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 MARCH 31, 2014

2 FINANCIAL STATEMENTS (Unaudited) QUARTER ENDED MARCH 31, 2014 TABLE OF CONTENTS CH Energy Group, Inc. PAGE Consolidated Statement of Income Three Months Ended March 31, 2014 and Consolidated Statement of Comprehensive Income Three Months Ended March 31, 2014 and Consolidated Statement of Cash Flows Three Months Ended March 31, 2014 and Consolidated Balance Sheet March 31, 2014, December 31, 2013 and March 31, Consolidated Statement of Equity Three Months Ended March 31, 2014 and Central Hudson Gas & Electric Corporation Statement of Income Three Months Ended March 31, 2014 and Statement of Comprehensive Income Three Months Ended March 31, 2014 and Statement of Cash Flows Three Months Ended March 31, 2014 and Balance Sheet March 31, 2014, December 31, 2013 and March 31, Statement of Equity Three Months Ended March 31, 2014 and NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 13 INTERIM MANAGEMENT DISCUSSION and ANALYSIS 50

3 Financial Statements (Unaudited) CH ENERGY GROUP CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (In Thousands) Three Months Ended March 31, Operating Revenues Electric $ 174,416 $ 138,163 Natural gas 72,433 56,300 Total Operating Revenues 246, ,463 Operating Expenses Operation: Purchased electricity and fuel used in electric generation 85,222 50,409 Purchased natural gas 38,894 23,399 Other expenses of operation - regulated activities 64,892 66,792 Other expenses of operation - competitive business subsidiaries Merger related costs Depreciation and amortization 10,685 9,955 Taxes, other than income tax 15,650 14,856 Total Operating Expenses 215, ,146 Operating Income 31,027 28,317 Other Income and Deductions Income from unconsolidated affiliates Interest on regulatory assets and other interest income 1,309 1,422 Regulatory adjustments for interest costs Other - net (209) 4 Total Other Income 1,773 1,949 Interest Charges Interest on long-term debt 5,947 6,430 Interest on regulatory liabilities and other interest 2,383 1,915 Total Interest Charges 8,330 8,345 Income before income taxes, non-controlling interest and preferred dividends of subsidiary 24,470 21,921 Income Taxes 8,830 7,807 Net Income from Continuing Operations 15,640 14,114 Discontinued Operations Income from discontinued operations before tax 6,892 8,190 Gain from sale of discontinued operations 8,074 - Income tax expense from discontinued operations 7,263 3,358 Net Income from Discontinued Operations 7,703 4,832 Net Income 23,343 18,946 Net Income attributable to non-controlling interest: Dividends declared on Preferred Stock of subsidiary - 92 Preferred Stock Redemption Premium Net Income Attributable to CH Energy Group 23,343 18,090 Dividends declared on Common Stock 5,000 8,310 Change in Retained Earnings $ 18,343 $ 9,780 The Notes to Financial Statements are an integral part hereof

4 CH ENERGY GROUP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) (In Thousands) Three Months Ended March 31, Net Income $ 23,343 $ 18,946 Other Comprehensive Income: Net unrealized gain/(losses) on investments held by equity method investees - net of tax of $0 and $8, respectively. 1 - (12) Other comprehensive income (loss) - (12) Comprehensive Income 23,343 18,934 Comprehensive income attributable to non-controlling interest Comprehensive income attributable to CH Energy Group $ 23,343 $ 18,078 The Notes to Financial Statements are an integral part hereof

5 CH ENERGY GROUP CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (In Thousands) Three Months Ended March 31, Operating Activities: Net income $ 23,343 $ 18,946 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 9,900 9,940 Amortization 785 1,247 Deferred income taxes - net (169) 3,156 Bad debt expense 1, Undistributed equity in earnings of unconsolidated affiliates (109) (199) Pension expense 6,020 6,022 Other post-employment benefits ("OPEB") expense 1,988 1,989 Revenue decoupling mechanism recorded 9,133 4,203 Regulatory asset amortization 1,682 1,682 Regulatory asset storm deferral adjustment - 4,000 Gain on sale of assets (8,073) (22) Changes in operating assets and liabilities - net: Accounts receivable, unbilled revenues and other receivables (61,117) (28,872) Fuel, materials and supplies 4,790 6,842 Special deposits and prepayments (2,814) (5,100) Income and other taxes 13,978 5,657 Accounts payable 161 (3,369) Accrued interest 2,430 2,944 Customer advances (11,023) (12,587) Pension plan contribution (16,565) (26,165) OPEB contribution (2,238) - Revenue decoupling mechanism collected (1,569) 1,485 Regulatory asset - storm deferral - (2,813) Regulatory asset - manufactured gas plant ("MGP") site remediation 1,001 (2,214) Regulatory asset - Temporary State Assessment (2,451) (2,526) Deferred natural gas and electric costs (14,340) (4,376) Other - net 8,046 14,231 Net cash used in operating activities (35,691) (4,935) Investing Activities: Proceeds from sale of assets 95, Additions to utility and other property and plant (19,297) (32,703) Other - net 220 4,263 Net cash provided by (used in) investing activities 76,204 (28,414) Financing Activities: Redemption of long-term debt (7,000) - Proceeds from issuance of long-term debt 30,000 - Borrowings of short-term debt - net 10,000 36,500 Dividends paid on Common Stock (5,000) (8,301) Redemption of Preferred Stock - (9,625) Dividends paid on Preferred Stock of subsidiary - (92) Other - net 42 (95) Net cash provided by financing activities 28,042 18,387 Net Change in Cash and Cash Equivalents 68,555 (14,962) Cash and Cash Equivalents at Beginning of Period 20,570 30,508 Cash and Cash Equivalents at End of Period $ 89,125 $ 15,546 Supplemental Disclosure of Cash Flow Information: Interest paid $ 3,734 $ 3,667 Federal and state income taxes paid $ 1,775 $ - Additions to plant included in liabilities $ 3,204 $ 3,783 The Notes to Financial Statements are an integral part hereof

6 CH ENERGY GROUP CONSOLIDATED BALANCE SHEET (UNAUDITED) (In Thousands) March 31, December 31, March 31, ASSETS Utility Plant Electric $ 1,127,608 $ 1,118,552 $ 1,074,858 Natural gas 359, , ,061 Common 175, , ,993 Gross Utility Plant 1,662,501 1,650,077 1,564,912 Less: Accumulated depreciation 441, , ,696 Net 1,220,750 1,215,667 1,144,216 Construction work in progress 42,231 41,862 61,367 Net Utility Plant 1,262,981 1,257,529 1,205,583 Non-Utility Property & Plant Griffith non-utility property & plant ,808 Other non-utility property & plant Gross Non-Utility Property & Plant ,332 Less: Accumulated depreciation - Griffith ,223 Net Non-Utility Property & Plant ,109 Current Assets Cash and cash equivalents 89,125 18,113 15,546 Accounts receivable from customers - net of allowance for doubtful accounts of $4.0 million, $3.9 million and $6.0 million, respectively 108,832 66, ,237 Accounts receivable - affiliates Accrued unbilled utility revenues 17,615 17,210 16,428 Other receivables 3,880 5,583 8,331 Fuel, materials and supplies 13,965 18,632 17,654 Regulatory assets 50,210 37,626 36,396 Income tax receivable Fair value of derivative instruments 16,383 8,789 2,947 Unamortized debt expense Special deposits and prepayments 23,930 20,531 26,559 Assets held for sale - 105,151 - Accumulated deferred income tax 5,580 12,941 8,182 Total Current Assets 329, , ,708 Deferred Charges and Other Assets Regulatory assets - pension plan 44,162 50, ,349 Regulatory assets - other 137, , ,710 Fair value of derivative instruments 4,042 1,433 2,881 Goodwill ,981 Other intangible assets - net ,663 Unamortized debt expense 3,822 3,904 4,682 Investments in unconsolidated affiliates 2,150 2,082 2,241 Other investments 27,219 26,855 18,240 Other 3,579 3,769 5,478 Total Deferred Charges and Other Assets 222, , ,225 Total Assets $ 1,815,918 $ 1,784,334 $ 1,803,625 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) March 31, December 31, March 31, CAPITALIZATION AND LIABILITIES Capitalization CH Energy Group Common Shareholders' Equity Common Stock (30,000,000 shares authorized: $0.10 par value; 16,862,087 shares issued), N/A, N/A and 14,960,976 shares outstanding, respectively $ - $ - $ 1,686 Common Stock (30,000,000 shares authorized: $0.01 par value; 15,961,400 shares issued) 15,961,400, 15,961,400 and N/A shares outstanding, respectively Paid-in capital 325, , ,514 Retained earnings 256, , ,883 Treasury stock - N/A, N/A and 1,901,111 shares - - (89,891) Accumulated other comprehensive income Total Equity 583, , ,560 Long-term debt 525, , ,926 Total Capitalization 1,108,307 1,059, ,486 Current Liabilities Current maturities of long-term debt 14,650 21,650 38,076 Notes payable 10,000-56,990 Accounts payable 25,715 31,420 39,155 Accounts payable - affiliates Accrued interest 8,324 5,894 8,875 Dividends payable - - 8,310 Accrued vacation and payroll 6,623 6,773 8,187 Customer advances 6,540 15,001 15,722 Customer deposits 6,886 6,818 7,115 Regulatory liabilities 34,776 22,891 15,799 Fair value of derivative instruments Accrued environmental remediation costs 1,540 1,233 4,267 Accrued income and other taxes 18,622-6,146 Deferred revenues - - 3,936 Liabilities held for sale - 29,883 - Other 9,999 12,200 20,180 Total Current Liabilities 143, , ,278 Deferred Credits and Other Liabilities Regulatory liabilities - OPEB 52,704 51,590 9,696 Regulatory liabilities - other 161, , ,704 Operating reserves 3,194 2,426 3,456 Fair value of derivative instruments Accrued environmental remediation costs 47,932 39,569 8,250 Accrued OPEB costs 16,771 18,036 58,730 Accrued pension costs 1,377 17,497 88,170 Tax reserve 2,289 2,539 2,047 Other 18,286 19,312 21,028 Total Deferred Credits and Other Liabilities 304, , ,174 Accumulated Deferred Income Tax 259, , ,687 Commitments and Contingencies Total Capitalization and Liabilities $ 1,815,918 $ 1,784,334 $ 1,803,625 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 Shares Issued Amount CH Energy Group Common Shareholders Shares (Repurchased) / Issued Amount Paid-In Capital Capital Stock Expense Retained Earnings Accumulated Other Comprehensive Income / (Loss) Noncontrolling Interest Balance at December 31, ,862,087 $ 1,686 (1,907,203) $ (90,141) $ 349,428 $ (166) $ 248,103 $ 380 $ - $ 509,290 Comprehensive income: Net income 18,946 18,946 Preferred Stock Redemption (28) 166 (764) (626) Dividends declared on Preferred Stock of subsidiary (92) (92) Change in fair value: Investments (12) (12) Dividends declared on common stock (8,310) (8,310) Treasury shares activity - net 6, Balance at March 31, ,862,087 $ 1,686 (1,901,111) $ (89,891) $ 349,514 $ - $ 257,883 $ 368 $ - $ 519,560 Total Equity Balance at December 31, ,961,400 $ $ - $ 325,906 $ - $ 238,119 $ 504 $ - $ 564,689 Comprehensive income: Net income 23,343 23,343 Dividends declared on common stock (5,000) (5,000) Balance at March 31, ,961,400 $ $ - $ 325,906 $ - $ 256,462 $ 504 $ - $ 583,032 The Notes to Financial Statements are an integral part hereof

9 CENTRAL HUDSON STATEMENT OF INCOME (UNAUDITED) (In Thousands) Operating Revenues Three Months Ended March 31, Electric $ 174,416 $ 138,163 Natural gas 72,433 56,300 Total Operating Revenues 246, ,463 Operating Expenses Operation: Purchased electricity and fuel used in electric generation 85,222 50,409 Purchased natural gas 38,894 23,399 Other expenses of operation 64,892 66,792 Depreciation and amortization 10,685 9,955 Taxes, other than income tax 15,327 14,750 Total Operating Expenses 215, ,305 Operating Income 31,829 29,158 Other Income and Deductions Interest on regulatory assets and other interest income 1,298 1,373 Regulatory adjustments for interest costs Other - net Total Other Income 1,671 1,796 Interest Charges Interest on long-term debt 5,492 5,956 Interest on regulatory liabilities and other interest 2,378 1,845 Total Interest Charges 7,870 7,801 Income Before Income Taxes 25,630 23,153 Income Taxes 9,378 8,784 Net Income 16,252 14,369 Preferred Stock Redemption Premium Dividends Declared on Cumulative Preferred Stock - 92 Income Available for Common Stock $ 16,252 $ 13,513 The Notes to Financial Statements are an integral part hereof

10 CENTRAL HUDSON STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) (In Thousands) Three Months Ended March 31, Net Income $ 16,252 $ 14,369 Other Comprehensive Income Comprehensive Income $ 16,252 $ 14,369 The Notes to Financial Statements are an integral part hereof

11 CENTRAL HUDSON STATEMENT OF CASH FLOWS (UNAUDITED) (In Thousands) Three Months Ended March 31, Operating Activities: Net income $ 16,252 $ 14,369 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 9,900 9,369 Amortization Deferred income taxes - net (7) 3,466 Bad debt expense 1, Pension expense 6,020 6,022 OPEB expense 1,988 1,989 Revenue decoupling mechanism recorded 9,133 4,203 Regulatory asset amortization 1,682 1,682 Regulatory asset energy efficiency incentives - 4,000 Changes in operating assets and liabilities - net: Accounts receivable, unbilled revenues and other receivables (44,865) (17,846) Fuel, materials and supplies 4,667 5,069 Special deposits and prepayments (3,402) (3,926) Income and other taxes 9,589 5,492 Accounts payable (2,825) (5,075) Accrued interest 1,975 2,466 Customer advances (8,461) (7,841) Pension plan contribution (16,565) (26,165) OPEB contribution (2,238) - Revenue decoupling mechanism collected (refunded) (1,569) 1,485 Regulatory asset - storm deferral - (2,813) Regulatory asset - MGP site remediation 1,001 (2,214) Regulatory asset - Temporary State Assessment (2,451) (2,526) Deferred natural gas and electric costs (14,340) (4,376) Other - net 5,175 10,909 Net cash used in operating activities (27,036) (1,086) Investing Activities: Additions to utility plant (19,167) (32,115) Other - net 224 3,817 Net cash used in investing activities (18,943) (28,298) Financing Activities: Redemption of long-term debt (7,000) - Proceeds from issuance of long-term debt 30,000 - Borrowings of short-term debt - net 18,000 27,000 Redemption of Preferred Stock - (9,653) Dividends paid to parent - CH Energy Group (5,000) (5,000) Dividends paid on cumulative Preferred Stock - (92) Other - net - (108) Net cash provided by financing activities 36,000 12,147 Net Change in Cash and Cash Equivalents (9,979) (17,237) Cash and Cash Equivalents - Beginning of Period 14,379 24,352 Cash and Cash Equivalents - End of Period $ 4,400 $ 7,115 Supplemental Disclosure of Cash Flow Information: Interest paid $ 3,734 $ 3,601 Federal and state income taxes paid $ - 1 $ - Additions to plant included in liabilities $ 3,204 $ 3,783 The Notes to Financial Statements are an integral part hereof

12 CENTRAL HUDSON BALANCE SHEET (UNAUDITED) (In Thousands) March 31, December 31, March 31, ASSETS Utility Plant Electric $ 1,127,608 $ 1,118,552 $ 1,074,858 Natural gas 359, , ,061 Common 175, , ,993 Gross Utility Plant 1,662,501 1,650,077 1,564,912 Less: Accumulated depreciation 441, , ,696 Net 1,220,750 1,215,667 1,144,216 Construction work in progress 42,231 41,862 61,367 Net Utility Plant 1,262,981 1,257,529 1,205,583 Non-Utility Property and Plant Net Non-Utility Property and Plant Current Assets Cash and cash equivalents 4,400 14,379 7,115 Accounts receivable from customers - net of allowance for doubtful accounts of $4.0 million and $3.9 million and $4.2 million, respectively 108,832 66,123 77,609 Accrued unbilled utility revenues 17,615 17,210 16,428 Other receivables 3,158 3,827 4,630 Fuel, materials and supplies - at average cost 13,965 18,632 14,194 Regulatory assets 50,210 37,626 36,396 Income tax receivable - 4,379 - Fair value of derivative instruments 16,383 8,789 2,944 Unamortized debt expense Special deposits and prepayments 23,862 20,460 22,496 Accumulated deferred income tax - 3,280 1,256 Total Current Assets 238, , ,496 Deferred Charges and Other Assets Regulatory assets - pension plan 44,162 50, ,349 Regulatory assets - other 137, , ,710 Fair value of derivative instruments 4,042 1,433 2,881 Unamortized debt expense 3,822 3,904 4,682 Other investments 26,427 26,067 17,743 Other 2,860 3,012 2,734 Total Deferred Charges and Other Assets 218, , ,099 Total Assets $ 1,721,162 $ 1,663,754 $ 1,667,702 The Notes to Financial Statements are an integral part hereof

13 CENTRAL HUDSON BALANCE SHEET (CONT'D) (UNAUDITED) (In Thousands, except share amounts) March 31, December 31, March 31, 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 198, , ,682 Capital stock expense (4,633) (4,633) (4,633) Total Equity 518, , ,312 Long-term debt 505, , ,950 Total Capitalization 1,024, , ,262 Current Liabilities Current maturities of long-term debt 7,000 14,000 37,000 Notes payable 18,000-27,000 Accounts payable 23,980 29,886 29,639 Accrued interest 7,724 5,750 8,249 Accrued vacation and payroll 6,623 6,773 6,424 Customer advances 6,540 15,001 10,243 Customer deposits 6,886 6,818 7,042 Regulatory liabilities 34,776 22,891 15,799 Fair value of derivative instruments Accrued environmental remediation costs 1,340 1,233 3,838 Accrued income and other taxes 5,211-8,635 Accumulated deferred income tax Other 9,152 12,027 14,549 Total Current Liabilities 127, , ,938 Deferred Credits and Other Liabilities Regulatory liabilities - OPEB 52,704 51,590 9,696 Regulatory liabilities - other 161, , ,704 Operating reserves 3,194 2,426 2,647 Fair value of derivative instruments Accrued environmental remediation costs 47,832 39,569 7,240 Accrued OPEB costs 16,771 18,036 58,730 Accrued pension costs 1,377 17,497 88,170 Tax reserve 2,289 2,539 2,047 Other 17,327 18,373 20,071 Total Deferred Credits and Other Liabilities 303, , ,398 Accumulated Deferred Income Tax 265, , ,104 Commitments and Contingencies Total Capitalization and Liabilities $ 1,721,162 $ 1,663,754 $ 1,667,702 The Notes to Financial Statements are an integral part hereof

14 CENTRAL HUDSON STATEMENT OF EQUITY (UNAUDITED) (In Thousands, except share amounts) Central Hudson Common Shareholders Common Stock Treasury Stock Capital Stock Expense Accumulated Other Comprehensive Income / (Loss) Shares Issued Shares Amount Repurchased Amount Paid-In Capital Retained Earnings Total Equity Balance at December 31, ,862,087 $ 84,311 - $ - $ 199,980 $ (4,799) $ 190,169 $ - $ 469,661 Net income 14,369 14,369 Preferred Stock Redemption (28) 166 (764) (626) Dividends declared: On cumulative Preferred Stock (92) (92) On Common Stock to parent - CH Energy Group (5,000) (5,000) Balance at March 31, ,862,087 $ 84,311 - $ - $ 199,952 $ (4,633) $ 198,682 $ - $ 478,312 Balance at December 31, ,862,087 $ 84,311 - $ - $ 239,952 $ (4,633) $ 187,612 $ - $ 507,242 Net income 16,252 16,252 Dividends declared: On Common Stock to parent - CH Energy Group (5,000) (5,000) Balance at March 31, ,862,087 $ 84,311 - $ - $ 239,952 $ (4,633) $ 198,864 $ - $ 518,494 The Notes to Financial Statements are an integral part hereof

15 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 Summary of Significant Accounting Policies Corporate Structure CH Energy Group is the holding company parent corporation of two principal, wholly owned subsidiaries, Central Hudson Gas & Electric Corporation ( Central Hudson ) and Central Hudson Enterprises Corporation ( CHEC ). Effective as of June 27, 2013, all of 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. CHEC, the parent company of CH Energy Group s non-regulated businesses and investments, had one wholly owned subsidiary, Griffith Energy Services, Inc. ( Griffith ). On March 4, 2014, CHEC completed the sale of Griffith to Star Gas Partners, L.P. Therefore, operating results of Griffith are reported as Discontinued Operations for all periods presented in the Consolidated CH Energy Group Statement of Income and as held for sale in the Consolidated CH Energy Group Balance Sheet as of December 31, See Note 5 Acquisitions, Divestitures and Investments for further information. CHEC also has ownership interests in certain subsidiaries that are less than 100% owned. Basis of Presentation This Quarterly Financial 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 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)

16 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 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 March 31, 2013 are included for supplemental analysis purposes. Reclassification Certain amounts in the 2013 Financial Statements have been reclassified to conform to the 2014 presentation. For more information regarding reclassification of discontinued operations, see Note 5 Acquisitions, Divestitures and Investments. Revenue Recognition CH Energy Group s deferred revenue balances as of December 31, 2013 and March 31, 2013 were $4.8 million and $3.9 million, respectively. The December 31, 2013 balance was included in held for sale. There was no deferred revenue balance as of March 31, 2014 as a result of the sale of Griffith on March 4, As required by the PSC, Central Hudson records gross receipts tax revenues and expenses on a gross income statement presentation basis (i.e., included in both revenue and expenses). Sales and use taxes for Central Hudson are accounted for on a net basis (excluded from revenue). Fuel, Materials & Supplies The following is a summary of CH Energy Group s and Central Hudson s inventories (In Thousands): CH Energy Group Central Hudson March 31, December 31, March 31, March 31, December 31, March 31, Natural gas $ 2,641 $ 8,078 $ 2,759 $ 2,641 $ 8,078 $ 2,759 Petroleum products and propane (1) - - 2, Fuel used in electric generation Materials and supplies (1) 10,899 10,124 12,504 10,899 10,124 11,142 Total $ 13,965 $ 18,632 $ 17,654 $ 13,965 $ 18,632 $ 14,194 (1) Petroleum products and propane of $3,857 and materials and supplies of $1,493 related to Griffith have been excluded from the CH Energy Group December 31, 2013 balances and designated as Assets held for sale under current accounting guidance in the CH Energy Group Consolidated Balance Sheet. For further details, see Note 5 - "Acquisitions, Divestitures and Investments."

17 Depreciation and Amortization Current accounting guidance related to asset retirements precludes the recognition of expected future retirement obligations as a component of depreciation expense or accumulated depreciation. Central Hudson, however, is required to use depreciation methods and rates approved by the PSC under regulatory accounting. These depreciation rates include a charge for the cost of future removal and retirement of fixed assets. In accordance with current accounting guidance for regulated operations, Central Hudson continues to accrue for the future cost of removal for its rate-regulated natural gas and electric utility assets. In accordance with current accounting guidance related to asset retirements, Central Hudson has classified $47.5 million, $46.7 million, and $44.8 million of cost of removal as regulatory liabilities as of March 31, 2014, December 31, 2013, and March 31, 2013, respectively. This liability represents the portion of the cost of removal charge in excess of the amount reported as an Asset Retirement Obligation under GAAP. See Note 6 - Goodwill and Other Intangible Assets for further discussion of amortization of intangibles (other than goodwill). Earnings Per Share On June 27, 2013, at the effective time of the completion of the Fortis transaction, all issued and outstanding and treasury shares of CH Energy Group common stock were cancelled and ceased to exist. In addition, all unvested equity awards outstanding immediately prior to the effective time of the transaction became vested, and all outstanding equity awards were cancelled in exchange for the right to receive a cash payment equal to $65 per share. There are no equity awards outstanding as of March 31, In the calculation of earnings per share for the quarter ended March 31, 2013 (basic and diluted) of CH Energy Group s Common Stock, earnings for CH Energy Group are reduced by the Preferred Stock dividends paid by Central Hudson. The average dilutive effect of CH Energy Group s stock options, performance shares and restricted shares are as follows: Three Months Ended March 31, Shares NA 213,

18 Parental Guarantees As a result of the sale of Griffith by CHEC on March 4, 2014, there are no parental guarantees outstanding as of March 31, 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 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 $32.4 million in dividends to CH Energy Group. Central Hudson s dividend would be reduced to 75% of its average annual income in the event of a downgrade of its senior debt rating below BBB+ by more than one rating agency if the stated reason for the downgrade is related to any of CH Energy Group s or Central Hudson s affiliates. Further restrictions are imposed for any downgrades below this level. In addition, Central Hudson would not be allowed to pay dividends if its average common equity ratio for the 13 months prior to the proposed dividend were more than 200 basis points below the ratio used in setting rates. During the three months ended March 31, 2014, the Board of Directors of Central Hudson authorized and Central Hudson paid dividends of $5.0 million to parent CH Energy Group. CH Energy Group s other subsidiaries do not have express restrictions on their ability to pay dividends. See Note 8 - Capitalization-Common and Preferred Stock for information regarding dividends declared in

19 NOTE 2 Regulatory Matters Summary of Regulatory Assets and Liabilities The following table sets forth Central Hudson s regulatory assets and liabilities (In Thousands): March 31, December 31, March 31, Regulatory Assets (Debits): Current: Deferred purchased electric and natural gas costs (Note 1) $ 35,433 $ 21,093 $ 15,743 Deferred unrealized losses on derivatives - Electric (Note 14) Deferred unrealized losses on derivatives - Gas (Note 14) PSC General and Temporary State Assessment and carrying charges 6,452 3,962 8,854 RDM and carrying charges - Electric - 2,451 1,228 Residual natural gas deferred balances 2,899 4,554 4,554 Deferred debt expense on re-acquired debt Deferred and accrued costs - MGP site remediation and carrying charges (Note 12) 4,605 4,605 4,605 Other ,210 37,626 36,396 Long-term: Deferred pension costs (Note 10) 44,162 50, ,349 Deferred unrealized losses on derivatives - Electric (Note 14) Carrying charges - pension reserve 14,272 13,264 10,303 Deferred and accrued costs - MGP site remediation and carrying charges (Note 12) 46,576 39,233 10,109 Deferred debt expense on re-acquired debt 4,848 4,978 4,586 Deferred Medicare Subsidy taxes 8,548 8,400 7,933 Residual natural gas deferred balances and carrying charges 1,067 1,060 3,809 Income taxes recoverable through future rates 40,566 37,223 37,119 Energy efficiency incentives 2,719 2,719 2,719 Deferred storm costs and carrying charges ,717 Other 18,992 18,792 13, , , ,059 Total Regulatory Assets $ 231,960 $ 213,872 $ 286,455 Regulatory Liabilities (Credits): Current: RDM and carrying charges - Electric $ 2,644 $ - $ - RDM and carrying charges - Gas 6,369 3,888 3,558 Deferred unrealized gains on derivatives - Electric (Note 14) 16,383 8,465 2,941 Deferred unrealized gains on derivatives - Gas (Note 14) Income taxes refundable through future rates 4,275 4,209 4,431 Deferred unbilled gas revenues (Note 1) 5,105 6,005 4,866 34,776 22,891 15,799 Long-term: Customer benefit fund 6,536 6,505 2,419 Deferred cost of removal (Note 1) 47,513 46,655 44,795 Rate Base impact of tax repair project and carrying charges 12,409 12,336 9,159 Excess electric depreciation reserve carrying charges 1,586 1,586 1,586 Deferred unrealized gains on derivatives - Electric (Note 14) 4,042 1,433 2,881 Income taxes refundable through future rates 35,036 27,484 24,194 Deferred OPEB costs (Note 10) 52,704 51,590 9,696 Carrying charges - OPEB reserve 16,583 15,197 11,222 PBA - Electric and carrying charges 12,433 12,242 - PBA - Gas and carrying charges 3,154 3,105 - Other 22,699 16,388 12, , , ,400 Total Regulatory Liabilities $ 249,471 $ 217,412 $ 134,199 Net Regulatory Assets/(Liabilities) $ (17,511) $ (3,540) $ 152,

20 2010 Rate Order and 2013 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. A summary of the key terms of the 2010 Order and the 2013 Joint Petition are as follows: Description 2010 Rate Order 2013 Joint Petition Electric delivery revenue increases $9.1 million 7/1/12 $0 effective 7/1/13 (6) Natural gas delivery revenue increases $1.6 million 7/1/12 $0 effective 7/1/13 (6) ROE 10.00% 10.00% Earnings sharing Yes (1) Yes (7) Capital structure common equity 48% 48% Positive benefit adjustments N/A $35.0 million (8) Community benefit fund N/A $5.0 million (8) Synergy Savings N/A $1.85 million (9) Targets with true-up provisions -% of revenue requirement to defer for shortfalls Net plant balances 100% 100% Transmission and distribution ROW maintenance 100% 100% RDMs electric and natural gas (2) Yes Yes New deferral accounting for full recovery Fixed debt costs Yes (3) N/A (10) Transmission sag mitigation Yes N/A (10) New York State Temporary Assessment Yes N/A (10) Material regulatory actions Yes (4) N/A (10) Property taxes Deferral for 90% of excess/deficiency relative to revenue requirement Yes (5) N/A (10) (1) ROE > 10.5%, 50% to customers, > 11.0%, 80% to customers, > 11.5%, 90% to customers. (2) Electric is based on revenue dollars; gas is based on usage per customer. (3) Deferral authorization in RY2 and RY3 only. (4) Legislative, governmental or regulatory actions with individual impacts greater than or equal to 2% of net income of the applicable department. (5) The Company s pre-tax gain or loss limited to $0.8 million per rate year. (6) There is a rate freeze on Central Hudson electric and gas delivery rates through July 1, (7) ROE > 10.0% and up to 10.5%, 50% to customers, > 10.5%, 90% to customers. (8) To cover expenses normally required by rate payers, such as storm restoration costs and for economic development and lowincome customer assistance programs. (9) Guaranteed annual synergy savings of $1.85 million to ratepayers for 5 years. (10) There were no new deferrals granted in the 2013 Joint Petition. Other PSC Proceedings On October 29, 2012, Central Hudson s service territory was impacted by Superstorm Sandy, and approximately 103,000 electric customers were affected. On April 2, 2014 the PSC issued an Order authorizing deferral of $9.965 million of the Sandy incremental

21 storm restoration expenses, with carrying charges which had been deferred on Central Hudson s books. On April 22, 2013, the PSC issued Orders approving deferral of $8.9 million and denying deferral of $3.7 million of the incremental electric storm restoration expense related to Tropical Storm Irene and the October snowstorm, respectively. On May 22, 2013, Central Hudson filed a petition for reconsideration and rehearing on these Orders challenging the exclusion of Central Hudson s normalization adjustments used to measure earnings and seeking recovery of $3.7 million that was denied. On April 2, 2014 the Commission issued an Order affirming the previous Irene and October snowstorm PSC Orders and denying Central Hudson s rehearing petitions. Other Regulatory Matters Unbilled Electric Revenues Pursuant to regulatory requirements, a portion of unbilled electric revenues is not recorded. The amount not recorded as of March 31, 2014, December 31, 2013 and March 31, 2013, which would have been reflected as an increase to receivables and regulatory liabilities if recorded, was $11.6 million, $13.0 million and $11.5 million, respectively. 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 2014 (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 Income Taxes (Topic 740) ASU No Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists Jul-13 Jan-14 Impact Key: (1) No current impact on the financial condition, results of operations and cash flows of CH Energy Group and its subsidiaries when adopted on the effective date noted. Additional disclosures have been added or presentation of information modified where required

22 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 repairs taken on Gas Transmission and Distribution repairs is still pending. Therefore, remaining reserves related to the gas repair deduction continue to be shown as Tax Reserve under the Deferred Credits and Other Liabilities section of the Central Hudson Balance Sheet. Other than the uncertain tax position related to Central Hudson s accounting method change for gas transmission and distribution repairs, there are no other uncertain tax positions. Increases to the tax reserve during 2013 and 2014 reflect the ongoing uncertainty related to Gas Transmission and Distribution repair deductions. The following is a summary of activity related to uncertain tax positions (In Thousands): Three Months Ended March 31, Tax reserve balance at the beginning of the period 1 $ 2,539 $ 2,000 Adjustments related to tax accounting method change Tax reserve balance at the end of the period $ 2,614 $ 2,047 Jurisdiction Tax Years Open for Audit Federal (1) New York State (2) (1) Completed audit adjustments for the years were received from IRS Appeals on December 23, 2013; adjustments are pending final approval by IRS Joint Committee. (2) The NY State Department of Taxation and Finance has served notice that the company has been selected for an income tax audit for the years The audit is scheduled to commence in June

23 Reconciliation - CH Energy Group The following is a reconciliation between the amount of federal income tax computed on income before taxes at the statutory rate and the amount reported in CH Energy Group s Consolidated Statement of Income (In Thousands): Three Months Ended March 31, Net income attributable to CH Energy Group Continuing Operations $ 15,640 $ 13,258 Preferred Stock dividends of Central Hudson - 92 Preferred Stock Redemption Premium Federal income tax 8,353 4,783 State income tax Deferred federal income tax (288) 2,833 Deferred state income tax Income before taxes $ 24,470 $ 21,921 Computed federal tax at 35% statutory rate $ 8,565 $ 7,672 State income tax net of federal tax benefit 1, State income tax rate change (979) - Depreciation flow-through Cost of Removal (609) (616) Merger Transaction Costs (12) 84 Other (621) (664) Total income tax $ 8,830 $ 7,807 Effective tax rate - federal 33.0 % 34.7 % Effective tax rate - state 3.1 % 0.9 % Effective tax rate - combined 36.1 % 35.6 %

24 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 March 31, Net income $ 16,252 $ 14,369 Federal income tax 9,385 5,318 Deferred federal income tax (288) 2,565 Deferred state income tax Income before taxes $ 25,630 $ 23,153 Computed federal tax at 35% statutory rate $ 8,970 $ 8,104 State income tax net of federal tax benefit 1, State income tax rate change (979) - Depreciation flow-through Cost of Removal (609) (616) Other (175) (496) Total income tax $ 9,378 $ 8,784 Effective tax rate - federal 35.5 % 34.0 % Effective tax rate - state 1.1 % 3.9 % Effective tax rate - combined 36.6 % 37.9 % On March 31, 2013 New York State enacted into law a corporate income tax rate reduction from the current 7.1% to 6.5%, effective January 1, The resulting onetime adjustment to long term NYS tax liabilities to reflect this change has decreased the effective tax rate for the quarter ended March 31, NOTE 5 Acquisitions, Divestitures and Investments Acquisitions During the quarters ended March 31, 2014 and 2013, neither CH Energy Group nor Central Hudson made any acquisitions. Divestitures During the first quarter of 2014, CHEC divested Griffith. The results of operations of Griffith for the current and prior period 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 those investments with those from continuing operations in the CH Energy Group Consolidated Statement of Cash Flows. The details of the sales transaction are as follows (In Thousands):

25 Griffith Date of Sale 3/4/2014 Assets: Cash $ 4,151 Accounts Receivable, net of allowance 47,160 Fuel, Materials and Supplies 5,228 Other Current Assets 6,681 Total Current Assets 63,220 Net Intangibles 48,660 Other Assets 1,227 Property, Plant and Equipment: Property, plant and equipment 34,711 Less: Accumulated depreciation 24,235 Total property, plant and equipment, net 10,476 Assets sold $ 123,583 Liabilities: Accounts Payable $ 10,978 Deferred Revenue 4,448 Accrued Expenses 2,325 Accrued Vacation and Payroll 2,070 Other Current Liabilities 6,765 Total Current Liabilities 26,586 Other Liabilities 4,863 Liabilities sold $ 31,449 Net Assets Sold $ 92,134 Net Proceeds from Sale $ 100,208 Pre-tax gain on sales transaction $ 8,074 Net Increase to Earnings $ 3,153 The table below provides additional detail of the financial results of the discontinued operations (In Thousands): Three Months Ended March 31, Revenues from discontinued operations $ 85,856 $ 103,911 Income from discontinued operations before tax 6,892 8,190 Gain from sale of discontinued operations 8,074 - Income tax expense from discontinued operations 7,263 (1) 3,358 (1) This amount includes $2.3 million of taxes associated with operations prior to the sale (including a NYS income tax benefit of $0.5 million) and $4.9 million of taxes associated with the taxable gain on the sale (including $1.5 million of additional NYS taxes on the taxable gain on the sale)

26 Investments The value of CHEC's investments as of March 31, 2014 is as follows (In Thousands): CHEC Investment CH-Community Wind Other Equity Description Investment 50% equity interest in a joint venture that owns 18% interest in two operating wind projects 1 $ - Partnerships and an energy sector venture capital fund 2,150 $ 2,150 These remaining investments are not considered a part of the core business; however, management intends to retain these investments at this time. NOTE 6 Goodwill and Other Intangible Assets As of March 31, 2014, Griffith was sold, thereby, decreasing customer relationships, trademarks and covenants not to compete to zero. The components of amortizable intangible assets of CH Energy Group are summarized as follows (In Thousands): December 31, 2013 March 31, 2013 Gross Accumulated Carrying Amortization Amount Gross Carrying Amount Accumulated Amortization Customer relationships $ 37,709 $ 28,531 $ 37,709 $ 26,645 Trademarks Covenants not to compete Total Amortizable Intangibles (1) $ 38,438 $ 28,759 $ 38,438 $ 26,775 (1) December 31, 2013 balance reflected as "Assets held for sale" in the CH Energy Group Consolidated Balance Sheet. Amortization related to customer relationships, trademarks and covenants not to compete ceased upon sale. Under current accounting guidance following the designation of Griffith intangibles as held for sale at December 31, 2013, amortization ceased. Three Months Ended March 31, 2013 Intangibles Amortization Expense (In Thousands) $ 661 (1) Included in "Income from discontinued operations" on the CH Energy Group Consolidated Statement of Income. (1)

27 NOTE 7 Short-Term Borrowing Arrangements CH Energy Group and Central Hudson borrowings under its committed and uncommitted short-term borrowing arrangements are as follows (In Thousands): March 31, 2014 December 31, 2013 March 31, 2013 CH Energy Group Holding Company Short-term borrowings $ - $ - $ 29,000 Central Hudson Short-term borrowings 18,000-27,000 Intercompany borrowing (8,000) Total CH Energy Group $ 10,000 $ - $ 56,000 Total CH Energy Group Weighted Average Interest Rate 0.94% % NOTE 8 Capitalization Common and Preferred Stock For a schedule of activity related to common stock, paid-in capital and capital stock, see the Consolidated Statement of Equity for CH Energy Group and Statement of Equity for Central Hudson. During the three months ended March 31, 2014, CH Energy Group paid dividends to FortisUS Inc. of $5.0 million. During the three months ended March 31, 2014 and March 31, 2013, Central Hudson paid dividends of $5.0 million to parent CH Energy Group. NOTE 9 Capitalization Long-Term Debt In March 2014 Central Hudson issued $30 million of 10-year debt with a floating interest rate of 3 month LIBOR plus 1%. Central Hudson used the proceeds from the sale of the notes for refunding maturing long term debt, working capital and for general corporate purposes. To mitigate the potential cash flow impact from unexpected increases in short-term interest rates, Central Hudson purchased a 3-year interest rate cap based on 3 month LIBOR. The rate cap is three years in length with a notional amount equal to the outstanding principal amount of the Series E and will expire. The cap is based on the quarterly reset of the LIBOR rate on the quarterly interest payment dates. Central Hudson would receive a payout if the LIBOR rate exceeds 4% at the start of any quarterly interest period during the term of the cap. See Note 14 Accounting for Derivative Instruments and Hedging Activities for fair value disclosures related to this instrument

28 NYSERDA The principal amount of Central Hudson s outstanding Series B NYSERDA Bonds totaled $33.7 million at March 31, These are tax-exempt multi-modal bonds that are currently in a variable rate mode. In its Orders, the PSC has authorized deferral accounting treatment for variations in the interest costs of these bonds. As such, variations between the actual interest rates on these bonds and the interest rate included in the current delivery rate structure for these bonds are deferred for future recovery from or refund to customers and therefore do not impact earnings. To mitigate the potential cash flow impact from unexpected increases in short-term interest rates on Series B NYSERDA Bonds, on March 27, 2014, Central Hudson purchased an interest rate cap based on an index of short-term tax-exempt debt. The rate cap is two years in length with a notional amount equal to the outstanding principal amount of the Series B and will expire on April 1, The cap is based on the monthly weighted average of an index of tax-exempt variable rate debt, multiplied by 175%. Central Hudson would receive a payout if the adjusted index exceeds 5.0% for a given month. The rate cap replaced an expiring rate cap with substantially similar terms. See Note 14 Accounting for Derivative Instruments and Hedging Activities for fair value disclosures related to this instrument. NOTE 10 Post-Employment Benefits Central Hudson provides certain health care and life insurance benefits for retired employees through its post-retirement benefit plans. Central Hudson pension benefits include a Retirement Income Plan ( RIP ) and a non-qualified Supplemental Executive Retirement Plan ( SERP ). In its Orders, the PSC has authorized deferral accounting treatment for any variations between actual pension and other post-employment benefits ( OPEB ) expense and the amount included in the current delivery rate structure. As a result, post-retirement benefit plans at Central Hudson do not have any impact on earnings. The following information is provided in accordance with current accounting requirements. The following are the components of Central Hudson s net periodic benefit costs for its pension and OPEB plans for the three months ended March 31, 2014 and 2013 (In Thousands):

29 Pension Benefits OPEB Three Months Ended Three Months Ended March 31, March 31, Service cost $ 2,680 $ 3,073 $ 668 $ 760 Interest cost 6,441 5,732 1,315 1,382 Expected return on plan assets (8,705) (7,698) (1,774) (1,723) Amortization of: Prior service cost (credit) (1,465) (1,465) Transitional obligation Recognized actuarial loss 2,535 4, ,582 Net Periodic Benefit Cost $ 3,356 $ 6,380 $ (288) $ 538 The balance of Central Hudson's accrued pension costs (i.e., the under-funded status) is as follows (In Thousands): March 31, December 31, March 31, Accrued pension costs $ 1,937 $ 18,083 $ 88,828 These balances include the difference between the projected benefit obligation ( PBO ) for pensions and the market value of the pension assets, and any liability for SERP. The following reflects the impact of the recording of funding status adjustments on the Balance Sheets of CH Energy Group and Central Hudson (In Thousands): March 31, December 31, March 31, Prefunded pension costs prior to funding status adjustment $ 39,518 $ 26,311 $ 44,956 Additional liability required (41,455) (44,394) (133,784) Total accrued pension costs $ (1,937) $ (18,083) $ (88,828) Total offset to additional liability - Regulatory assets - Pension Plan $ 41,455 $ 44,394 $ 133,784 Gains or losses and prior service costs or credits that arise during the period but that are not recognized as components of net periodic pension cost would typically be recognized as a component of other comprehensive income, net of tax. However, Central Hudson has PSC approval to record regulatory assets rather than adjusting comprehensive income to offset the additional liability. Contribution levels for the RIP and OPEB plans are determined by various factors including the funded status, expected return on plan assets, benefit changes, and corporate resources. In addition, OPEB plan contribution levels are also impacted by medical claims and mortality assumptions