ,862,087 $ 84,311 - $ - $ 239,952 $ (4,633) $ 187,612 $ - $ 507,242 Net income 22,803 22,803 Dividends declared: On Common Stock to parent - CH Energy Group (5,000) (5,000) Balance at June 30, ,862,087 $ 84,311 - $ - $ 239,952 $ (4,633) $ 205,415 $ - $ 525,045 Balance at December 31, ,862,087 $ 84,311 - $ - $ 239,952 $ (4,633) $ 216,456 $ - $ 536,086 Net income 26,330 26,330 Dividends declared: On Common Stock to parent - CH Energy Group (12,262) (12,262) Balance at June 30, ,862,087 $ 84,311 - $ - $ 239,952 $ (4,633) $ 230,524 $ - $ 550,154 The Notes to Financial Statements are an integral part hereof

14 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 Summary of Significant Accounting Policies Corporate Structure CH Energy Group is the holding company parent corporation of three principal, wholly owned subsidiaries, Central Hudson Gas & Electric Corporation ( Central Hudson ), Central Hudson Electric Transmission LLC ( CHET ) and Central Hudson Enterprises Corporation ( CHEC ). CH Energy Group s common stock is indirectly owned by Fortis Inc. ( Fortis ), which is the largest investor-owned gas and electric distribution utility in Canada. Central Hudson is a regulated electric and natural gas subsidiary. CHET was formed to engage in transmission projects and has 6% ownership in New York Transco LLC ( Transco ). CHEC, the parent company of CH Energy Group s non-regulated businesses and investments, completed the sale of its wholly owned operating subsidiary Griffith Energy Services, Inc. to Star Gas Partners, L.P. on March 4, Therefore, operating results of Griffith are reported as Discontinued Operations for the three and six months ended June 30, 2014 in the Consolidated CH Energy Group Statement of Income. See Note 5 Acquisitions, Investments and Divestitures for further information. CHEC also has ownership interests in certain subsidiaries that are less than 100% owned. Basis of Presentation This Quarterly Report is a combined report of CH Energy Group and 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, CHET and CHEC. Inter-company balances and transactions have been eliminated in consolidation. CHEC s investments in limited partnerships ( Partnerships ) and limited liability companies are accounted for under the equity method. CH Energy Group s proportionate share of the change in fair value of available for sale securities held by the Partnerships is recorded in CH Energy Group s Consolidated Statement of Comprehensive Income. The Financial Statements were prepared in conformity with accounting principles generally accepted in the United States of America ( GAAP ), which for regulated public utilities, includes specific accounting guidance for regulated operations. For additional information regarding regulatory accounting, see Note 2 Regulatory Matters. Unaudited Financial Statements The accompanying Consolidated Financial Statements of CH Energy Group and Financial Statements of Central Hudson are unaudited but, in the opinion of management, reflect adjustments (which include normal recurring adjustments) necessary for a fair statement of the results for the interim periods presented. These unaudited quarterly Financial Statements do not contain all footnote disclosures concerning accounting policies and other matters which would be included in annual audited Financial Statements and, accordingly, should be read in conjunction with the audited Financial Statements (including the Notes thereto) included in the

15 combined CH Energy Group/Central Hudson Annual Report for the year ended December 31, The balance sheets of CH Energy Group and Central Hudson as of June 30, 2014 are included for supplemental analysis purposes. Reclassification Certain amounts in the 2014 Financial Statements have been reclassified to conform to the 2015 presentation. Revenue Recognition Central Hudson records revenue on the basis of meters read. In addition, Central Hudson records an estimate of unbilled revenue for service rendered to bimonthly customers whose meters are read in the prior month. The estimate covers 30 days subsequent to the meter read date. Pursuant to regulatory requirements, a portion of unbilled electric revenues is not recorded. As of June 30, 2015, December 31, 2014 and June 30, 2014, the portion of estimated electric unbilled revenues that is unrecognized in accordance with current regulatory agreements was $9.9 million, $13.1 million and $10.8 million, respectively. The full amounts of estimated natural gas unbilled revenues are recognized on the Consolidated Balance Sheet. As required by the New York 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 Central Hudson are accounted for on a net basis (excluded from revenue). Fuel, Materials & Supplies Fuel, materials and supplies for CH Energy Group and Central Hudson are valued using the average cost method. The following is a summary of CH Energy Group s and Central Hudson s inventories (In Thousands): June 30, December 31, June 30, Natural gas $ 3,200 $ 6,323 $ 4,515 Fuel used in electric generation Materials and supplies 12,035 10,820 10,996 Total $ 15,726 $ 17,546 $ 15,926 Utility Plant - Central Hudson The regulated assets of Central Hudson include electric, natural gas, and common assets and are listed under the heading Utility Plant on Central Hudson s and CH Energy Group s Consolidated Balance Sheets. The accumulated depreciation associated with these regulated assets is also reported on the Balance Sheets. The cost of additions to utility plant and replacements of retired units of property are capitalized at original cost. Capitalized costs include labor, materials and supplies, indirect charges for such items as transportation, certain administrative costs, certain taxes, pension and other employee benefits, and allowances for funds used during construction ( AFUDC ), as further

16 discussed below. The replacement of minor items of property is included in operating expenses. The original cost of property, together with removal cost less salvage, is charged to accumulated depreciation at the time the property is retired and removed from service as required by the PSC. Utility Plant Intangible Assets and Amortization Included in the Net Utility Plant balance of $1,357 million, $1,326 million and $1,279 million at June 30, 2015, December 31, 2014 and June 30, 2014 is $53.8 million, $50.9 million and $46.5 million of intangible utility plant assets and the related amortization of $24.1 million, $23.0 million and $20.9 million, respectively. See Note 6 - Goodwill and Other Intangible Assets for further discussion of amortization of intangibles (other than goodwill). Cost of Removal and Asset Retirement Obligations Current accounting guidance related to asset retirements precludes the recognition of expected future retirement obligations as a component of depreciation expense or accumulated depreciation. Central Hudson, however, is required to use depreciation methods and rates approved by the PSC under regulatory accounting. These depreciation rates include a charge for the cost of future removal and retirement of fixed assets. In accordance with current accounting guidance for regulated operations, Central Hudson continues to accrue for the future cost of removal for its rate-regulated natural gas and electric utility assets. In accordance with current accounting guidance related to asset retirements, Central Hudson has classified $48.8 million, $47.8 million, and $47.8 million of cost of removal as regulatory liabilities as of June 30, 2015, December 31, 2014, and June 30, 2014, respectively. This liability represents the portion of the cost of removal charge collected through rates. Additional estimated costs of removal driven by environmental regulations are reported as an Asset Retirement Obligation under GAAP. Asset retirement obligations ( AROs ) are recorded as a liability at fair value, with a corresponding increase to utility capital assets. Central Hudson recognizes AROs in the periods in which they are known and estimable. The fair value of AROs is based on an estimate of the present value of expected future cash outlays, discounted at a credit-adjusted risk-free interest rate. AROs are adjusted at the end of each reporting period to reflect the passage of time and any changes in the estimated future cash flows underlying the obligation. Actual costs incurred upon the settlement of AROs are recorded as a reduction in the liabilities. As of June 30, 2015, December 31, 2014, and June 30, 2014 AROs for Central Hudson were approximately $1.2 million, $1.2 million and $1.0 million, respectively. These amounts have been classified as Other long-term liabilities, with the offset to Utility Plant assets

17 Parental Guarantees CH Energy Group issued a parental guarantee to Transco, to assure the payment, when due, of certain obligations incurred by CHET. The maximum potential payment under this agreement is $182 million. As of June 30, 2015, CHET does not have any project commitments to Transco. Management is not aware of any existing condition that would require any payments under this guarantee. Common Stock Dividends CH Energy Group s ability to pay dividends is affected by the ability of its subsidiaries to pay dividends. The Federal Power Act limits the payment of annual dividends by Central Hudson to its retained earnings. More restrictive is the PSC s limit on the dividends Central Hudson may pay to CH Energy Group, which is 100% of the average annual income available for common stock, calculated on a two-year rolling average basis. Based on this calculation, Central Hudson is currently restricted to a maximum annual payment of $44.1 million in dividends to CH Energy Group. Central Hudson s ability to pay dividends would be reduced to 75% of its average annual income in the event of a downgrade of its senior debt rating below BBB+ by more than one rating agency if the stated reason for the downgrade is related to any of CH Energy Group s or Central Hudson s affiliates. Further restrictions are imposed for each downgrade below this level. In addition, Central Hudson would not be allowed to pay dividends if its average common equity ratio for the 13 months prior to a proposed dividend was more than 200 basis points below the ratio used in setting rates (currently 48%). During the six months ended June 30, 2015, the Board of Directors of Central Hudson authorized and Central Hudson paid dividends of $12.3 million to parent CH Energy Group. CH Energy Group s other subsidiaries do not have express restrictions on their ability to pay dividends. See Note 8 - Capitalization-Common and Preferred Stock for information regarding dividends declared

18 NOTE 2 Regulatory Matters Summary of Regulatory Assets and Liabilities The following table sets forth Central Hudson s regulatory assets and liabilities (In Thousands): June 30, December 31, June 30, Regulatory Assets (Debits): Current: Deferred purchased electric costs $ 8,849 $ 21,643 $ 10,855 Deferred purchased natural gas costs - 7,839 4,761 Deferred unrealized losses on derivatives - Electric (Note 14) 5,509 5, Deferred unrealized losses on derivatives - Gas (Note 14) 82 1,854 - Income taxes recoverable through future rates PSC General and Temporary State Assessment and carrying charges 1,334 (1) 2,665 2,525 RDM and carrying charges - Electric - 5,661 - Residual natural gas deferred balances ,772 Deferred debt expense on re-acquired debt Deferred and accrued costs - MGP site remediation 6,178 4,605 4,605 Deferred storm costs and carrying charges 5,425 (1) 5,113 - Other 358 (1) $ 28,255 $ 56,272 $ 25,795 Long-term: Deferred pension costs $ 92,778 (1) $ 94,426 $ 38,932 Deferred unrealized losses on derivatives - Electric (Note 14) 3, Carrying charges - pension reserve - (1) 16,904 15,226 Deferred and accrued costs - MGP site remediation and carrying charges 98,296 (1) 101, ,609 Deferred debt expense on re-acquired debt 4,198 4,458 4,718 Deferred Medicare Subsidy taxes - (1) 8,931 8,696 Residual natural gas deferred balances and carrying charges - (1) 1,130 1,097 Income taxes recoverable through future rates 33,117 34,740 42,873 Energy efficiency incentives 4,848 2,792 2,719 Deferred property taxes - (1) 4,019 - Other 11,464 (1) 21,130 20,235 $ 248,420 $ 289,729 $ 239,105 Total Regulatory Assets $ 276,675 $ 346,001 $ 264,900 Regulatory Liabilities (Credits): Current: Rate moderator - Electric $ 13,000 $ - $ - Rate moderator - Gas 2, RDM and carrying charges - Electric 1,597-1,742 RDM and carrying charges - Gas 5,055 5,297 6,295 Deferred purchased natural gas costs 2, Deferred unrealized gains on derivatives - Electric (Note 14) ,800 Deferred unrealized gains on derivatives - Gas (Note 14) Income taxes refundable through future rates 5,255 4,799 4,406 Deferred unbilled gas revenues 2,040 5,962 2,124 $ 32,287 $ 16,058 $ 31,367 Long-term: Rate moderator - Electric $ 44,452 $ - $ - Rate moderator - Gas 5, Customer benefit fund 5,965 6,271 6,273 Deferred cost of removal (Note 1) 48,811 47,832 47,820 Rate Base impact of tax repair project and carrying charges - (1) 13,402 12,865 Excess electric depreciation reserve carrying charges - (1) 1,586 1,586 Deferred unrealized gains on derivatives - Electric (Note 14) ,253 Income taxes refundable through future rates 26,572 (1) 23,808 37,078 Deferred OPEB costs 23,551 (1) 47,339 53,684 Carrying charges - OPEB reserve - (1) 20,991 18,014 PBA - Electric and carrying charges - (1) 13,005 12,624 PBA - Gas and carrying charges - (1) 3,299 3,202 Other 13,315 (1) 25,709 22,256 $ 168,508 $ 203,812 $ 222,655 Total Regulatory Liabilities $ 200,795 $ 219,870 $ 254,022 Net Regulatory Assets/Liabilities $ 75,880 $ 126,131 $ 10,878 (1) Central Hudson offset all or a portion of certain regulatory assets and liabilities as of June 30, 2015 in accordance with the PSC prescribed 2015 Rate Order ("2015 Rate Order") issued on June 17,

19 The significant new regulatory assets and liabilities include: Rate Moderator Electric and Gas Under the terms of the 2015 Rate Order (as discussed in more detail below), certain regulatory assets and liabilities were identified for offset and a regulatory liability was established with the net balance, which will be used for future customer rate moderation. The current portion of the Rate Moderator represents the amount estimated to be used for rate moderation in the next twelve months related to customer electric and gas bill credits as prescribed in the Rate Order Joint Petition From July 1, 2010 through June 30, 2013, Central Hudson operated under the terms of the 2010 Rate Order. On June 26, 2013 the PSC issued its Order Authorizing Acquisition Subject to Conditions in Case 12-M-0192 (the 2013 Joint Petition ), which was accepted on June 27, The Order adopted the terms of the Joint Proposal dated January 25, 2013 for the acquisition of CH Energy Group, owner of Central Hudson, by Fortis along with additional commitments by the companies to enhance financial protection for ratepayers and other community and economic development benefits. The Order included a 2 year rate freeze on electric and natural gas delivery rates and extended certain terms of the 2010 Order through June 30, A summary of the key terms of the 2013 Joint Petition are as follows: Description 2013 Joint Petition Electric delivery revenue increases $0 through June 30, 2015 Natural gas delivery revenue increases $0 through June 30, 2015 ROE 10.00% Earnings sharing Yes (1) Capital structure common equity 48% Positive benefit adjustments $35.0 million (2) Community benefit fund $5.0 million (2) Synergy Savings $1.85 million (3) Targets with true-up provisions -% of revenue requirement to defer for shortfalls Net plant balances 100% Transmission and distribution ROW maintenance 100% RDMs electric and natural gas Yes (1) ROE > 10.0% and up to 10.5%, 50% to customers, > 10.5%, 90% to customers. (2) To cover expenses normally required by rate payers, such as storm restoration costs and for economic development and low-income customer assistance programs. (3) Guaranteed annual synergy savings of $1.85 million to ratepayers for 5 years Rate Order On June 17, 2015, the PSC issued an Order Approving Rate Plan ( Rate Order ) in Cases 14- E-0318 and 14-G The Rate Order adopted the terms set forth in the April 22, 2015 Joint Proposal. The Rate Order became effective July 1, 2015, with Rate Year 1, Rate Year 2 and Rate Year 3 defined as the twelve months ending June 30, 2016, June 30, 2017 and June 30, 2018, respectively

20 Key provisions of the Rate Order include: Electric delivery revenue increases of $15.3 million, $16.0 million and $14.1 million, for RY1, RY2 and RY3 respectively. Gas delivery revenue increases of $1.8 million, $4.6 million and $4.4 million, for RY1, RY2 and RY3 respectively. To mitigate customer bill impacts from the delivery rate increases, the Company will utilize available regulatory liabilities as electric bill credits of $13.0 million in Rate Year 1, $12.0 million in Rate Year 2, and $2.0 million in Rate Year 3; and gas bill credits of $2.548 million in Rate Year 1 and $1.7 million in Rate Year 2. In addition, to the extent that the Company receives gas delivery revenues from the Danskammer Generating Station ( Danskammer ) in Rate Year 1, 50% of those revenues will be refunded via a bill credit to the Company s gas customers in Rate Year 2. Similarly, 50% of any gas delivery revenues received from Danskammer in Rate Year 2 will be refunded via a bill credit to the Company s gas customers in Rate Year 3. The remaining amounts will accrue carrying charges and be available to offset future rate increases. The Company s electric and gas revenue requirements reflect a common equity ratio of 48% and a return on equity ( ROE ) of 9.0%. Earnings above 9.5% and up to 10.0% will be shared 50% / 50% between the shareholder and ratepayers. Earnings above 10.0% and up to 10.5% will be shared 20% / 80% between the shareholder and ratepayers. Earnings above 10.5% will be shared 10% / 90% between the shareholder and ratepayers. The Rate Order provides for partial or full reconciliation of certain expenses including, but not limited to: property taxes, pensions/opebs, environmental site investigation and remediation costs, variable and fixed rate debt, and stray voltage. In addition, the Rate Order includes downward-only reconciliations for net plant, distribution and transmission right-of-way maintenance costs, security costs and rate case expenses. The Rate Order also authorizes a continuation of full cost recovery of electric and natural gas commodity costs. The Rate Order includes the establishment of a major storm reserve for electric operations, with related deferral provisions, and provides $0.7 million each rate year as funding for the reserve. Central Hudson will continue its revenue decoupling mechanisms ( RDMs ) for its electric and gas businesses. The structure and provisions of the RDMs will generally continue per Central Hudson s 2010 Rate Order except that the provisions for annual and interim RDM periods will be replaced with provisions for semi-annual RDM periods. Central Hudson s Customer Service Quality Performance Mechanism (consisting of the PSC Annual Compliant Rate, the Customer Satisfaction Index and Appointments Kept measures) and associated reporting requirements will continue in accordance with the

21 PSC s Order issued on June 26, 2013 in Case 12-M The Company will be subject to a negative revenue adjustment if it fails to meet any metric set forth in the Order. To reduce service terminations, the PSC authorized an annual incentive in the form of a 5 basis point positive revenue adjustment for each Rate Year in which the Company reduces service terminations to residential customers below 11,000. The Rate Order modifies the electric reliability and gas safety performance measures, which generally hold the Company to more stringent standards and to a higher performance than those measures currently in place. The Rate Order directs Central Hudson to replace or eliminate 13 miles of leak prone pipe in calendar year 2016, 14 miles in 2017, and 15 miles in In the event the Company fails to meet its leak prone pipe target in any calendar year, the Company will be subject to an 8 basis point negative revenue adjustment. The Rate Order provides the Company with an incentive to surpass its leak prone pipe target by for a positive revenue adjustment for each mile replaced or eliminated in excess of the applicable target, capped at maximum of 5 miles for a total of 10 basis points per calendar year, which the Company will defer for future recovery. The Rate Order directs the Company to transition to monthly billing for all customers from its current bi-monthly billing of certain customer classes by July The Rate Order provides for a $1 million annual program funding each Rate Year to provide additional incentives and support for customer conversion to gas. Central Hudson will receive an annual incentive in the form of 1 basis point for every 200 gas customers added above the combined total customer count forecast for residential and commercial customers for each Rate Year. The Rate Order provides for Network Strategy and Distribution Automation capital expenditures. Full implementation of the Network Strategy and Distribution Automation project beyond Rate Year 1 would be dependent upon the PSC agreement that the Company has successfully demonstrated the functional capability and operation/integration of these investments

22 Other PSC Proceedings Deferral of incremental costs exceeding 2% of net income related to governmental mandates was authorized in the Joint Proposal in Case 09-E-0588 and was extended for two additional rate years in Case 12-M In the current period there are two regulatory asset balances that are deferrals under this clause. In February 2014, the PSC issued an Order requiring risk assessments and remediation of certain NYS gas facilities to identify conditions similar to those found in a natural gas explosion that occurred in Horseheads, New York in In May 2014, the PSC issued a modifying Order in this proceeding extending the requirement for utilities to complete risk assessments until February 2015 and adding a requirement effective August 2014 for utilities to report to Staff on the progress of their risk assessments every 45 days. On December 5, 2014, Central Hudson filed a request for an extension of the deadline for submitting its Risk Assessment until September 30, In response to requests filed by the utilities, on February 19, 2015 the PSC issued a Notice Extending Deadline to Submit Risk Assessment to September 30, On June 30, 2014, Central Hudson notified the PSC that it will defer the incremental costs (including internal labor costs) it incurs through June 30, 2015, the period covered by the 2013 Joint Petition, in complying with FERC s new Bulk Electric System ( BES ) regulations. Central Hudson also notified the PSC that it will defer the carrying charges on the amounts deferred (net of taxes) at the rate authorized by the PSC

23 NOTE 3 - New Accounting Guidance Newly adopted and soon to be adopted accounting guidance is summarized below, including explanations for any new guidance issued in 2015 (except that which is not currently applicable) and the expected impact on CH Energy Group and its subsidiaries. Impact Category Accounting Reference Title Issued Date Effective Date 1 Revenue from Contracts with Customers (Topic 606) ASU No Revenue from Contracts with Customers May-14 Jan-18 3 Going Concern (Subtopic ) ASU No Presentation of Financial Statements- Going Concern, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern Aug-14 Jan-16 4 Compensation-Stock Compensation (Topic 718) ASU No Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period 3 Consolidation (Topic 810) ASU No Amendment to Consolidation Analysis Jun-14 Feb-15 Jan-16 Jan-16 2 Interest - Imputation of Interest (Subtopic ) ASU No Presentation of Debt Issuance Costs in the balance sheet as a direct reduction from the carrying amount of debt liability - consistent with debt discounts Apr-15 Jan-16 1 Intangibles - Goodwill & Other, Internal Use Software (Topic 810) ASU No Guidance on cloud computing arrangements Apr-15 Jan-16 Impact Key: (1) CH Energy Group and its subsidiaries are assessing the impact that the adoption of this standard will have on the financial condition, results of operations and cash flows. (2) No material impact on the financial condition, and no anticipated impact in the results of operations and cash flows of CH Energy Group and its subsidiaries upon future adoption. (3) No anticipated impact on the financial condition, results of operations and cash flows of CH Energy Group and its subsidiaries upon future adoption. (4) CH Energy Group and Central Hudson have adopted this ASU early. The impact resulting from the election of a CH Energy Group officer to resign under change in control agreements are reflected in the compensation expense related to performance share units in Note 11 - "Equity-Based Compensation."

24 NOTE 4 Income Tax In September of 2010, Central Hudson filed a request with the Internal Revenue Service ( IRS ) to change the company s tax accounting method related to costs to repair and maintain utility assets. The change was effective for the tax year ending December 31, This change allows Central Hudson to take a current tax deduction for a significant amount of repair costs that were previously capitalized for tax purposes. In September 2012, Central Hudson filed corporate income tax returns for the year ended December 31, With that filing, Central Hudson included an election to adopt the provisions of Revenue Procedure ( Rev Proc ), which provided IRS guidance related to the repair deduction previously taken on electric transmission and distribution property. As such, tax reserves related to the electric transmission and distribution repair deductions, which were established prior to issuance of the Rev Proc, were reclassified to deferred tax liability accounts. IRS guidance with respect to repair deduction taken on gas transmission and distribution repairs is still pending. Therefore, remaining reserves related to the gas repair deduction continue to be shown as Tax Reserve under the Deferred Credits and Other Liabilities section of the Central Hudson Balance Sheet. Other than the uncertain tax position related to Central Hudson s accounting method change for gas transmission and distribution repairs, there are no other uncertain tax positions. The increase in the tax reserve for the six months ended June 30, 2015, was a result of $0.3 million of New York State ("NYS") uncertain tax position that was previously reclassified to a deferred tax asset per ASU No , Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This reclassification was reversed during the six months ended June 30, 2015 because there was no remaining NYS net operating loss carryforward to offset. Additional changes in the tax reserve reflect the ongoing uncertainty related to gas transmission and distribution repair deductions taken in the current period. The following is a summary of activity related to uncertain tax positions (In Thousands): Three Months Ended June 30, Six Months Ended June 30, Tax reserve balance at the beginning of the period 1$ 3,146 $ 2,289 1$ 2,693 $ 2,539 Adjustments related to tax accounting method change Tax reserve balance at the end of the period $ 3,281 $ 2,726 $ 3,281 $ 2,726 Jurisdiction Tax Years Open for Audit Federal New York State

25 Reconciliation - CH Energy Group The following is a reconciliation between the amount of federal income tax computed on income before taxes at the statutory rate and the amount reported in CH Energy Group s Consolidated Statement of Income (In Thousands): Three Months Ended June 30, Six Months Ended June 30, Net income from Continuing Operations $ 7,889 $ 5,769 $ 24,824 $ 21,411 Federal income tax 9,966 12,349 30,033 20,702 State income tax 1,260 1,634 4,407 2,280 Deferred federal income tax (5,515) (9,132) (15,840) (9,420) Deferred state income tax (329) 313 (637) 432 $ 13,271 $ 10,933 $ 42,787 $ 35,405 Computed federal tax at 35% statutory rate $ 4,645 $ 3,827 $ 14,975 $ 12,392 State income tax net of federal tax benefit 328 1,402 2,129 2,977 State income tax rate change 173 (19) 113 (998) Depreciation flow-through ,837 1,813 Cost of Removal (597) (607) (1,211) (1,216) Merger Transaction Costs (209) (221) Other (102) (132) 120 (753) Total income tax $ 5,382 $ 5,164 $ 17,963 $ 13,994 Effective tax rate - federal 33.5% 29.4% 33.2% 31.9% Effective tax rate - state 7.0% 17.8% 8.8% 7.7% Effective tax rate - combined 40.5% 47.2% 42.0% 39.6% On March 31, 2014, NYS enacted into law a NYS corporate income tax rate reduction from the current 7.1% to 6.5%, effective January 1, The resulting one-time adjustment to long term NYS tax liabilities to reflect this change has resulted in a decrease in NYS effective tax rate for the six months ended June 30, The decrease was more than offset by the higher combined effective rate for the three months ended June 30, 2014 as compared to the same period in the current year which was the result of Central Hudson having more losses from prior years available to reduce its NYS taxable income than were available at the consolidated level. This resulted in a higher tax liability at CH Energy Group on a consolidated basis

26 Reconciliation - Central Hudson The following is a reconciliation between the amount of federal income tax computed on income before taxes at the statutory rate and the amount reported in Central Hudson s Statement of Income (In Thousands): Three Months Ended June 30, Six Months Ended June 30, Net income $ 8,190 $ 6,551 $ 26,330 $ 22,803 Federal income tax 10,182 13,103 30,987 22,488 State income tax 1, , Deferred federal income tax (5,571) (9,179) (15,990) (9,467) Deferred state income tax (297) 336 (596) 617 Income before taxes $ 13,786 $ 10,974 $ 43,901 $ 36,604 Computed federal tax at 35% statutory rate $ 4,825 $ 3,841 $ 15,365 $ 12,811 State income tax net of federal tax benefit ,351 1,721 State income tax rate change 173 (19) 113 (998) Depreciation flow-through ,837 1,813 Cost of Removal (597) (607) (1,211) (1,216) Other (103) (155) 116 (330) Total income tax $ 5,596 $ 4,423 $ 17,571 $ 13,801 Effective tax rate - federal 33.4% 35.8% 34.2% 35.6% Effective tax rate - state 7.1% 4.5% 5.9% 2.1% Effective tax rate - combined 40.5% 40.3% 40.1% 37.7% On March 31, 2014, NYS enacted into law a NYS corporate income tax rate reduction from the current 7.1% to 6.5%, effective January 1, The resulting one-time adjustment to long term NYS tax liabilities to reflect this change has resulted in a lower NYS effective tax rate for the six months ended June 30, NOTE 5 Acquisitions, Investments and Divestitures Acquisitions During the six months ended June 30, 2015 and 2014, there were no acquisitions made by CH Energy Group or any of its subsidiaries. Divestitures During the first quarter of 2014, CHEC divested Griffith. The results of operations of Griffith for the prior periods are presented in discontinued operations in the CH Energy Group Consolidated Statement of Income. Management has elected to include cash flows from discontinued operations of this investment with those from continuing operations in the CH Energy Group Consolidated Statement of Cash Flows. The details of the sale transaction are as follows (In Thousands):