CH Energy 10-Q 2011 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the quarterly period ended September 30, 2011

OR

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

Commission File Number	Registrant, State of Incorporation Address and Telephone Number	IRS Employer Identification No.
0-30512	CH Energy Group, Inc. (Incorporated in New York) 284 South Avenue Poughkeepsie, New York 12601-4839 (845) 452-2000	14-1804460
1-3268	Central Hudson Gas & Electric Corporation (Incorporated in New York) 284 South Avenue Poughkeepsie, New York 12601-4839 (845) 452-2000	14-0555980

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

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

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

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

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

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

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

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

As of the close of business on October 31, 2011 (i) CH Energy Group, Inc. had outstanding 14,888,149 shares of Common Stock ($0.10 per share par value) and (ii) all of the outstanding 16,862,087 shares of Common Stock ($5 per share par value) of Central Hudson Gas & Electric Corporation were held by CH Energy Group, Inc.

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

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2011

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

CH Energy Group, Inc.		PAGE
	Consolidated Statement of Income –
	Three and Nine Months Ended September 30, 2011 and 2010	1
	Consolidated Statement of Comprehensive Income –
	Three and Nine Months Ended September 30, 2011 and 2010	2
	Consolidated Statement of Cash Flows –
	Nine Months Ended September 30, 2011 and 2010	3
	Consolidated Balance Sheet –
	September 30, 2011, December 31, 2010 and September 30, 2010	4
	Consolidated Statement of Equity –
	Nine Months Ended September 30, 2011 and 2010	6

Central Hudson Gas & Electric Corporation
	Statement of Income –
	Three and Nine Months Ended September 30, 2011 and 2010	7
	Statement of Comprehensive Income –
	Three and Nine Months Ended September 30, 2011 and 2010	7
	Statement of Cash Flows –
	Nine Months Ended September 30, 2011 and 2010	8
	Balance Sheet –
	September 30, 2011, December 31, 2010 and September 30, 2010	9
	Statement of Equity –
	Nine Months Ended September 30, 2011 and 2010	11

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 12

TABLE OF CONTENTS

		PAGE
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	57
ITEM 3	Quantitative and Qualitative Disclosure About Market Risk	89
ITEM 4	Controls and Procedures	89

PART II – OTHER INFORMATION

ITEM 1	Legal Proceedings	89
ITEM 1A	Risk Factors	89
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	90
ITEM 6	Exhibits	90
SIGNATURES		91
EXHIBIT INDEX		92

_______________________________________________

FILING FORMAT

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

PART 1 – FINANCIAL INFORMATION

ITEM 1 – Financial Statements (Unaudited)

CH ENERGY GROUP CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)

(In Thousands, except per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Operating Revenues
Electric	$	149,706		$	165,304		$	418,511		$	436,362
Natural gas		18,462			18,823			127,941			120,371
Competitive business subsidiaries:
Petroleum products		47,951			34,429			194,612			151,767
Other		4,936			5,101			14,630			14,942
Total Operating Revenues		221,055			223,657			755,694			723,442
Operating Expenses
Operation:
Purchased electricity and fuel used in electric generation		60,734			76,890			168,797			196,413
Purchased natural gas		6,337			7,217			63,425			59,619
Purchased petroleum		43,564			30,268			167,558			125,352
Other expenses of operation - regulated activities		55,480			58,495			181,460			166,389
Other expenses of operation - competitive business subsidiaries		10,997			11,080			34,870			35,223
Depreciation and amortization		10,180			9,766			30,599			29,049
Taxes, other than income tax		11,760			11,243			36,687			32,626
Total Operating Expenses		199,052			204,959			683,396			644,671
Operating Income		22,003			18,698			72,298			78,771
Other Income and Deductions
Income from unconsolidated affiliates		25			(95	)		644			(393	)
Interest on regulatory assets and other interest income		1,226			853			4,673			3,487
Impairment of Investments		(3,582	)		(11,408	)		(3,582	)		(11,408	)
Regulatory adjustments for interest costs		319			(427	)		1,032			(675	)
Business development costs		(529	)		(216	)		(1,027	)		(1,018	)
Other - net		154			(86	)		(887	)		(119	)
Total Other Income (Deductions)		(2,387	)		(11,379	)		853			(10,126	)
Interest Charges
Interest on long-term debt		6,620			5,591			20,090			16,848
Penalty for early retirement of debt		2,982			-			2,982			-
Interest on regulatory liabilities and other interest		1,553			1,288			4,568			4,439
Total Interest Charges		11,155			6,879			27,640			21,287
Income before income taxes, non-controlling interest and preferred dividends of subsidiary		8,461			440			45,511			47,358
Income Taxes (Benefit)		3,550			(1,360	)		17,213			17,278
Net Income from Continuing Operations		4,911			1,800			28,298			30,080
Discontinued Operations
Income (loss) from discontinued operations before tax		(10	)		393			1,149			(1,167	)
Gain from sale of discontinued operations		2,070			-			841			-
Income tax (benefit) expense from discontinued operations		(1,599	)		60			(1,669	)		(524	)
Net Income (loss) from Discontinued Operations		3,659			333			3,659			(643	)
Net Income		8,570			2,133			31,957			29,437
Net Income (loss) attributable to non-controlling interest:
Non-controlling interest in subsidiary		-			112			-			(272	)
Dividends declared on Preferred Stock of subsidiary		242			242			727			727
Net income attributable to CH Energy Group		8,328			1,779			31,230			28,982
Dividends declared on Common Stock		8,263			8,545			25,021			25,629
Change in Retained Earnings	$	65		$	(6,766	)	$	6,209		$	3,353

The Notes to Financial Statements are an integral part hereof.

- 1 -

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

(In Thousands, except per share amounts)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Common Stock:
Average shares outstanding - Basic		15,126		15,790		15,416		15,783
Average shares outstanding - Diluted		15,314		15,952		15,604		15,954
Income from continuing operations attributable to CH Energy Group common shareholders
Earnings per share - Basic	$	0.31	$	0.09	$	1.79	$	1.88
Earnings per share - Diluted	$	0.30	$	0.09	$	1.77	$	1.86
Income (loss) from discontinued operations attributable to CH Energy Group common shareholders
Earnings per share - Basic	$	0.24	$	0.02	$	0.24	$	(0.04	)
Earnings per share - Diluted	$	0.24	$	0.02	$	0.23	$	(0.04	)
Amounts attributable to CH Energy Group common shareholders
Earnings per share - Basic	$	0.55	$	0.11	$	2.03	$	1.84
Earnings per share - Diluted	$	0.54	$	0.11	$	2.00	$	1.82
Dividends Declared Per Share	$	0.56	$	0.54	$	1.64	$	1.62

CH ENERGY GROUP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

(In Thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Net Income	$	8,570	$	2,133	$	31,957	$	29,437
Other Comprehensive Income:
Fair value of cash flow hedges:
Unrealized (loss)/gains - net of tax of $0 and $0 in 2011 and $0 and ($13) in 2010, respectively		-		-		-		19
Reclassification for gains realized in net income - net of tax of $0 and $0 in 2011 and $0 and $35 in 2010, respectively		-		-		-		(52	)
Net unrealized gains/(losses) recorded from investments held by equity method investees - net of tax of ($37) and ($10) in 2011 and ($7) and ($78) in 2010, respectively		56		10		15		117
Other comprehensive income		56		10		15		84
Comprehensive Income		8,626		2,143		31,972		29,521
Comprehensive income attributable to non-controlling interest		242		354		727		455
Comprehensive income attributable to CH Energy Group	$	8,384	$	1,789	$	31,245	$	29,066

The Notes to Financial Statements are an integral part hereof.

- 2 -

CH ENERGY GROUP CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

(In Thousands)

	Nine Months Ended September 30,
	2011			2010
Operating Activities:
Net income	$	31,957		$	29,437
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		28,614			27,055
Amortization		3,120			2,907
Deferred income taxes - net		15,061			25,618
Bad debt expense		6,049			2,410
Impairment of investments		3,582			11,408
Distributed (undistributed) equity in earnings of unconsolidated affiliates		(644	)		756
Pension expense		20,725			22,728
Other post-employment benefits ("OPEB") expense		5,203			4,883
Regulatory liability - rate moderation		(7,849	)		(14,019	)
Revenue decoupling mechanism recorded		4,956			(1,568	)
Regulatory asset amortization		3,524			3,451
(Gain) loss on sale of assets		(897	)		11
Changes in operating assets and liabilities - net of business acquisitions:
Accounts receivable, unbilled revenues and other receivables		2,380			6,546
Fuel, materials and supplies		(843	)		(2,298	)
Special deposits and prepayments		2,779			211
Income and other taxes		(1,773	)		(10,772	)
Accounts payable		(18,092	)		(4,279	)
Accrued interest		1,566			218
Customer advances		(508	)		(3,640	)
Pension plan contribution		(32,536	)		(31,854	)
OPEB contribution		(1,184	)		(4,275	)
Revenue decoupling mechanism collected		2,388			4,271
Regulatory asset - storm deferral		(3,441	)		(16,720	)
Regulatory asset - manufactured gas plant ("MGP") site remediation		3,761			(10,802	)
Regulatory asset - Temporary State Assessment		(2,169	)		(3,112	)
Deferred natural gas and electric costs		22,164			5,052
Other - net		6,895			7,655
Net cash provided by operating activities		94,788			51,278
Investing Activities:
Proceeds from sale of assets		42,234			40
Additions to utility and other property and plant		(61,755	)		(75,771	)
Acquisitions made by competitive business subsidiaries		(2,255	)		(749	)
Proceeds from federal grants		14,744			-
Other - net		(3,022	)		(3,910	)
Net cash used in investing activities		(10,054	)		(80,390	)
Financing Activities:
Redemption of long-term debt		(20,464	)		(24,000	)
Proceeds from issuance of long-term debt		33,400			40,000
Borrowings of short-term debt - net		5,000			-
Dividends paid on Common Stock		(25,290	)		(25,619	)
Dividends paid on Preferred Stock of subsidiary		(727	)		(727	)
Shares repurchased		(48,612	)		-
Other - net		(647	)		(293	)
Net cash used in financing activities		(57,340	)		(10,639	)
Net Change in Cash and Cash Equivalents		27,394			(39,751	)
Cash and Cash Equivalents at Beginning of Period		29,420			73,436
Cash and Cash Equivalents at End of Period	$	56,814		$	33,685
Supplemental Disclosure of Cash Flow Information:
Interest paid	$	22,276		$	17,189
Federal and state taxes paid	$	17,150		$	21,208
Additions to plant included in liabilities	$	3,997		$	2,685
Regulatory asset - storm deferral costs in liabilities	$	9,396		$	2,648

The Notes to Financial Statements are an integral part hereof.

- 3 -

CH ENERGY GROUP CONSOLIDATED BALANCE SHEET (UNAUDITED)

(In Thousands)

	September 30,		December 31,		September 30,
	2011		2010		2010
ASSETS
Utility Plant
Electric	$	988,319	$	963,261	$	945,139
Natural gas		301,989		292,358		288,052
Common		142,201		142,255		143,918
Gross Utility Plant		1,432,509		1,397,874		1,377,109
Less: Accumulated depreciation		385,198		395,776		393,514
Net		1,047,311		1,002,098		983,595
Construction work in progress		63,996		52,607		55,468
Net Utility Plant		1,111,307		1,054,705		1,039,063
Non-Utility Property & Plant
Griffith non-utility property & plant		30,795		29,881		29,177
Other non-utility property & plant		6,181		64,059		62,488
Gross Non-Utility Property & Plant		36,976		93,940		91,665
Less:  Accumulated depreciation - Griffith		21,656		20,519		20,071
Less:  Accumulated depreciation - other		1,121		5,108		4,576
Net Non-Utility Property & Plant		14,199		68,313		67,018
Current Assets
Cash and cash equivalents		56,814		29,420		33,685
Accounts receivable from customers - net of allowance for doubtful accounts of $6.5 million, $6.7 million and $7.0 million, respectively		90,155		99,402		84,091
Accrued unbilled utility revenues		11,320		16,233		10,862
Other receivables		8,618		8,006		7,686
Fuel, materials and supplies		25,530		25,447		27,182
Regulatory assets		43,407		89,905		106,607
Income tax receivable		2,822		2,802		47,819
Fair value of derivative instruments		42		146		86
Special deposits and prepayments		19,836		22,869		21,149
Accumulated deferred income tax		12,956		-		-
Total Current Assets		271,500		294,230		339,167
Deferred Charges and Other Assets
Regulatory assets - pension plan		121,238		142,647		144,781
Regulatory assets - other		105,899		90,264		79,571
Goodwill		36,538		35,940		35,956
Other intangible assets - net		12,682		12,867		13,431
Unamortized debt expense		5,017		4,774		5,092
Investments in unconsolidated affiliates		3,043		6,681		6,656
Other investments		14,422		12,883		12,052
Other		6,175		5,971		7,193
Total Deferred Charges and Other Assets		305,014		312,027		304,732
Total Assets	$	1,702,020	$	1,729,275	$	1,749,980

The Notes to Financial Statements are an integral part hereof.

- 4 -

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

(In Thousands)

	September 30,			December 31,			September 30,
	2011			2010			2010
CAPITALIZATION AND LIABILITIES
Capitalization
CH Energy Group Common Shareholders' Equity
Common Stock (30,000,000 shares authorized: $0.10 par value; 16,862,087 shares issued) 14,885,037 shares, 15,799,262 shares and 15,823,926 shares outstanding, respectively	$	1,686		$	1,686		$	1,686
Paid-in capital		350,693			350,360			350,444
Retained earnings		236,551			230,342			229,352
Treasury stock - 1,977,050 shares, 1,062,825 shares and 1,038,161 shares, respectively		(93,210	)		(44,887	)		(43,652	)
Accumulated other comprehensive income		474			459			268
Capital stock expense		(328	)		(328	)		(328	)
Total CH Energy Group Common Shareholders' Equity		495,866			537,632			537,770
Non-controlling interest in subsidiary		-			172			1,113
Total Equity		495,866			537,804			538,883
Preferred Stock of subsidiary		21,027			21,027			21,027
Long-term debt		446,466			502,959			503,900
Total Capitalization		963,359			1,061,790			1,063,810
Current Liabilities
Current maturities of long-term debt		70,373			941			-
Notes payable		5,000			-			-
Accounts payable		47,915			57,059			42,252
Accrued interest		7,964			6,398			6,285
Dividends payable		8,505			8,774			8,787
Accrued vacation and payroll		6,956			6,663			6,676
Customer advances		18,801			19,309			18,810
Customer deposits		6,651			7,727			7,982
Regulatory liabilities		12,444			18,596			16,461
Fair value of derivative instruments		12,778			13,183			35,184
Accrued environmental remediation costs		5,227			2,233			5,593
Deferred revenues		3,699			4,650			3,723
Accumulated deferred income tax		-			9,634			9,109
Other		14,565			18,961			14,553
Total Current Liabilities		220,878			174,128			175,415
Deferred Credits and Other Liabilities
Regulatory liabilities - OPEB		12,038			6,976			4,936
Regulatory liabilities - other		110,280			99,793			99,395
Operating reserves		3,414			3,187			3,938
Fair value of derivative instruments		3,193			11,698			-
Accrued environmental remediation costs		11,937			4,312			3,468
Accrued OPEB costs		46,426			45,367			45,367
Accrued pension costs		76,414			102,555			128,379
Tax reserve		9,668			11,486			8,322
Other		18,831			16,967			16,034
Total Deferred Credits and Other Liabilities		292,201			302,341			309,839
Accumulated Deferred Income Tax		225,582			191,016			200,916
Commitments and Contingencies
Total Capitalization and Liabilities	$	1,702,020		$	1,729,275		$	1,749,980

The Notes to Financial Statements are an integral part hereof.

- 5 -

CH ENERGY GROUP CONSOLIDATED STATEMENT OF EQUITY (UNAUDITED)

(In Thousands, except share amounts)

	CH Energy Group Common Shareholders
	Common Stock				Treasury Stock
	Shares Issued		Amount		Shares Repurchased			Amount			Paid-In Capital		Capital Stock Expense			Retained Earnings			Accumulated Other Comprehensive Income / (Loss)			Non-controlling Interest			Total Equity
Balance at December 31, 2009		16,862,087	$	1,686		(1,057,525	)	$	(44,406	)	$	350,367	$	(328	)	$	225,999		$	184		$	1,385		$	534,887
Comprehensive income:
Net income																	29,709						(272	)		29,437
Dividends declared on Preferred Stock of subsidiary																	(727	)								(727	)
Change in fair value:
Derivative instruments																				19						19
Investments																				117						117
Reclassification adjustments for gains recognized in net income																				(52	)					(52	)
Dividends declared on common stock																	(25,629	)								(25,629	)
Treasury shares activity - net						19,364			754			77														831
Balance at September 30, 2010		16,862,087	$	1,686		(1,038,161	)	$	(43,652	)	$	350,444	$	(328	)	$	229,352		$	268		$	1,113		$	538,883
Balance at December 31, 2010		16,862,087	$	1,686		(1,062,825	)	$	(44,887	)	$	350,360	$	(328	)	$	230,342		$	459		$	172		$	537,804
Comprehensive income:
Net income																	31,957									31,957
Dividends declared on Preferred Stock of subsidiary																	(727	)								(727	)
Sale of majority owned subsidiary																							(172	)		(172	)
Change in fair value:
Investments																				15						15
Dividends declared on common stock																	(25,021	)								(25,021	)
Treasury shares activity - net						(914,225	)		(48,323	)		333														(47,990	)
Balance at September 30, 2011		16,862,087	$	1,686		(1,977,050	)	$	(93,210	)	$	350,693	$	(328	)	$	236,551		$	474		$	-		$	495,866

The Notes to Financial Statements are an integral part hereof.

- 6 -

CENTRAL HUDSON STATEMENT OF INCOME (UNAUDITED)

(In Thousands)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2011		2010			2011			2010
Operating Revenues
Electric	$	149,706	$	165,304		$	418,511		$	436,362
Natural gas		18,462		18,823			127,941			120,371
Total Operating Revenues		168,168		184,127			546,452			556,733
Operating Expenses
Operation:
Purchased electricity and fuel used in electric generation		60,734		76,890			168,796			196,413
Purchased natural gas		6,337		7,217			63,425			59,619
Other expenses of operation		55,480		58,495			181,460			166,389
Depreciation and amortization		8,909		8,526			26,791			25,362
Taxes, other than income tax		11,644		11,142			36,303			32,255
Total Operating Expenses		143,104		162,270			476,775			480,038
Operating Income		25,064		21,857			69,677			76,695
Other Income and Deductions
Interest on regulatory assets and other interest income		1,209		853			4,646			3,486
Regulatory adjustments for interest costs		319		(427	)		1,032			(675	)
Other - net		327		(168	)		(636	)		(206	)
Total Other Income		1,855		258			5,042			2,605
Interest Charges
Interest on long-term debt		5,872		4,785			17,668			14,371
Interest on regulatory liabilities and other interest		1,529		1,279			4,517			4,430
Total Interest Charges		7,401		6,064			22,185			18,801
Income Before Income Taxes		19,518		16,051			52,534			60,499
Income Taxes		7,853		6,311			20,858			24,125
Net Income		11,665		9,740			31,676			36,374
Dividends Declared on Cumulative Preferred Stock		242		242			727			727
Income Available for Common Stock	$	11,423	$	9,498		$	30,949		$	35,647

CENTRAL HUDSON STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

(In Thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Net Income	$	11,665	$	9,740	$	31,676	$	36,374
Other Comprehensive Income		-		-		-		-
Comprehensive Income	$	11,665	$	9,740	$	31,676	$	36,374

The Notes to Financial Statements are an integral part hereof.

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CENTRAL HUDSON STATEMENT OF CASH FLOWS (UNAUDITED)

(In Thousands)

	Nine Months Ended September 30,
	2011			2010
Operating Activities:
Net income	$	31,676		$	36,374
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		25,463			24,159
Amortization		1,328			1,203
Deferred income taxes - net		19,975			19,490
Bad debt expense		5,075			1,835
Pension expense		20,725			22,728
OPEB expense		5,203			5,344
Regulatory liability - rate moderation		(7,849	)		(14,019	)
Revenue decoupling mechanism recorded		4,956			(1,568	)
Regulatory asset amortization		3,524			3,451
Changes in operating assets and liabilities - net:
Accounts receivable, unbilled revenues and other receivables		1,690			(1,646	)
Fuel, materials and supplies		(2,550	)		(3,100	)
Special deposits and prepayments		1,563			1,997
Income and other taxes		(682	)		4,425
Accounts payable		(10,420	)		1,507
Accrued interest		1,346			(617	)
Customer advances		(3,597	)		(4,554	)
Pension plan contribution		(32,536	)		(31,854	)
OPEB contribution		(1,184	)		(4,275	)
Revenue decoupling mechanism collected		2,388			4,271
Regulatory asset - storm deferral		(3,441	)		(16,720	)
Regulatory asset - MGP site remediation		3,761			(10,802	)
Regulatory asset - Temporary State Assessment		(2,169	)		(3,112	)
Deferred natural gas and electric costs		22,164			5,052
Other - net		10,658			11,971
Net cash provided by operating activities		97,067			51,540
Investing Activities:
Additions to utility plant		(57,434	)		(49,424	)
Other - net		(3,705	)		(3,964	)
Net cash used in investing activities		(61,139	)		(53,388	)
Financing Activities:
Redemption of long-term debt		-			(24,000	)
Proceeds from issuance of long-term debt		33,400			40,000
Dividends paid to parent - CH Energy Group		(33,000	)		-
Dividends paid on cumulative Preferred Stock		(727	)		(727	)
Other - net		(647	)		(294	)
Net cash (used in) provided by financing activities		(974	)		14,979
Net Change in Cash and Cash Equivalents		34,954			13,131
Cash and Cash Equivalents - Beginning of Period		9,622			4,784
Cash and Cash Equivalents - End of Period	$	44,576		$	17,915
Supplemental Disclosure of Cash Flow Information:
Interest paid	$	17,036		$	15,416
Federal and state taxes paid	$	16,113		$	15,656
Additions to plant included in liabilities	$	3,997		$	2,183
Regulatory asset - storm deferral costs in liabilities	$	9,396		$	2,648

The Notes to Financial Statements are an integral part hereof.

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CENTRAL HUDSON BALANCE SHEET (UNAUDITED)

(In Thousands)

	September 30,		December 31,		September 30,
	2011		2010		2010
ASSETS
Utility Plant
Electric	$	988,319	$	963,261	$	945,139
Natural gas		301,989		292,358		288,052
Common		142,201		142,255		143,918
Gross Utility Plant		1,432,509		1,397,874		1,377,109
Less: Accumulated depreciation		385,198		395,776		393,514
Net		1,047,311		1,002,098		983,595
Construction work in progress		63,996		52,607		55,468
Net Utility Plant		1,111,307		1,054,705		1,039,063
Non-Utility Property and Plant		681		681		681
Less: Accumulated depreciation		36		35		34
Net Non-Utility Property and Plant		645		646		647
Current Assets
Cash and cash equivalents		44,576		9,622		17,915
Accounts receivable from customers - net of allowance for doubtful accounts of $5.2 million, $5.3 million and $5.5 million, respectively		66,859		67,185		66,926
Accrued unbilled utility revenues		11,320		16,233		10,862
Other receivables		4,679		10,328		3,833
Fuel, materials and supplies - at average cost		22,577		20,027		24,405
Regulatory assets		43,407		89,905		106,607
Income tax receivable		-		-		41,465
Fair value of derivative instruments		-		34		-
Special deposits and prepayments		15,697		17,184		16,375
Accumulated deferred income tax		6,593		-		-
Total Current Assets		215,708		230,518		288,388
Deferred Charges and Other Assets
Regulatory assets - pension plan		121,238		142,647		144,781
Regulatory assets - other		105,899		90,264		79,571
Unamortized debt expense		5,017		4,774		5,092
Other investments		14,008		12,511		11,710
Other		2,217		3,009		4,152
Total Deferred Charges and Other Assets		248,379		253,205		245,306
Total Assets	$	1,576,039	$	1,539,074	$	1,573,404

The Notes to Financial Statements are an integral part hereof.

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

(In Thousands)

	September 30,			December 31,			September 30,
	2011			2010			2010
CAPITALIZATION AND LIABILITIES
Capitalization
Common Stock, 30,000,000 shares authorized; 16,862,087 shares issued and outstanding, $5 par value	$	84,311		$	84,311		$	84,311
Paid-in capital		199,980			199,980			199,980
Retained earnings		162,847			164,898			160,397
Capital stock expense		(4,961	)		(4,961	)		(4,961	)
Total Equity		442,177			444,228			439,727
Cumulative Preferred Stock not subject to mandatory redemption		21,027			21,027			21,027
Long-term debt		417,903			453,900			453,900
Total Capitalization		881,107			919,155			914,654
Current Liabilities
Current maturities of long-term debt		69,400			-			-
Accounts payable		42,229			43,452			37,024
Accrued interest		7,313			5,967			5,020
Dividends payable - Preferred Stock		242			242			242
Dividends payable to parent		-			-			26,000
Accrued vacation and payroll		5,568			5,484			5,311
Customer advances		10,157			13,753			10,449
Customer deposits		6,587			7,654			7,922
Regulatory liabilities		12,444			18,596			16,461
Fair value of derivative instruments		12,778			13,183			35,184
Accrued environmental remediation costs		4,552			1,396			5,106
Accrued income taxes		1,184			113			-
Accumulated deferred income tax		-			13,021			11,746
Other		11,481			13,275			9,694
Total Current Liabilities		183,935			136,136			170,159
Deferred Credits and Other Liabilities
Regulatory liabilities - OPEB		12,038			6,976			4,936
Regulatory liabilities - other		110,280			99,793			99,395
Operating reserves		2,235			2,068			2,690
Fair value of derivative instruments		3,193			11,698			-
Accrued environmental remediation costs		10,483			1,849			572
Accrued OPEB costs		46,426			45,367			45,367
Accrued pension costs		76,414			102,555			128,379
Tax reserve		9,668			11,486			8,322
Other		17,884			16,109			15,179
Total Deferred Credits and Other Liabilities		288,621			297,901			304,840
Accumulated Deferred Income Tax		222,376			185,882			183,751
Commitments and Contingencies
Total Capitalization and Liabilities	$	1,576,039		$	1,539,074		$	1,573,404

The Notes to Financial Statements are an integral part hereof.

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CENTRAL HUDSON STATEMENT OF EQUITY (UNAUDITED)

(In Thousands, except share amounts)

	Central Hudson Common Shareholders
	Common Stock				Treasury Stock
	Shares Issued		Amount		Shares Repurchased		Amount		Paid-In Capital		Capital Stock Expense			Retained Earnings			Accumulated Other Comprehensive Income / (Loss)		Total Equity
Balance at December 31, 2009		16,862,087	$	84,311		-	$	-	$	199,980	$	(4,961	)	$	150,750		$	-	$	430,080
Net income															36,374					36,374
Dividends declared:
On cumulative Preferred Stock															(727	)				(727	)
On Common Stock to parent -    CH Energy Group															(26,000	)				(26,000	)
Balance at September 30, 2010		16,862,087	$	84,311		-	$	-	$	199,980	$	(4,961	)	$	160,397		$	-	$	439,727
Balance at December 31, 2010		16,862,087	$	84,311		-	$	-	$	199,980	$	(4,961	)	$	164,898		$	-	$	444,228
Net income															31,676					31,676
Dividends declared:
On cumulative Preferred Stock															(727	)				(727	)
On Common Stock to parent -    CH Energy Group															(33,000	)				(33,000	)
Balance at September 30, 2011		16,862,087	$	84,311		-	$	-	$	199,980	$	(4,961	)	$	162,847		$	-	$	442,177

The Notes to Financial Statements are an integral part hereof.

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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 – Summary of Significant Accounting Policies

Basis of Presentation

This Quarterly Report on Form 10-Q is a combined report of CH Energy Group, Inc. (“CH Energy Group”) and its regulated electric and natural gas subsidiary, Central Hudson Gas & Electric Corporation (“Central Hudson”).  The Notes to the Consolidated Financial Statements apply to both CH Energy Group and Central Hudson.  CH Energy Group’s Consolidated Financial Statements include the accounts of CH Energy Group and its wholly owned subsidiaries, which include Central Hudson and CH Energy Group’s non-utility subsidiary, Central Hudson Enterprises Corporation (“CHEC”).  Operating results of CHEC in 2011 include its wholly owned subsidiaries, Griffith Energy Services, Inc. (“Griffith”) and CH-Greentree, LLC (“CH-Greentree”).  Discontinued operations on CH Energy Group’s Consolidated Statements of Income include the operating results of CHEC’s subsidiaries which were sold in 2011, including Lyonsdale Biomass, LLC (“Lyonsdale”) sold on May 1, 2011, Shirley Wind, LLC (“Shirley Wind”), sold on August 11, 2011 and CH-Auburn, LLC (“CH-Auburn”) sold on September 16, 2011.  The non-controlling interest shown on CH Energy Group’s Consolidated Financial Statements represents the minority owner’s proportionate share of the income and equity of Shirley Delaware for 2011 and 2010 prior to the sale of this subsidiary and Lyonsdale for 2010 prior to the purchase of the minority owner’s interest on October 1, 2010.  Inter-company balances and transactions have been eliminated in consolidation.  See Note 5 – “Acquisitions, Divestitures and Investments” for further information.

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 Financial Statements and, accordingly, should be read in conjunction with the audited Financial Statements (including the Notes thereto) included in the combined CH Energy Group/Central Hudson Annual Report on Form 10-K for the year ended December 31, 2010 (the “Corporations’ 10-K Annual Report”).

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CH Energy Group’s and Central Hudson’s balance sheet as of September 30, 2010 is not required to be included in this Quarterly Report on Form 10-Q; however, this balance sheet is included for supplemental analysis purposes.

Reclassification

Certain amounts in the 2010 Financial Statements have been reclassified to conform to the 2011 presentation.  For more information regarding reclassification of discontinued operations, see Note 5 – “Acquisition, Divestitures and Investments.”

Consolidation of Variable Interest Entities

CH Energy Group and its subsidiaries do not have any interests in special purpose entities and do not have material affiliations with any variable interest entities which were not consolidated.

Revenue Recognition

CH Energy Group’s deferred revenue balances as of September 30, 2011, December 31, 2010 and September 30, 2010 were $3.7 million, $4.7 million and $3.7 million, respectively.  The deferred revenue balance will be recognized in CH Energy Group’s operating revenues over the 12-month term of the respective customer contract.

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

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Fuel, Materials & Supplies

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

CH Energy Group

	September 30,		December 31,		September 30,
	2011		2010		2010
Natural gas	$	13,106	$	10,803	$	14,153
Petroleum products and propane		2,177		3,831		1,791
Fuel used in electric generation		287		820		832
Materials and supplies		9,960		9,993		10,406
Total	$	25,530	$	25,447	$	27,182

Central Hudson

	September 30,		December 31,		September 30,
	2011		2010		2010
Natural gas	$	13,106	$	10,803	$	14,153
Petroleum products and propane		494		519		526
Fuel used in electric generation		287		271		290
Materials and supplies		8,690		8,434		9,436
Total	$	22,577	$	20,027	$	24,405

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 $52.6 million, $46.9 million, and $47.3 million of cost of removal as regulatory liabilities as of September 30, 2011, December 31, 2010, and September 30, 2010, 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).

- 14 -

Earnings Per Share

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

The average dilutive effect of CH Energy Group’s stock options, performance shares and restricted shares are as follows (In Shares):

Three Months Ended		Nine Months Ended
September 30,		September 30,
2011	2010	2011	2010
188,177	161,689	187,931	161,689

Certain stock options are excluded from the calculation of diluted earnings per share because the exercise prices of those options were greater than the average market price per share of Common Stock.  Options excluded are as follows (In Shares):

Three Months Ended		Nine Months Ended
September 30,		September 30,
2011	2010	2011	2010
-	35,980	-	35,980

For additional information regarding stock options, performance shares and restricted shares, see Note 11 - "Equity-Based Compensation."

Parental Guarantees

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

(In Thousands)

	September 30, 2011
Transaction Description	Maximum Potential Payments		Outstanding Liabilities(1)
Heating oil, propane, other petroleum products, weather and commodity hedges	$	26,250	$	4,475

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

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

- 15 -

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 was restricted to a maximum payment of $38.5 million in dividends to CH Energy Group for the year ended December 31, 2010.  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.  As of September 30, 2011, Central Hudson had declared and paid dividends of $33.0 million to parent CH Energy Group in 2011, of which $11.0 million was paid during the three months ended September 30, 2011.  CH Energy Group’s other subsidiaries do not have express restrictions on their ability to pay dividends.
 

On September 23, 2011, the Board of Directors of CH Energy Group declared a quarterly dividend of 55.5 cents per share payable November 1, 2011, to shareholders of record as of October 11, 2011.  This dividend is an increase from the previously consistent 54 cents per share declared to shareholders each quarter since 1998.

- 16 -

NOTE 2 – Regulatory Matters

Summary of Regulatory Assets and Liabilities

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

				September 30,			December 31,		September 30,
				2011			2010		2010
Regulatory Assets (Debits):
	Current:
		Deferred purchased electric and natural gas costs		$	8,155		$	30,320	$	22,558
		Deferred unrealized losses on derivatives			12,778			13,149		35,184
		PSC General and Temporary State Assessment    and carrying charges			12,481			9,891		14,258
		RDM and carrying charges			-			3,966		2,484
		Residual natural gas deferred balances			4,554			4,554		4,554
		Deferred debt expense on re-acquired debt			600			624		610
		Deferred and accrued costs - MGP site remediation    and carrying charges			4,549			4,488		4,465
		Deferred storm costs and carrying charges			-	(1)		19,985		19,583
		Uncollectible deferral and carrying charges			-	(1)		2,638		2,621
		Other			290			290		290
					43,407			89,905		106,607
	Long-term:
		Deferred pension costs			121,238			142,647		144,781	(2)
		Deferred unrealized losses on derivatives			3,193			11,698		-
		Carrying charges - pension reserve			4,055			1,144		602	(2)
		Deferred and accrued costs - MGP site remediation    and carrying charges			14,086			5,876		6,817
		Deferred debt expense on re-acquired debt			5,071			5,460		3,888
		Deferred Medicare Subsidy taxes			7,171			6,740		6,570
		Residual natural gas deferred balances and carrying charges			10,810			14,121		15,088	(2)
		Income taxes recoverable through future rates			37,716			35,903		38,345	(2)
		Deferred storm costs and carrying charges			12,838			-		-
		Other			10,959			9,322		8,261	(2)
					227,137			232,911		224,352
			Total Regulatory Assets	$	270,544		$	322,816	$	330,959

(1)	Central Hudson offset deferred storm costs and incremental bad debt expense and associated carrying charges, in accordance with the PSC prescribed Order issued on April 14, 2011. Additionally, a regulatory liability was established for the future benefit of the customers based on the remaining balance of tax refund after these offsets.
(2)	Central Hudson offset all or a portion of certain regulatory assets and liabilities, including full offset of the June 30, 2010 balances for Carrying charges - OPEB reserve, Carrying charges - pension reserve, in accordance with the PSC prescribed 2010 Rate Order ("2010 Rate Order") issued on June 18, 2010.

- 17 -

					September 30,			December 31,		September 30,
					2011			2010		2010
Regulatory Liabilities (Credits):
	Current:
		Excess electric depreciation reserve			$	2,008		$	7,366	$	9,122
		RDM and carrying charges				3,520			-		-
		Income taxes refundable through future rates				4,938			5,128		5,412
		Deferred unbilled gas revenues				1,978			6,102		1,927
						12,444			18,596		16,461
	Long-term:
		Customer benefit fund				3,139			3,468		3,471
		Deferred cost of removal				52,630			46,938		47,346
		Rate Base Impact of Tax Repair Project and carrying charges				10,170	(1)		-		-
		Excess electric depreciation reserve carrying charges				2,653			4,889		5,722
		Income taxes refundable through future rates				24,189			33,820		34,173	(2)
		Deferred OPEB costs				12,038			6,976		4,936	(2)
		Carrying charges - OPEB reserve				4,379			1,599		780	(2)
		Other				13,120			9,079		7,903	(2)
						122,318			106,769		104,331
			Total Regulatory Liabilities		$	134,762		$	125,365	$	120,792
				Net Regulatory Assets	$	135,782		$	197,451	$	210,167

(1)	Central Hudson offset deferred storm costs and incremental bad debt expense and associated carrying charges, in accordance with the PSC prescribed Order issued on April 14, 2011. Additionally, a regulatory liability was established for the future benefit of the customers based on the remaining balance of tax refund after these offsets.
(2)	Central Hudson offset all or a portion of certain regulatory assets and liabilities, including full offset of the June 30, 2010 balances for Carrying charges - OPEB reserve, Carrying charges - pension reserve, in accordance with the PSC prescribed 2010 Rate Order ("2010 Rate Order") issued on June 18, 2010.

The significant new regulatory assets and liabilities include:

Storm Costs:  In late August 2011, Central Hudson’s service territory was affected by Tropical Storm Irene, disrupting service to approximately 180,000 customers. Management believes that the incremental storm restoration costs incurred as of September 30, 2011 associated with electric service restoration efforts of approximately $12.8 million are probable of future recovery from customers.  This amount includes significant estimates for mutual aid and tree trimming crews employed during the restoration.  Actual amounts may differ from these estimates.  Additional costs are expected to be incurred in the fourth quarter related to restoration efforts, including sales tax on invoices paid.  These costs will be deferred when incurred.

Management is currently analyzing the storm costs incurred related to gas emergencies as a result of the impacts of Tropical Storm Irene to determine if the costs meet the following requirements for deferral accounting: the expense must be incremental to the amount included in rates, the incremental expense must be material and extraordinary and the company’s earnings must be below the authorized rate of return.  As of September 30, 2011, approximately $0.6 million have been incurred related to these gas emergencies and additional costs are expected as a result of on-going repairs to damaged infrastructure. These costs have not been deferred as of September 30, 2011 but Management will continue to monitor whether the three requirements for deferral accounting have been met.  Central Hudson can not predict the outcome of this analysis as of September 30, 2011.

- 18 -

2010 Rate Order

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

Description	2010 Rate Order
Electric delivery revenue increases	$11.8 million(1) 7/1/10 $9.3 million(1)  7/1/11 $9.0 million 7/1/12
Natural gas delivery revenue increases	$5.7 million 7/1/10 $2.4 million 7/1/11 $1.6 million 7/1/12
ROE	10.0%
Earnings sharing	Yes(2)
Capital structure – common equity	48%
Targets with true-up provisions - % of revenue requirement to defer for shortfalls
Net plant balances	100%
Transmission and distribution ROW maintenance	100%
RDMs – electric and natural gas(3)	Yes
New deferral accounting for full recovery
Fixed debt costs	Yes(4)
Transmission sag mitigation	Yes
New York State Temporary Assessment	Yes
Material regulatory actions(5)	Yes(5)
Property taxes – Deferral for 90% of excess/deficiency relative to revenue requirement	Yes(6)

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

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

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

(4)  Deferral authorization in RY2 and RY3 only.

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

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

- 19 -

Other PSC Proceedings

On April 14, 2011, the Commission issued an Order authorizing deferral of $18.8 million of the incremental electric storm restoration expense related to the significant storm event in February 2010 and the $2.6 million of incremental bad debt expense and denying deferral of the Company’s $2.5 million of incremental electric and gas property tax expense.  The PSC also approved the ratemaking treatment proposed by the Company in its petition filed on September 23, 2010.  The offsets have been recorded as of March 31, 2011.  The remaining balance of the tax refund not subject to offset has been established as a regulatory liability subject to carrying charges for the benefit of customers totaling $9.6 million.  On May 13, 2011, Central Hudson filed a Petition for Clarification and Rehearing on the PSC’s April 14, 2011 Order.  The petition seeks clarification concerning recovery of the costs to achieve and rehearing for reconsideration and recovery of certain costs denied by the Commission, totaling $0.8 million, for deferral accounting treatment proposed by the Company in its September 23, 2010 petition filing related to the incremental electric storm restoration expense for the February 2010 Twin Peaks storm.  Central Hudson cannot predict the final outcome of this proceeding.

NOTE 3 - New Accounting Guidance

Newly adopted and soon to be adopted accounting guidance is summarized below, and explanations of the underlying information for all guidance (except that which is not currently applicable) that is expected to have a material impact on CH Energy Group and its subsidiaries.

Impact	Category	Accounting Reference	Title	Issued Date	Effective Date
1	Comprehensive Income (Topic 220)	ASU No. 2011-05	Presentation of Comprehensive Income	Jun-11	Jan-12
1	Fair Value Measurements and Disclosures (Topic 820)	ASU No. 2011-04	Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in US GAAP and IFRS	May-11	Jan-12
1	Intangibles - Goodwill and Other (Topic 350)	ASU No. 2011-08	Testing Goodwill for Impairment	Sep-11	Jan-12

Impact Key:

(1) No anticipated impact on the financial condition, results of operations and cash flows of CH Energy Group and its subsidiaries upon future adoption.

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NOTE 4 – Income Tax

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

There are no uncertain tax positions other than that related to the Company’s accounting method change; the activity of which is summarized below (In Thousands):

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011			2010
Balance at the beginning of the period	$	10,934		$	-	$	11,486		$	-
Adjustment related to tax accounting method change		(1,266	)		-		(1,818	)		-
Settlement of uncertain tax positions with tax authorities		-			-		-			-
Lapse of statute of limitations related to uncertain tax positions		-			-		-			-
Balance at the end of the period	$	9,668		$	-	$	9,668		$	-

Jurisdiction	Tax Years Open for Audit
Federal(1)	2007, 2008, 2009 and 2010
New York State	2007, 2008, 2009 and 2010

(1)   Federal tax filings for the years 2007, 2008 and 2009 are currently under audit.

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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 September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Net income attributable to CH Energy Group	$	8,328		$	1,779		$	31,230		$	28,982
Preferred Stock dividends of Central Hudson		242			242			727			727
Non-controlling interest in subsidiary		-			112			-			(272)
Federal income tax		(524)			(25,743)			153			(30,470)
State income tax		17			(3,291)			289			(4,793)
Deferred federal income tax		1,927			26,694			13,998			47,813
Deferred state income tax		531			1,040			1,104			4,204
Income before taxes	$	10,521		$	833		$	47,501		$	46,191
Computed federal tax at 35% statutory rate	$	3,682		$	292		$	16,625		$	16,167
State income tax net of federal tax benefit		623			(1,150)			1,588			872
Depreciation flow-through		757			1,091			2,322			2,400
Cost of Removal		(458)			(369)			(1,373)			(1,104)
Production tax credits		(51)			(70)			(149)			(206)
Federal grant		(2,580)			-			(2,580)			-
Other		(22)			(1,094)			(889)			(1,375)
Total income tax	$	1,951		$	(1,300)		$	15,544		$	16,754
Effective tax rate - federal		13.3	%		114.2	%		29.8	%		37.5	%
Effective tax rate - state		5.2	%		(270.2)	%		2.9	%		(1.2)	%
Effective tax rate - combined		18.5	%		(156.0)	%		32.7	%		36.3	%

The effective rate for the quarter ended September 30, 2011 is impacted by the tax benefit related to federal grants received and the reversal of prior period Production Tax Credits as a result of receiving the grant.  The net benefit from state income taxes recognized in the quarter ended September 30, 2010 is due to the true-up of the New York State apportionment rate.

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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 September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Net income	$	11,665		$	9,740		$	31,676		$	36,374
Federal income tax		133			(17,698	)		348			(21,096	)
State income tax		218			(261	)		535			(1,129	)
Deferred federal income tax		6,739			23,375			18,020			42,769
Deferred state income tax		763			895			1,955			3,581
Income before taxes	$	19,518		$	16,051		$	52,534		$	60,499
Computed federal tax at 35% statutory rate	$	6,831		$	5,618		$	18,387		$	21,175
State income tax net of federal tax benefit		905			725			2,303			2,846
Depreciation flow-through		757			1,091			2,322			2,400
Cost of Removal		(458	)		(369	)		(1,373	)		(1,104	)
Other		(182	)		(754	)		(781	)		(1,192	)
Total income tax	$	7,853		$	6,311		$	20,858		$	24,125
Effective tax rate - federal		35.2	%		35.4	%		35.0	%		35.8	%
Effective tax rate - state		5.0	%		3.9	%		4.7	%		4.1	%
Effective tax rate - combined		40.2	%		39.3	%		39.7	%		39.9	%

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NOTE 5 – Acquisitions, Divestitures and Investments

Acquisitions

During the nine months ended September 30, 2011, Griffith acquired fuel distribution companies as follows (Dollars in Thousands):

	# of			Total				Total
	Acquired	Purchase		Intangible				Tangible
Quarter Ended	Companies	Price		Assets(1)		Goodwill		Assets
March 31, 2011	2	$	1,961	$	1,936	$	515	$	25
June 30, 2011	-		-		-		-		-
September 30, 2011	1		305		270		83		37
Total	3	$	2,266	$	2,206	$	598	$	62

(1)   Including goodwill.

Amortizable intangible assets acquired in the current year consist of customer relationships, which will be amortized over a 15-year period, and covenants not to compete, which will be amortized over a 5-year period.  The weighted average amortization period of amortizable intangible assets acquired in the current year is 14 years.

Divestitures

In the first quarter of 2011, Griffith reduced its environmental reserve by $0.6 million based on the completion of an environmental study.  The reserve adjustment related to the 2009 divestiture of operations in certain geographic locations.  In the second quarter of 2011, Griffith recorded an expense adjustment of $0.1 million relating to divested operations.  As such, income of $0.3 million, net of tax, has been reflected in income from discontinued operations in the CH Energy Group Consolidated Income Statement for the nine months ended September 30, 2011.

During 2011, CHEC divested three of its renewable energy investments, as follows:

-   On May 1, 2011, the sale of Lyonsdale, which owns a wood-burning electric generating facility in Lyons Falls, New York, was completed.

-   On August 11, 2011, the sale of Shirley Wind, which owns a wind project in Glenmore, Wisconsin, was completed.

-   On September 16, 2011, the sale of CH-Auburn, which owns an electric generating plant that utilizes methane gas generated by the City of Auburn, New York landfill, was completed.

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The results of operations of Lyonsdale, Shirley Wind and CH-Auburn for current and 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 Lyonsdale, Shirley Wind and CH-Auburn with those from continuing operations in the CH Energy Group Consolidated Statement of Cash Flows.  The details of each of the sales transactions by investment are as follows (In Thousands):

	CH-Auburn		Shirley Wind		Lyonsdale
Assets
Current Assets	$	174	$	623	$	2,099
Other Assets		-		461		-
Property, Plant and Equipment
Property, plant and equipment		4,667		32,564		10,670
Less: Accumulated depreciation		626		657		4,191
Total property, plant and equipment, net		4,041		31,907		6,479
Assets sold	$	4,215	$	32,991	$	8,578
Liabilities
Current Liabilities	$	85	$	6	$	322
Other Liabilities		1,736		-		-
Liabilities sold	$	1,821	$	6	$	322
Net Assets Sold	$	2,394	$	32,985	$	8,256
Net Proceeds from Sale	$	3,676	$	33,100	$	7,700
Pre-tax gain (loss) on sales transaction(1)	$	1,282	$	115	$	(556	)
Tax Benefit of Federal Grant Received(2)	$	277	$	2,303	$	-
Net Increase (Decrease) to Earnings	$	1,033	$	2,371	$	(328	)

(1)	Included in the Gain from the sale of discontinued operations line of the CH Energy Group Consolidated Income Statement
(2)	Included in the Income tax (benefit) expense from discontinued operations line of the CH Energy Group Consolidated Income Statement

Proceeds from the sale of these investments were used primarily for the repurchase of outstanding Common Stock of CH Energy Group.  Additionally, a portion of the proceeds from the sale of Shirley Wind were used to pay down private placement debt at CH Energy Group Holding Company, which provided corporate financing for the construction of this project.  See Note 9 – “Capitalization – Long-Term Debt” for further details regarding the repayment of debt.

The remaining three investments in renewable energy as of September 30, 2011, Cornhusker, CH-Community Wind and CH-Greentree, are not considered a part of the core business, however, Management intends to hold these investments at this time.  The value of CHEC’s investment in Cornhusker is zero as of September 30, 2011.

Based on preliminary market analysis and updated operating forecasts related to CH-Community Wind, CHEC’s 50% equity interest in a joint venture that owns an 18% interest in two operating wind projects, Management performed an impairment test related to this investment.  Based on the present value of the projected cash flow, using a market participant’s expected return, Management has concluded the fair value of the investment is zero and as such has recorded an impairment loss for the full value of the investment as of September 30, 2011.

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CHEC’s $4.7 million investment in CH-Greentree, a 100% equity interest in a molecular gate used to remove nitrogen from landfill gas, generates revenues from the lease of the gate to the landfill project owner.  Currently, the project is current on all of its lease payments to CH-Greentree.  Due to the effects of the economic slowdown, less municipal solid waste is being delivered to the landfill, and along with sludge from hydraulic fracturing which is being delivered, less gas is being produced and sold.  In response to these operational challenges, the project is seeking to renegotiate its current debt obligations to improve its future cash flows in order to continue to meet its financial obligations.  The project owneris in the process of trying to renegotiate the terms of its outstanding debt to improve the project’s financial situation.  If the project is no longer able to meet its lease obligations to CH-Greentree, Management has certain remedies available, including removing the molecular gate, seeking an alternative landfill, or selling the molecular gate.  Management will continue to monitor this matter.

The table below provides additional detail of the financial results of the discontinued operations (In Thousands):

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011			2010
Revenues from discontinued operations	$	812		$	3,064	$	5,755		$	7,698
Income (loss) from discontinued operations before tax		(10	)		393		1,149			(1,167	)
Gain from sale of discontinued operations		2,070			-		841			-
Income tax (benefit) expense from discontinued operations		(1,599	)		60		(1,669	)		(524	)

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Investments

The value of CHEC's investments as of September 30, 2011 are as follows  (In Thousands):

CHEC Investment	Description	Intercompany Debt		Equity Investment		Total
Griffith Energy Services	100% controlling interest in a fuel distribution business	$	28,600	$	34,596	$	63,196
CH-Greentree	100% equity interest in a molecular gate used to remove nitrogen from landfill gas		-		4,750		4,750
Cornhusker Holdings	12% equity interest plus subordinated debt investment in an operating corn-ethanol plant		-		-		-
CH-Community Wind	50% equity interest in a joint venture that owns 18% interest in two operating wind projects		-		-		-
Other	Other renewable energy projects and partnerships and an energy sector venture capital fund		-		3,111		3,111
		$	28,600	$	42,457	$	71,057

NOTE 6 – Goodwill and Other Intangible Assets

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

	September 30, 2011				December 31, 2010				September 30, 2010
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Customer relationships	$	35,516	$	22,978	$	34,063	$	21,214	$	34,053	$	20,646
Covenants not to compete		267		123		113		95		114		90
Total Amortizable Intangibles	$	35,783	$	23,101	$	34,176	$	21,309	$	34,167	$	20,736

(In Thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Amortization Expense	$	598	$	567	$	1,792	$	1,704

The estimated annual amortization expense for each of the next five years, assuming no new acquisitions or divestitures, is approximately $2.0 million.

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NOTE 7 – Short-Term Borrowing Arrangements

CH Energy Group and Central Hudson borrowings under revolving credit facilities are as follows (In Thousands):

	September 30, 2011		December 31, 2010		September 30, 2010
CH Energy Group Holding Company Short-term borrowings	$	5,000	$	-	$	-
Central Hudson Short-term borrowings		-		-		-
Total CH Energy Group	$	5,000	$	-	$	-

At September 30, 2011, the corresponding weighted average effective interest rate for the short-term borrowings was 0.56%.

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 Central Hudson.

Effective July 31, 2007, CH Energy Group’s Board of Directors extended and amended the Common Stock Repurchase Program of the Company (the “Repurchase Program”), which was originally authorized in 2002.  As amended, the Repurchase Program authorized the repurchase of up to 2,000,000 shares (excluding shares repurchased before July 31, 2007) or approximately 13% of CH Energy Group’s outstanding Common Stock, from time to time, through July 31, 2012.  As of September 30, 2011, CH Energy Group had purchased 948,676 shares under the Repurchase Program, of which 554,017 shares were purchased during the three months ended September 30, 2011.

As part of this Repurchase Program, on August 16, 2011, CH Energy Group implemented an accelerated share repurchase program (“ASR”) providing for the repurchase by CH Energy Group of a number of shares with a value as of the date of the agreement of $30 million.  CH Energy Group paid $30 million and received 554,017 shares on August 17, 2011, which represented 100% of the total number of shares CH Energy Group would receive if the price per share of the Common Stock remained at the closing price on August 16, 2011 of $54.15 per share throughout the remainder of the calculation period under the program, which is expected to end no later than May 16, 2012 (but may be earlier terminated by the agent under certain circumstances).

The actual number of shares of Common Stock that CH Energy Group will repurchase under the ASR will be determined at the end of the calculation period based on the difference between the $30 million contract amount and an amount determined by multiplying a discounted daily volume-weighted average price of CH Energy Group’s Common Stock over the calculation period by the number of shares initially purchased.  The actual number of shares CH Energy Group will repurchase under the ASR is subject to collar provisions that establish a minimum and maximum number of shares to be repurchased and certain other adjustments.  If the actual number of shares to be delivered under the program exceeds the number of shares initially delivered by the agent to CH Energy Group, following the end of the calculation period the agent will be required to deliver to CH Energy Group a number of additional shares equal to the excess.  If the actual number of shares to be delivered under the program is less than the number of shares initially delivered by the agent to CH Energy Group, then following the end of the calculation period CH Energy Group will be required, at its election, to either deliver to the agent a number of shares of Common Stock approximately equal to the difference or pay to the agent cash in an amount equal to the value of such shares.  CH Energy Group controls the form of settlement of any obligation resulting from the ASR and in all cases may elect to deliver its Common Stock at settlement, except in the presence of a liquidating event or default or termination event.  CH Energy Group has sufficient authorized and unissued shares available to settle the contract based on the current CH Energy Group stock price and after considering all other commitments that may require the issuance of stock during the maximum calculation period.  Additionally, the ASR permits settlement in unregistered shares and further specifies that CH Energy Group cannot be required to deliver more than the shares available at the time but must use its best efforts to authorize, issue and deliver additional shares if necessary to satisfy its obligations under the contract.  Accordingly, and in accordance with current accounting guidance, this transaction has been accounted for as an equity transaction.

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Subsequent to September 30, 2011, no additional shares have been purchased under the Repurchase Program.  CH Energy Group does not intend to purchase additional shares under the Program during the remainder of 2011.  CH Energy Group intends to set repurchase targets, if any, from time to time based on then prevailing circumstances.  The shares repurchased by CH Energy Group have not been retired or cancelled, and the repurchases accordingly have been presented as an increase to treasury stock in CH Energy Group’s Consolidated Balance Sheet.

Effective July 1, 2011, employer matching contributions to an eligible employee’s Savings Incentive Plan (“SIP”) will be paid in either cash or in CH Energy Group Common Stock.  During the third quarter of 2011, CH Energy Group began making employer matching contributions to the SIP with the issuance of treasury shares.  As of September 30, 2011, 8,210 shares were issued from treasury related to the employer matching contribution.  Management expects employer matching contributions to be approximately 48,000 shares per year.

There were no repurchases of preferred stock in the three and nine months ended September 30, 2011 and 2010.

As of September 30, 2011, Central Hudson had made $33.0 million in dividend payments in 2011 to parent CH Energy Group, of which $11.0 million was paid during the three months ended September 30, 2011.

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NOTE 9 – Capitalization – Long-Term Debt

On September 30, 2011, Central Hudson issued $33.4 million of its Series G registered unsecured Medium Term Notes in two maturities.  The first maturity bears interest at the rate of 3.378% per annum on a principal amount of $23.4 million and matures on April 1, 2022.  The second maturity bears interest at the rate of 4.707% per annum on a principal amount of $10.0 million and matures on April 1, 2042.  On September 29, 2011, a notice of redemption was provided to NYSERDA and as such, the 1999 Series A bonds are shown as current maturities of long-term debt in the Central Hudson and CH Energy Group Consolidated Balance Sheets.  In November 2011, Central Hudson used the proceeds from the sale of the notes for redeeming its 1999 Series A NYSERDA Bonds in the principal amount of $33.4 million bearing interest at the rate of 5.45%.  No bonds of this 1999 Series A remained outstanding following the redemption.

In September 2011, following the sale of Shirley Wind, CH Energy Group paid down $20 million of its 2009 Series A private placement debt with a portion of the proceeds from the sale.  As a result, a prepayment penalty was incurred of approximately $3.0 million, which has been included in Penalty for early retirement of debt on the CH Energy Group Consolidated Statement of Income.

NYSERDA

Central Hudson’s Series B NYSERDA Bonds total $33.7 million at September 30, 2011.  These bonds 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 from 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.  As a result, variations in these interest rates do not have any impact on earnings.

To mitigate the potential cash flow impact from unexpected increases in short-term interest rates on Series B Bonds, 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 aligned with Series B and will expire on April 1, 2012.  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.  As of September 30, 2011, no payout is expected and as such the fair value of this instrument is zero.

Central Hudson is currently evaluating what actions, if any, it may take in the future in connection with its Series B NYSERDA Bonds.  Potential actions may include converting the debt to another interest rate mode or refinancing with taxable bonds.

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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 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 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 other post-employment benefit (“OPEB”) plans for the three and nine months ended September 30, 2011 and 2010 (In Thousands):

	Pension Benefits						OPEB(1)
	Three Months Ended September 30,						Three Months Ended September 30,
	2011			2010			2011			2010
Service cost	$	2,448		$	2,272		$	657		$	531
Interest cost		6,537			6,571			1,723			1,712
Expected return on plan assets		(6,860	)		(6,225	)		(1,748	)		(1,267	)
Amortization of:
Prior service cost (credit)		536			544			(1,467	)		(1,467	)
Transitional obligation (asset)		-			-			641			641
Recognized actuarial loss		6,523			7,377			2,227			2,073
Net Periodic Benefit Cost	$	9,184		$	10,539		$	2,033		$	2,223

	Pension Benefits						OPEB(1)
	Nine Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Service cost	$	7,345		$	6,816		$	2,003		$	1,593
Interest cost		19,611			19,713			5,187			5,136
Expected return on plan assets		(20,580	)		(18,675	)		(5,170	)		(3,801	)
Amortization of:
Prior service cost (credit)		1,608			1,632			(4,399	)		(4,401	)
Transitional obligation (asset)		-			-			1,924			1,923
Recognized actuarial loss		19,569			22,131			7,603			6,219
Net Periodic Benefit Cost	$	27,553		$	31,617		$	7,148		$	6,669

(1) The OPEB amounts for all periods presented reflect the effect of the Medicare Prescription Drug Improvement and Modernization Act of 2003.

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The balance of Central Hudson's accrued pension costs (i.e., the under-funded status) is as follows (In Thousands):

	September 30,		December 31,		September 30,
	2011		2010		2010
Accrued pension costs	$	77,065	$	103,227	$	128,979

These balances include the difference between the projected benefit obligation (“PBO”) for pensions and the market value of the pension assets, and the liability for the non-qualified 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):

	September 30,			December 31,			September 30,
	2011			2010			2010
Prefunded pension costs prior to funding status adjustment	$	39,291		$	34,307		$	11,900
Additional liability required		(116,356	)		(137,534	)		(140,879	)
Total accrued pension costs	$	(77,065	)	$	(103,227	)	$	(128,979	)
Total offset to additional liability - Regulatory assets - Pension Plan	$	116,356		$	137,534		$	140,879

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.

Contributions for the nine months ended September 30, 2011, and 2010 were as follows (In Thousands):

	Retirement Income Plan				OPEB
	Nine Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Contributions	$	32,028	$	31,400	$	1,184	$	4,275

Contribution levels for the Retirement Income Plan and OPEB plans are determined by various factors including the discount rate, expected return on plan assets, benefit changes, and corporate resources.  In addition, OPEB plan contribution levels are also impacted by medical claims assumptions used and mortality assumptions used.

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Retirement Plan Policy and Strategy

Central Hudson’s Retirement Plan investment policy seeks to achieve long-term growth and income to match the long-term nature of its funding obligations.  During the first quarter of 2010, Management began a transition to a long-duration investment (“LDI”) strategy for its pension plan assets.  Management’s objective is to minimize the plan’s funded status volatility and the level of contributions by more closely aligning the characteristics of plan assets with liabilities.

Asset allocation targets in effect as of September 30, 2011 as well as actual asset allocations as of September 30, 2011 and December 31, 2010, expressed as a percentage of the market value of the Retirement Plan’s assets, are summarized in the table below:

Asset Class	December 31, 2010			Minimum			Target Average			Maximum			September 30, 2011
Equity Securities		54.8	%		46	%		51	%		56	%		39.4	%
Debt Securities		44.0	%		44	%		49	%		54	%		60.1	%
Alternative Investments(1)		-	%		-	%		-	%		5	%		-	%
Other(2)		1.2	%		-	%		-	%		-	%		0.5	%

(1)  Includes Real Estate

(2)  Consists of temporary cash investments

The above current asset allocations are the result of the transition to an LDI strategy to achieve an asset allocation of approximately 50% equity and 50% long duration fixed income assets by year-end compounded by recent market activity. A reduction in interest rates has made the long duration bonds held in debt securities more valuable and the recent decrease in stock price performance in the third quarter of 2011 has reduced the value of the pension plan’s equity investments. As noted in the above chart, the resulting September 30, 2011 asset allocations are outside of the target minimum for equity and maximum for debt. Due to market value fluctuations, Retirement Plan assets will require rebalancing from time-to-time to maintain the target asset allocation. Management is currently monitoring on-going market activity and the impact on the pension plan asset allocations to determine if a rebalancing will be necessary.

Central Hudson cannot assure that the Retirement Plan’s return objectives or funded status objectives will be achieved.

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NOTE 11 – Equity-Based Compensation

CH Energy Group has adopted the CH Energy Group, Inc. 2011 Long-Term Equity Incentive Plan (the “2011 Plan”) to replace the CH Energy Group, Inc. 2006 Long-Term Equity Incentive Plan (the “2006 Plan”).  The 2011 Plan was approved by shareholders on April 26, 2011.  The 2006 Plan has been terminated, with no new awards to be granted under such plan.  Outstanding awards granted under the 2006 Plan will continue in accordance with their terms and the provisions of the 2006 Plan.

The 2011 Plan reserves for awards to be granted up to a maximum of 400,000 shares of Common Stock plus any shares remaining available under the 2006 Plan as of April 26, 2011 and any shares that are subject to awards granted under the 2006 Plan that are forfeited, cancelled, surrendered or otherwise terminated without the issuance of shares on or after that date.  Awards may consist of incentive stock options, nonqualified stock options, stock appreciation rights, restricted shares, restricted share units, performance shares, dividend equivalents and other awards that CH Energy Group may authorize. 

The 2011 Plan will continue in effect until February 9, 2021, unless sooner terminated by the Board of Directors.  Termination will not affect grants and awards then outstanding.

Performance Shares

A summary of the status of outstanding performance shares granted to executives under the 2006 Plan is as follows:

				Performance Shares
	Grant Date		Performance Shares	Outstanding at
Grant Date	Fair Value		Granted	September 30, 2011
January 26, 2009	$	49.29	36,730	28,060
February 8, 2010	$	38.62	48,740	43,220
February 7, 2011	$	49.77	40,320	40,320

The ultimate number of shares earned under the awards is based on metrics established by the Compensation Committee at the beginning of the award cycle.  Compensation expense is recorded as performance shares are earned over the relevant three-year life of the performance share grant prior to its award.  The portion of the compensation expense related to an employee who retires during the performance period is the amount recognized up to the date of retirement.

Due to the retirement of one of Central Hudson’s executive officers on January 1, 2011, a pro-rated number of shares under the January 26, 2009 and February 8, 2010 grants were paid to this individual on July 6, 2011.  For the pro-rata payout, 2,374 shares were issued from CH Energy Group’s treasury stock on this date in satisfaction of these awards.

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Restricted Shares and Restricted Stock Units

The following table summarizes information concerning restricted shares and stock units outstanding as of September 30, 2011:

Grant Date	Type of Award	Shares or Stock Units Granted	Grant Date Fair Value		Vesting Terms	Unvested Shares Outstanding at September 30, 2011
January 26, 2009	Shares	2,930	$	49.29	End of 3 years	2,320	(1)
October 1, 2009	Shares	14,375	$	43.86	Ratably over 5 years	11,500
November 20, 2009	Stock Units	13,900	$	41.43	1/3 each year in Years 5, 6 and 7	13,900
February 8, 2010	Shares	3,060	$	38.62	End of 3 years	2,655	(2)
February 10, 2010	Shares	5,200	$	38.89	End of 3 years	5,200
November 15, 2010	Shares	3,000	$	46.53	Ratably over 3 years	3,000
February 7, 2011	Shares	1,500	$	49.77	1/3 each year in Years 3, 4 and 5	1,500
February 7, 2011	Shares	2,230	$	49.77	End of 3 years	2,230

(1)	The vesting of 250 shares was accelerated upon a change in control for an individual resulting from the sale of certain assets of Griffith and the vesting of 360 shares was accelerated as approved by the Board of Directors.
(2)	The vesting of 405 shares was accelerated as approved by the Board of Directors.

Compensation Expense

The following table summarizes expense for equity-based compensation by award type for the three and nine months ended September 30, 2011 and 2010 (In Thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Performance shares	$	659	$	794	$	2,213	$	1,547
Restricted shares and stock units	$	116	$	133	$	334	$	398
Recognized tax benefit of restricted shares and stock units	$	43	$	50	$	127	$	150

Compensation expense for performance shares is recognized over the three year performance period based on the fair value of the awards at the end of each reporting period and the time elapsed within each grant's performance period.  Compensation expense for restricted shares and stock options is recognized over the defined vesting periods based on the grant date fair value of the awards.

NOTE 12 – Commitments and Contingencies

Electricity Purchase Commitments

On March 6, 2007, Central Hudson entered into an agreement with Entergy Nuclear Power Marketing, LLC to purchase electricity (but not capacity) on a unit-contingent basis at defined prices from January 1, 2008 through December 31, 2010.  During this period, the electricity purchased through this Entergy contract represented approximately 23% of Central Hudson’s full-service customer requirements on an annual basis.  For the nine months ended September 30, 2010, energy supplied under this agreement cost approximately $41.9 million.  On June 30, 2010and September 9, 2010,Central Hudson entered into additional agreements with Entergy Nuclear Power Marketing, LLC to purchase electricity on a unit-contingent basis at defined prices from January 1, 2011 through December 31, 2013.  The electricity purchased under these current contracts with Entergy is generated from the Indian Point and FitzPatrick nuclear power facilities and is estimated to represent approximately 13% of Central Hudson’s full-service customer requirements on an annual basis.  For the nine months ended September 30, 2011, energy supplied under this agreement cost approximately $14.7 million.

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In the event the above noted counterparty is unable to fulfill its commitment to deliver under the terms of the agreements, Central Hudson would obtain the supply from the NYISO market, and under Central Hudson’s current ratemaking treatment, recover the full cost from customers.  As such, there would be no impact on earnings.

Central Hudson must also acquire sufficient peak load capacity to meet the peak load requirements of its full service customers.  This capacity is made up of contracts with capacity providers, purchases from the NYISO capacity market and its own generating capacity.

Environmental Matters

Central Hudson

·   Air

In October 1999, Central Hudson was informed by the New York State Attorney General (“Attorney General”) that the Danskammer Point Steam Electric Generating Station (“Danskammer Plant”) was included in an investigation by the Attorney General’s Office into the compliance of eight older New York State coal-fired power plants with federal and state air emissions rules.  Specifically, the Attorney General alleged that Central Hudson “may have constructed, and continues to operate, major modifications to the Danskammer Plant without obtaining certain requisite preconstruction permits.”  In March 2000, the Environmental Protection Agency (“EPA”) assumed responsibility for the investigation.  Central Hudson has completed its production of documents requested by the Attorney General, the New York State Department of Environmental Conservation (“DEC”), and the EPA, and believes any permits required for these projects were obtained in a timely manner.  Central Hudson sold the Danskammer Plant on January 30, 2001.  In March 2009, Dynegy notified Central Hudson that Dynegy had received an information request pursuant to the Clean Air Act from the EPA for the Danskammer Plant covering the period beginning January 2000 to present.  At that time, Dynegy also submitted to Central Hudson a demand for indemnification for any fines, penalties or other losses that may be incurred by Dynegy arising from the period that Central Hudson owned the Danskammer Plant.  While Central Hudson could have retained liability after the sale, depending on the type of remedy, Central Hudson believes that the statutes of limitation relating to any alleged violation of air emissions rules have lapsed.

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·   Former Manufactured Gas Plant Facilities

Central Hudson and its predecessors owned and operated manufactured gas plants (“MGPs”) to serve their customers’ heating and lighting needs.  MGPs manufactured gas from coal and oil.  This process produced certain by-products that may pose risks to human health and the environment.

The New York State Department of Environmental Conservation (“DEC”), which regulates the timing and extent of remediation of MGP sites in New York State, has notified Central Hudson that it believes Central Hudson or its predecessors at one time owned and/or operated MGPs at seven sites in Central Hudson’s franchise territory.  The DEC has further requested that Central Hudson investigate and, if necessary, remediate these sites under a Consent Order, Voluntary Cleanup Agreement, or Brownfield Cleanup Agreement.  The DEC has placed all seven of these sites on the New York State Environmental Site Remediation Database.  As authorized by the PSC, Central Hudson is currently permitted to defer for future recovery the differences between actual costs for MGP site investigation and remediation and the associated rate allowances, with carrying charges to be accrued on the deferred balances at the authorized pre-tax rate of return.

The status of the seven MGP sites are as follows:

Site		Status
#1	Beacon, NY	Remediation work complete.  Final Report approved by the DEC.  A revised Site Management Plan ("SMP") was submitted by Central Hudson to the DEC on September 20, 2010.  The Deed Restriction has been sent to Metropolitan Transportation Authority ("MTA") for signature and final execution. Central Hudson received a copy of the executed Deed Restriction dated July 15, 2011. This should be the final step in completing the SMP for this site.
#2	Newburgh, NY	The DEC has approved the Construction Completion Report ("CCR") for the remediation that was completed at Area A of the site.  Remediation for the other two areas at the site, Areas B and C, was completed in December 2010. The remaining site restoration work was completed in the spring of 2011.  Central Hudson has prepared a draft SMP that was submitted to DEC on June 13, 2011.  Central Hudson has prepared a draft Final Engineering Report ("FER"), which was submitted to the DEC on June 17, 2011.

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Site		Status
#3	Laurel Street Poughkeepsie, NY	Remediation work is complete.  The CCR was approved by the DEC.  As requested by the DEC, fifteen additional monitoring wells were installed and the last of the four quarterly groundwater sampling events was conducted in January 2011.  Central Hudson submitted a letter work plan for additional site investigation work, as required by the DEC, which was subsequently approved by the DEC.  Associated with the approved work plan, a total of nine additional down gradient monitoring wells were installed between August 22 and September 16, 2011. Quarterly groundwater sampling will resume in October 2011.
#4	North Water Street Poughkeepsie, NY	As requested by the DEC, additional land and river investigations were conducted and completed.  Central Hudson has submitted a Remedial Investigation ("RI") Report which was sent to and approved by the DEC.  Central Hudson is currently defining the areas where further investigations as part of the Remedial Alternative Analyses (“RAA”) will be required.  This additional fieldwork is anticipated to be completed during the 2011 field season.
#5	Kingston, NY	Central Hudson is continuing the RI work at this site.  Central Hudson is currently involved in legal proceedings seeking to obtain judicial authorization to have certain obstacles removed.  This resulted in a decision and order granting Central Hudson’s motion for summary judgment against the owner to remove the ‘Dry Dock’ within 30 days and, if he fails to do so, gives Central Hudson the right to remove the same and submit a judgment for the cost of removal. The 30-day period has expired with no action taken by the owner.
#6	Catskill, NY	A revised RAA Report was submitted by Central Hudson and the final Decision Document was received from DEC on July 11, 2011.
#7	Bayeaux Street Poughkeepsie, NY	No further investigation or remedial action is currently required, however per the DEC this site still remains on the list for potential future investigation.

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In the second quarter of 2008, Central Hudson updated the cost model analysis of possible remediation and future operating, maintenance, and monitoring costs for sites #2, 3, 4, 5 and 6.  This cost model indicated that the potential future cost exposure for the five sites could range from amounts currently accrued up to $166 million over the next 30 years.  Information for sites #2 through #6 are detailed in the chart below (In Thousands):

Site #	2008 Total Cost Estimate		Liability Recorded as of 12/31/10		Amounts Spent in 2011(3)		Liability Adjustment		Liability Recorded as of 9/30/11		Current Portion of Liability at 9/30/11		Long-Term Portion of Liability at 9/30/11
2, 3(1)	$	44,700	$	1,766	$	698	$	6,440	$	7,508	$	518	$	6,990
4, 5, 6(2)		121,000		1,479		262		6,310		7,527		4,034		3,493
	$	165,700	$	3,245	$	960	$	12,750	$	15,035	$	4,552	$	10,483

(1)	The estimates for sites #2 and 3 are currently based on the actual completed or contracted remediation costs.  However, these estimates are subject to change.  The estimated liability recorded for sites #2 and 3 are based on estimates of remediation costs for the proposed clean-up plans.
(2)	No amounts have been recorded in connection with physical remediation for sites #4, 5 and 6.  Absent DEC-approved remediation plans, Management cannot reasonably estimate what cost, if any, will actually be incurred.  The estimated liability for sites #4, 5 and 6 are based on the latest forecast of activities at these sites in connection with preliminary investigations, site testing and development of remediation plans for these sites.  For additional discussion of estimates, see paragraphs below.
(3)	Amounts spent in 2011 as shown above do not include legal fees of approximately $8 thousand.

The potential future cost exposure for sites #4, 5 and 6 was based on partially completed remedial investigations and current DEC and NYS Department of Health ("NYSDOH") preferences related to site remediation, and are considered conceptual and preliminary.  The cost model involves assumptions relating to investigation expenses, remediation costs, potential future liabilities, and post-remedial operating, maintenance and monitoring costs, and is based on a variety of factors including projections regarding the amount and extent of contamination, the location, size and use of the sites, proximity to sensitive resources, status of regulatory investigations, and information regarding remediation activities at other MGP sites in New York State.  The cost model also assumes that proposed or anticipated remediation techniques are technically feasible and that proposed remediation plans receive DEC and NYSDOH approval.  Currently, Central Hudson is in the process of reviewing and updating its cost model analysis of potential future cost exposure.  The updated cost model could be materially different from the previous cost model based on revised assumptions, preliminary results of investigations in process at some of the sites, changes in technology relating to alternatives and changes to current laws and regulations.

Central Hudson has accrued for estimated investigation costs and remedial design costs for those sites still in the investigation phase.  Upon completion of the investigation phase and the filing of results with the DEC, Central Hudson accrues for estimated remediation costs based on DEC approved methods, including an estimate of post-remediation operation, maintenance and monitoring costs.  Amounts are subject to change based on current investigations, final remedial design (and associated engineering estimates), DEC and NYSDOH comments and requests, remedial design changes/negotiations, and changed or unforeseen conditions during the remediation or additional requirements following the remediation.

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Central Hudson spent $0.3 million and $1.0 million for the three and nine months ended September 30, 2011, related to site investigation and remediation for sites #2, 3, 4, 5 and 6.  On July 1, 2007, Central Hudson started recovering through a rate allowance for MGP Site Investigation and Remediation Costs.  The 2010 Rate Order provided for an increase in this rate allowance to an amount of $13.6 million over the three year settlement period ending June 30, 2013.  As authorized in the 2009 Rate Order, Central Hudson also received deferral authority and subsequent recovery for amounts spent over the rate allowance from a net electric regulatory liability balance during the three year settlement period ending June 30, 2010.  The total MGP Site Investigation and Remediation costs recovered through rates from July 1, 2007 through September 30, 2011 was approximately $18.8 million, with $1.1 million recovered in the three months ended September 30, 2011 and $3.6 million recovered in the nine months ended September 30, 2011.

Central Hudson has put its insurers on notice and intends to seek reimbursement from its insurers for the costs of any liabilities.  Certain of these insurers have denied coverage. In addition to the amounts noted above, Central Hudson recovered approximately $1.6 million from insurance in 2011.

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

·   Little Britain Road property owned by Central Hudson

In 2000, Central Hudson and the DEC entered into a Voluntary Cleanup Agreement (“VCA”) whereby Central Hudson removed approximately 3,100 tons of soil and conducted groundwater sampling.  Central Hudson believes that it has fulfilled its obligations under the VCA and should receive the release provided for in the VCA, but the DEC has proposed that additional ground water work be done to address groundwater sampling results that showed the presence of certain contaminants at levels exceeding DEC criteria.  Central Hudson believes that such work is not necessary and has completed a soil vapor intrusion study showing that indoor air at the facility met Occupational Safety and Health Administration (“OSHA”) and NYSDOH standards; in addition, in 2008, it also installed an indoor air vapor mitigation system (that continues to operate).

In September 2010, NYSDEC personnel orally advised that Central Hudson would likely receive a letter from the NYSDEC proposing closure of the VCA, and inclusion of the site into the Brownfield Cleanup Program (“BCP”).  To date that letter has not been received.

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 At this time Central Hudson does not have sufficient information to estimate the need for additional remediation or potential remediation costs.  Central Hudson has put its insurers on notice regarding this matter and intends to seek reimbursement from its insurers for amounts, if any, for which it may become liable.  Central Hudson cannot predict the outcome of this matter.

·   Eltings Corners

Central Hudson owns and operates a maintenance and warehouse facility located in Lloyd, NY.  In the course of Central Hudson’s recent hazardous waste permit renewal process for this facility, sediment contamination was discovered within the wetland area across the street from the main property.  In cooperation with NYSDEC, Central Hudson continues to investigate the nature and extent of the contamination.  The extent of the contamination, as well as the timing and costs for continued investigation and future remediation efforts, cannot be reasonably estimated at this time.

·   Asbestos Litigation

As of September 30, 2011, of the 3,330 asbestos cases brought against Central Hudson, 1,166 remain pending.  Of the cases no longer pending against Central Hudson, 2,009 have been dismissed or discontinued without payment by Central Hudson, and Central Hudson has settled 155 cases.  Central Hudson is presently unable to assess the validity of the remaining asbestos lawsuits; however, based on information known to Central Hudson at this time, including Central Hudson’s experience in settling asbestos cases and in obtaining dismissals of asbestos cases, Central Hudson believes that the costs which may be incurred in connection with the remaining lawsuits will not have a material adverse effect on the financial position, results of operations or cash flows of either CH Energy Group or Central Hudson.

CHEC

During the nine months ended September 30, 2011, Griffith spent $0.5 million on remediation efforts in Maryland, Virginia and Connecticut.

Griffith’s reserve for environmental remediation is $2.1 million as of September 30, 2011, of which $0.7 million is expected to be spent in the next twelve months.

In connection with the 2009 sale of operations in certain geographic locations, Griffith agreed to indemnify the purchaser for certain claims, losses and expenses arising out of any breach by Griffith of the representations, warranties and covenants Griffith made in the sale agreement, certain environmental matters and all liabilities retained by Griffith.  Griffith’s indemnification obligation is subject to a number of limitations, including a five-year limitation within which certain claims must be brought, an aggregate deductible of $0.8 million applicable to certain types of non-environmental claims and other deductibles applicable to certain specific environmental claims, and caps on Griffith’s liability with respect to certain of the indemnification obligations.  The sale agreement includes an aggregate cap of $5.7 million on Griffith’s obligation to indemnify the purchaser for breaches of many of Griffith’s representations and warranties and for certain environmental liabilities.  In 2009, the Company reserved $2.6 million for environmental remediation costs it may be obligated to pay based on its indemnification obligations under the sale agreement.  To date, Griffith has paid approximately $0.6 million under its environmental remediation cost obligation.  In the first quarter of 2011, Griffith reduced the reserve by $0.6 million based on the completion of an environmental study.  The reserve balance as of September 30, 2011 related to the divestiture is $1.3 million.  Management believes this is the most likely amount Griffith would pay with respect to its indemnification obligations under the sale agreement.

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Other Matters

Central Hudson and Griffith are involved in various other legal and administrative proceedings incidental to their businesses, which are in various stages.  While these matters collectively could involve substantial amounts, based on the facts currently known, it is the opinion of Management that their ultimate resolution will not have a material adverse effect on either of CH Energy Group’s or the individual segment’s financial positions, results of operations or cash flows.

CH Energy Group and Central Hudson expense legal costs as incurred.

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NOTE 13 – Segments and Related Information

CH Energy Group's reportable operating segments are the regulated electric utility business and regulated natural gas utility business of Central Hudson and the unregulated fuel distribution business of Griffith.  Other activities of CH Energy Group, which do not constitute a business segment, include CHEC’s renewable energy investments and the holding company’s activities, which consist primarily of financing its subsidiaries, and are reported under the heading “Other Businesses and Investments.”

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

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

In the following segment charts for CH Energy Group, information related to Griffith represents continuing operations unless otherwise noted.

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CH Energy Group Segment Disclosure

(In Thousands)

	Three Months Ended September 30, 2011
	Segments							Other
	Central Hudson							Businesses
			Natural					and
	Electric		Gas		Griffith			Investments			Eliminations			Total
Revenues from external customers	$	149,706	$	18,462	$	52,587		$	300		$	-		$	221,055
Intersegment revenues		3		139		-			-			(142)			-
Total revenues		149,709		18,601		52,587			300			(142)			221,055
Operating income (loss)		24,807		257		(3,169)			108			-			22,003
Interest and investment income		910		299		-			614			(597)	(1)		1,226
Interest charges		5,878		1,523		610			3,741			(597)	(1)		11,155
Income (loss) before income taxes		20,377		(859)		(3,826)			(7,231)			-			8,461
Net income (loss) attributable to CH Energy Group		12,060		(637)		(2,269)	(3)		(826)	(2)		-			8,328
Segment assets at September 30		1,211,879		364,160		98,890			29,371			(2,280)			1,702,020

(1)	This represents the elimination of inter-company interest income (expense) generated from lending activities between CH Energy Group (the holding company), and its subsidiaries (CHEC and Griffith).
(2)	Includes net income from discontinued operations of $3,671.
(3)	Includes net loss from discontinued operations of $12.

CH Energy Group Segment Disclosure

(In Thousands)

	Three Months Ended September 30, 2010
	Segments						Other
	Central Hudson						Businesses
			Natural				and
	Electric		Gas		Griffith		Investments			Eliminations			Total
Revenues from external customers	$	165,304	$	18,823	$	39,230	$	300		$	-		$	223,657
Intersegment revenues		3		6		-		-			(9)			-
Total revenues		165,307		18,829		39,230		300			(9)			223,657
Operating income (loss)		21,600		257		(3,163)		4			-			18,698
Interest and investment income		497		356		-		544			(544)	(1)		853
Interest charges		4,842		1,222		523		836			(544)	(1)		6,879
Income (loss) before income taxes		16,832		(781)		(3,820)		(11,791)			-			440
Net income (loss) attributable to CH Energy Group		10,112		(614)		(2,254)		(5,465)	(2)		-			1,779
Segment assets at September 30		1,199,266		374,138		90,474		121,841			(35,739)			1,749,980

(1)	This represents the elimination of inter-company interest income (expense) generated from lending activities between CH Energy Group (the holding company), and its subsidiaries (CHEC and Griffith).
(2)	Includes net income from discontinued operations of $333.

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CH Energy Group Segment Disclosure

(In Thousands)

	Nine Months Ended September 30, 2011
	Segments							Other
	Central Hudson							Businesses
			Natural					and
	Electric		Gas		Griffith			Investments			Eliminations			Total
Revenues from external customers	$	418,511	$	127,941	$	208,342		$	900		$	-		$	755,694
Intersegment revenues		13		344		-			-			(357)			-
Total revenues		418,524		128,285		208,342			900			(357)			755,694
Operating income		53,695		15,982		2,314			307			-			72,298
Interest and investment income		3,539		1,107		-			2,115			(2,088)	(1)		4,673
Interest charges		17,626		4,559		2,101			5,442			(2,088)	(1)		27,640
Income (loss) before income taxes		39,916		12,618		235			(7,258)			-			45,511
Net income (loss) attributable to CH Energy Group		23,774		7,175		449	(3)		(168)	(2)		-			31,230
Segment assets at September 30		1,211,879		364,160		98,890			29,371			(2,280)			1,702,020

(1)	This represents the elimination of inter-company interest income (expense) generated from lending activities between CH Energy Group (the holding company), and its subsidiaries (CHEC and Griffith).
(2)	Includes net income from discontinued operations of $3,349.
(3)	Includes income from discontinued operations of $310.

CH Energy Group Segment Disclosure

(In Thousands)

	Nine Months Ended September 30, 2010
	Segments						Other
	Central Hudson						Businesses
			Natural				and
	Electric		Gas		Griffith		Investments			Eliminations			Total
Revenues from external customers	$	436,362	$	120,371	$	165,808	$	901		$	-		$	723,442
Intersegment revenues		5		207		-		-			(212)			-
Total revenues		436,367		120,578		165,808		901			(212)			723,442
Operating income		57,862		18,833		2,009		67			-			78,771
Interest and investment income		2,427		1,059		1		1,642			(1,642)	(1)		3,487
Interest charges		14,975		3,826		1,619		2,509			(1,642)	(1)		21,287
Income (loss) before income taxes		44,760		15,739		346		(13,487)			-			47,358
Net income (loss)  attributable to CH Energy Group		26,800		8,847		204		(6,869)	(2)		-			28,982
Segment assets at September 30		1,199,266		374,138		90,474		121,841			(35,739)			1,749,980

(1)	This represents the elimination of inter-company interest income (expense) generated from temporary lending activities between CH Energy Group (the holding company), and its subsidiaries (CHEC and Griffith).
(2)	Includes loss from discontinued operations of $643.

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NOTE 14 - Accounting for Derivative Instruments and Hedging Activities

Accounting for Derivatives

Central Hudson has been authorized to fully recover risk management costs through its natural gas and electricity cost adjustment charge clauses.  Risk management costs are defined by the PSC as "costs associated with transactions that are intended to reduce price volatility or reduce overall costs to customers.  These costs include transaction costs, and gains and losses associated with risk management instruments."  The related gains and losses associated with Central Hudson’s derivatives are included as part of Central Hudson's commodity cost and/or price-reconciled in its natural gas and electricity cost adjustment charge clauses, and are not designated as hedges.  Additionally, Central Hudson has been authorized to fully recover the interest costs associated with its variable rate debt, which includes costs and gains or losses associated with its interest rate cap contracts.  As a result, these derivative activities at Central Hudson do not impact earnings.

On March 18, 2011, Central Hudson entered into a total return master swap agreement with Bank of America with the intent to enter into future swap contracts to exchange total returns on CH Energy Group, Inc. common stock for fixed payments to Bank of America.  The purpose is to reduce the volatility to earnings from phantom shares under CH Energy Group’s Directors and Executives Deferred Compensation Plan.  Based on the terms and conditions of the swap agreement, the fair value of the swaps are designated as Level 2 within the fair value hierarchy.  Quarterly valuations are made on the last day of the quarter, at which time a net cash settlement will be recorded.  Therefore the fair value of these outstanding contracts at any quarter-end is not expected to be material.  On September 30, 2011, the swap settled resulting in expense of $0.1 million, and the notional amount of the swap to be settled at December 31, 2011 was re-priced. Year-to-date, the swap has settled resulting in income of $0.1 million. The proceeds will be used to offset future obligations under CH Energy Group’s Directors and Executives Deferred Compensation Plan.

Derivative activity related to Griffith’s heating oil contracts is not material.

The percentage of Central Hudson’s electric and gas requirements hedged by derivative contracts is as follows:

Central Hudson	% of Requirement Hedged (1)
Electric Derivative Contracts:
October 2011 – December 2011		20.8	%
2012		23.4	%
Natural Gas Derivative Contracts:
November 2011 – March 2012		31.5	%

(1) Projected coverage as of September 30, 2011.

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Derivative Risks

The basic types of risks associated with derivatives are market risk (that the value of the derivative will be adversely impacted by changes in the market, primarily the change in interest and exchange rates) and credit risk (that the counterparty will not perform according to the terms of the contract).  The market risk of the derivatives generally offset the market risk associated with the hedged commodity.

The majority of Central Hudson and Griffith’s derivative instruments contain provisions that require the company to maintain specified issuer credit ratings and financial strength ratings.  Should the company’s ratings fall below these specified levels, it would be in violation of the provisions, and the derivatives’ counterparties could terminate the contracts and request immediate payment.

To help limit the credit exposure of their derivatives, both Central Hudson and Griffith have entered into master netting agreements with counterparties whereby contracts in a gain position can be offset against contracts in a loss position.  Of the eighteen total agreements held by both companies, twelve contain credit-risk related contingent features.  As of September 30, 2011, there were 22 open derivative contracts in liability positions under these twelve master netting agreements containing credit-risk related contingent features.  The circumstances that could trigger these features, the aggregate fair value of the derivative contracts that contain contingent features and the amount that would be required to settle these instruments on September 30, 2011 if the contingent features were triggered, are summarized in the table below.

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Contingent Contracts

(Dollars In Thousands)

	As of September 30, 2011
Triggering Event	# of Contracts in a Liability Position Containing the Triggering Feature		Gross Fair Value of Contract			Cost to Settle if Contingent Feature is Triggered (net of collateral)
Central Hudson:
Change in Ownership (CHEG ownership of CHG&E falls below 51%)		4	$	(231	)	$	(231	)
Credit Rating Downgrade (to below BBB-)		18		(716	)		(716	)
Adequate Assurance(1)		-		-			-
Total Central Hudson		22	$	(947	)	$	(947	)
Griffith:
Change in Ownership (CHEG ownership of CHEC falls below 51%)		-		-			-
Adequate Assurance(1)		-		-			-
Total Griffith		-		-			-
Total CH Energy Group		22	$	(947	)	$	(947	)

(1) If the counterparty has reasonable grounds to believe Central Hudson's or Griffith's creditworthiness or performance has become unsatisfactory, it can request collateral in an amount determined by the counterparty, not to exceed the amount required to settle the contract.

CH Energy Group and Central Hudson have elected gross presentation for their derivative contracts under master netting agreements and collateral positions.  On September 30, 2011, neither Central Hudson nor Griffith had collateral posted against the fair value amount of derivatives.

The fair value of CH Energy Group’s and Central Hudson’s derivative instruments and their location in the respective Balance Sheets are summarized in the table below, followed by a summarization of their effect on the respective Statements of Income.  For additional information regarding Central Hudson’s physical hedges, see the discussion following the caption “Electricity Purchase Commitments” in Note 12 - “Commitments and Contingencies.”

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Gross Fair Value of Derivative Instruments

Derivative contracts are measured at fair value on a recurring basis.  As of September 30, 2011, December 31, 2010 and September 30, 2010, CH Energy Group's and Central Hudson's derivative assets and liabilities by category and hierarchy level are as follows (In Thousands):

Asset or Liability Category	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
As of September 30, 2011
Assets:
Derivative Contracts:
Griffith - heating oil		42			-		42			-
Total CH Energy Group Assets	$	42		$	-	$	42		$	-
Liabilities:
Derivative Contracts:
Central Hudson - electric	$	(14,702	)	$	-	$	-		$	(14,702	)
Central Hudson - natural gas		(1,269	)		-		(1,269	)		-
Total CH Energy Group and Central Hudson Liabilities	$	(15,971	)	$	-	$	(1,269	)	$	(14,702	)
As of December 31, 2010
Assets:
Derivative Contracts:
Central Hudson - natural gas	$	34		$	-	$	34		$	-
Total Central Hudson Assets	$	34		$	-	$	34		$	-
Griffith - heating oil	$	112		$	-	$	112		$	-
Total CH Energy Group Assets	$	146		$	-	$	146		$	-
Liabilities:
Derivative Contracts:
Central Hudson - electric	$	(23,872	)	$	-	$	-		$	(23,872	)
Central Hudson - natural gas		(1,009	)		-		(1,009	)		-
Total CH Energy Group and Central Hudson Liabilities	$	(24,881	)	$	-	$	(1,009	)	$	(23,872	)
As of September 30, 2010
Assets:
Derivative Contracts:
Griffith - heating oil	$	86		$	-	$	86		$	-
Total CH Energy Group Assets	$	86		$	-	$	86		$	-
Liabilities:
Derivative Contracts:
Central Hudson - electric	$	(33,130	)	$	-	$	-		$	(33,130	)
Central Hudson - natural gas		(2,054	)		-		(2,054	)		-
Total CH Energy Group and Central Hudson Liabilities	$	(35,184	)	$	-	$	(2,054	)	$	(33,130	)

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The table listed below provides a reconciliation of the beginning and ending net balances for assets and liabilities measured at fair value and classified as Level 3 in the fair value hierarchy (In Thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Balance at Beginning of Period	$	(16,515	)	$	(23,476	)	$	(23,872	)	$	(11,983	)
Unrealized gains (losses)		1,813			(9,654	)		9,170			(21,147	)
Realized gains (losses)		(2,564	)		739			(7,734	)		(5,600	)
Purchases		-			-			-			-
Issuances		-			-			-			-
Sales and settlements		2,564			(739	)		7,734			5,600
Transfers in and/or out of Level 3		-			-			-			-
Balance at End of Period	$	(14,702	)	$	(33,130	)	$	(14,702	)	$	(33,130	)
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or  lossess relating to derivatives still held at end of period	$	-		$	-		$	-		$	-

The company did not have any transfers into or out of Levels 1 or 2.

The Effect of Derivative Instruments on the Statements of Income

For the three and nine months ended September 30, 2011, all income statement activity for Griffith heating oil call option contracts was not material.  Effective October 1, 2009, Griffith de-designated all open derivative positions.  The loss reclassified from accumulated other comprehensive income in 2010, as these de-designated derivatives have settled, was not material.

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 For the three and nine months ended September 30, 2011, neither CH Energy Group nor Central Hudson had derivatives designated as hedging instruments.  The following table summarizes the effects of CH Energy Group and Central Hudson derivatives on the statements of income (In Thousands):

	Amount of Gain/(Loss) Recognized in the Income Statement											Location of Gain/(Loss)
	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011			2010
Central Hudson:
Electricity swap contracts	$	(2,564	)	$	739	$	(7,734	)	$	(5,600	)	Regulatory asset(1)
Natural gas swap contracts		-			-		(1,385	)		(1,778	)	Regulatory asset(1)
Total return swap contracts		(59	)		-		128			-		Interest on regulatory assets and other interest income
Total Central Hudson		(2,623	)		739		(8,991	)		(7,378	)
Griffith:
Heating oil call option contracts		60			-		(22	)		(52	)	Purchased petroleum
Total Griffith		60			-		(22	)		(52	)
Total CH Energy Group	$	(2,563	)	$	739	$	(9,013	)	$	(7,430	)

(1) Realized gains and losses on Central Hudson’s derivative instruments are conveyed to or recovered from customers through PSC authorized deferral accounting mechanisms, with an offset in revenue and on the balance sheet, and no impact on results of operations.

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NOTE 15 – Other Fair Value Measurements

Other Assets Recorded at Fair Value

In addition to the derivatives reported at fair value discussed in Note 14 – “Accounting for Derivative Instruments and Hedging Activities”, CH Energy Group reports certain other assets at fair value in the Consolidated Balance Sheets, including the investments of CH Energy Group’s Directors and Executives Deferred Compensation Plan.  The following table summarizes the amount reported at fair value related to these assets as of September 30, 2011, December 31, 2010 and September 30, 2010 (In Thousands):

Asset Category	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of September 30,  2011
Other investments	$	3,870	$	3,870	$	-	$	-
As of December 31, 2010
Other investments	$	3,912	$	3,912	$	-	$	-
Lyonsdale property and plant	$	6,685	$	-	$	6,685	$	-
As of September 30, 2010
Other investments	$	-	$	-	$	-	$	-

As of September 30, 2011 and December 31, 2010, a portion of the trust assets for the funding of CH Energy Group’s Directors and Executives Deferred Compensation Plan are invested in mutual funds, which are measured at fair value on a recurring basis.  These investments are valued at quoted market prices in active markets and as such are Level 1 investments as defined in the fair value hierarchy.  These amounts are included in the line titled “Other investments” within the Deferred Charges and Other Assets section of the CH Energy Group Consolidated and Central Hudson Balance Sheets.

As a result of an impairment charge recognized in 2010, as of December 31, 2010, Lyonsdale property and plant of $6.7 million was recorded at fair value.  The fair value of the assets was calculated based on market participant bids for the purchase of Lyonsdale, which were received in early 2011.  Prior to December 31, 2010, Lyonsdale property and plant was stated at amortized cost.  Effective May 1, 2011, Lyonsdale was sold.  See Note 5 – “Acquisitions, Divestitures and Investments” for further details regarding the sale.

CHEC recorded a reserve against the full balance of its $10 million note receivable from Cornhusker Holdings in the third quarter of 2010.  As of September 30, 2011, Management believes the fair value of this note receivable remains at zero and therefore appropriately reserved.

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In the third quarter of 2011, CHEC recorded an impairment loss for the full value of its investment in CH-Community Wind.  As of September 30, 2011, the fair value of this investment is zero.  See Note 5 – “Acquisitions, Divestitures and Investments” for further details regarding the impairment.

Other Fair Value Disclosure

Financial instruments are recorded at carrying value in the financial statements, however, the fair value of these instruments is disclosed below in accordance with current accounting guidance related to financial instruments.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Cash Equivalents:  Carrying amount

Long-term Debt:  Quoted market prices for the same or similar issues

Notes Payable:  Carrying amount

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Long-term Debt Maturities and Fair Value - CH Energy Group

(Dollars in Thousands)

September 30, 2011

	Expected Maturity Date
	2011		2012		2013			2014		2015		Thereafter		Total		Fair Value
Fixed Rate:	$	34,341	$	37,007	$	31,076		$	21,650	$	1,230	$	357,835	$	483,139	$	540,896
Estimated Effective Interest Rate		6.86%		6.71%		6.92%			5.46%		6.86%		5.28%		5.54%
Variable Rate:	$	-	$	-	$	-		$	-	$	-	$	33,700	$	33,700	$	33,700
Estimated Effective Interest Rate													0.38%		0.38%
							Total Debt Outstanding							$	516,839	$	574,596
							Estimated Effective Interest Rate								5.18%

December 31, 2010

	Expected Maturity Date
	2011		2012		2013			2014		2015		Thereafter		Total		Fair Value
Fixed Rate:	$	941	$	37,007	$	31,076		$	41,650	$	1,230	$	358,296	$	470,200	$	489,660
Estimated Effective Interest Rate		6.86%		6.71%		6.92%			6.02%		6.86%		5.54%		5.78%
Variable Rate:	$	-	$	-	$	-		$	-	$	-	$	33,700	$	33,700	$	33,700
Estimated Effective Interest Rate													0.46%		0.46%
							Total Debt Outstanding							$	503,900	$	523,360
							Estimated Effective Interest Rate								5.42%

September 30, 2010

	Expected Maturity Date
	2010		2011		2012			2013		2014		Thereafter		Total		Fair Value
Fixed Rate:	$	-	$	941	$	37,007		$	31,076	$	41,650	$	277,376	$	388,050	$	432,746
Estimated Effective Interest Rate		- %		6.86%		6.71%			6.93%		6.02%		5.82%		6.02%
Variable Rate:	$	-	$	-	$	-		$	-	$	-	$	115,850	$	115,850	$	115,850
Estimated Effective Interest Rate													0.45%		0.45%
							Total Debt Outstanding							$	503,900	$	548,596
							Estimated Effective Interest Rate								4.74%

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Long-term Debt Maturities and Fair Value - Central Hudson

(Dollars in Thousands)

September 30, 2011

	Expected Maturity Date
	2011		2012		2013			2014		2015			Thereafter		Total		Fair Value
Fixed Rate:	$	33,400	$	36,000	$	30,000		$	14,000	$	-	��	$	340,203	$	453,603	$	505,472
Estimated Effective Interest Rate		- %		6.71%		6.93%			4.81%		- %			5.21%		5.46%
Variable Rate:	$	-	$	-	$	-		$	-	$	-		$	33,700	$	33,700	$	33,700
Estimated Effective Interest Rate														0.38%		0.38%
							Total Debt Outstanding								$	487,303	$	539,172
							Estimated Effective Interest Rate									5.07%

December 31, 2010

	Expected Maturity Date
	2011		2012		2013			2014		2015		Thereafter		Total		Fair Value
Fixed Rate:	$	-	$	36,000	$	30,000		$	14,000	$	-	$	340,200	$	420,200	$	432,800
Estimated Effective Interest Rate		- %		6.71%		6.93%			4.81%		- %		5.47%		5.66%
Variable Rate:	$	-	$	-	$	-		$	-	$	-	$	33,700	$	33,700	$	33,700
Estimated Effective Interest Rate													0.46%		0.46%
							Total Debt Outstanding							$	453,900	$	466,500
							Estimated Effective Interest Rate								5.28%

September 30, 2010

	Expected Maturity Date
	2010		2011		2012			2013		2014		Thereafter		Total		Fair Value
Fixed Rate:	$	-	$	-	$	36,000		$	30,000	$	14,000	$	258,050	$	338,050	$	373,559
Estimated Effective Interest Rate		- %		- %		6.71%			6.93%		4.81%		5.75%		5.92%
Variable Rate:	$	-	$	-	$	-		$	-	$	-	$	115,850	$	115,850	$	115,850
Estimated Effective Interest Rate													0.45%		0.45%
							Total Debt Outstanding							$	453,900	$	489,409
							Estimated Effective Interest Rate								4.52%

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NOTE 16 – Subsequent Events

In addition to items disclosed in the footnotes, CH Energy Group has performed an evaluation of events subsequent to September 30, 2011 through the date the financial statements were issued and noted three additional items to disclose.

On October 19, 2011, Central Hudson entered into a new $150 million committed revolving credit facility with JPMorgan Chase Bank, N.A., Bank of America, N.A., HSBC Bank USA, N.A., KeyBank National Association and RBS Citizens Bank, N.A. as the participating banks.  The new credit facility has a term of up to five years.  The existing $125 million facility was terminated as of the effective date of the new agreement.

Subsequent to the end of the third quarter, Griffith acquired two fuel distribution and service companies for a total of approximately $1.2 million. The purchase price of the two companies included an immaterial amount for tangible assets and $1.1 million for intangible assets of which approximately $0.5 million is goodwill.

On October 29, 2011, Central Hudson experienced its third largest storm event in Company history in which approximately 156,000 electric customers were affected.  Although a final determination cannot be made at this time, Central Hudson estimates that this storm event is likely to exceed the level necessary for deferral of incremental costs.

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ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

EXECUTIVE SUMMARY

This MD&A should be read in conjunction with the third quarter Financial Statements and the notes thereto and the MD&A in Item 7 of the Companies’ combined Annual Report on Form 10-K for the year ended December 31, 2010; and the MD&A in Part I, Item 2 of the Companies’ combined Quarterly Report on Form 10-Q for the period ended March 31, 2011 and June 30, 2011.

Business Overview

CH Energy Group is a holding company with four business units:

Business Segments:
	(1)	Central Hudson’s regulated electric utility business;
	(2)	Central Hudson’s regulated natural gas utility business;
	(3)	Griffith’s fuel distribution business;
Other Businesses and Investments:
	(4)	CHEC’s renewable energy investments and the holding company’s activities, which consist primarily of financing its subsidiaries.

CH Energy Group’s mission is to provide electricity, natural gas, petroleum and related services to an expanding customer base in a safe, reliable, courteous and affordable manner; to produce growing financial returns for shareholders; to foster a culture that encourages employees to reach their full potential; and to be a good corporate citizen.

Strategy

Offer an attractive risk adjusted return to CH Energy Group shareholders.  Our plan is to:

·   Concentrate on energy distribution through Central Hudson in the Mid-Hudson Valley and through Griffith in the Mid-Atlantic region

·   Invest primarily in utility electric and natural gas transmission and distribution

·   Focus on risk management

·   Limit commodity exposure

·   Manage regulatory affairs effectively

·   Maintain a financial profile that supports a credit rating in the “A” category

·   Target stable and predictable earnings, with growth trend expectations of 5% or more per year off a base of $2.76 in 2009

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·   Provide an annualized common stock dividend that is the higher of $2.22/share or 65% to 70% of annual earnings

Implementation

During 2011, CH Energy Group acted upon its 2010 announced strategy transition and began to divest its investments in the renewable energy industry through CHEC.  Year-to-date, CHEC has divested its three largest renewable energy investments; Lyonsdale, Shirley Wind and CH-Auburn.  The sale of these investments resulted in a combined net increase to earnings of $3.1 million, which includes the tax benefits of federal grants received.  These divestitures represent a continued de-risking of the business.  Proceeds from the sale of these investments were used primarily for the repurchase of outstanding Common Stock of CH Energy Group and debt repayment.  As of September 30, 2011, 948,676 shares of CH Energy Group stock were repurchased.  Additionally, a portion of the proceeds from the sale of Shirley Wind was used to pay down private placement debt at CH Energy Group Holding Company.  These transactions will result in a reduction of the volatility of CH Energy Group's earnings.

The remaining three investments in renewable energy, totaling $4.7 million, are not considered a part of the core business, should not require significant management oversight, and are not expected to have any further capital invested in them.  Management intends to hold these remaining investments, but will continue to monitor market conditions to evaluate the fair market value of these investments and consider whether the opportunity exists to create greater shareholder value through divestitures.  Earnings impacts associated with these investments are not a reflection of the potential earnings growth of CH Energy Group and will not impact CH Energy Group's ability to achieve its sustainable earnings and dividend objectives.

CHEC’s $4.7 million investment in CH-Greentree, a 100% equity interest in a molecular gate used to remove nitrogen from landfill gas, generates revenues from the lease of the gate to the landfill project owner.  Currently, the project is current on all of its lease payments to CH-Greentree.  Due to the effects of the economic slowdown, less municipal solid waste is being delivered to the landfill, and along with sludge from hydraulic fracturing which is being delivered, less gas is being produced and sold.  In response to these operational challenges, the project is seeking to renegotiate its current debt obligations to improve its future cash flows in order to meet its financial obligations.  If the project is no longer able to meet its lease obligations to CH-Greentree, Management has certain remedies available, including removing the molecular gate, seeking an alternative landfill, or selling the molecular gate.  Management will continue to monitor this matter, however, Management believes that this will not impact its ability to achieve the financials goals defined in the strategy.  For further discussions relating to the impact of the change in strategy on CHEC’s renewable energy investments, see Note 5 – “Acquisitions, Divestitures and Investments.”

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Contributions by respective business units to operating revenues and net income for the three and nine months ended September 30, 2011 and 2010 are discussed in the Results of Operations section of this Management Discussion and Analysis.  There are no significant updates to the strategy specifically focused on either of the business units Central Hudson or Griffith since the Annual Report on Form 10-K for the year ended December 31, 2010.

On September 23, 2011, the Board of Directors of CH Energy Group declared a quarterly dividend of 55.5 cents per share.  This dividend is an increase from the previously consistent 54 cents per share declared to shareholders each quarter since 1998.  This increase is consistent with CH Energy Group’s strategy outlined above and a result of the successful progress of the strategy transition.

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EARNINGS PER SHARE AND OVERVIEW OF THIRD QUARTER AND YEAR-TO-DATE RESULTS

The following discussion and analyses include explanations of significant changes in revenues and expenses between the three and nine months ended September 30, 2011, and 2010, for Central Hudson’s regulated electric and natural gas businesses, Griffith, and the Other Businesses and Investments.

The discussions and tables below present the change in earnings of CH Energy Group’s business units in terms of earnings for each outstanding share of CH Energy Group’s Common Stock.  Management believes that expressing the results in terms of the impact on shares of CH Energy Group is useful to investors because it shows the relative contribution of the various business units to CH Energy Group’s earnings.  This information is considered a non-GAAP financial measure and not an alternative to earnings per share determined on a consolidated basis, which is the most directly comparable GAAP measure.  Additionally, Management believes that the disclosure of Significant Events within each business unit provides investors with the context around the Company's results that is important in enabling them to ascertain the likelihood that past performance is indicative of future performance.  A reconciliation of each business unit’s earnings per share to CH Energy Group’s earnings per share, determined on a consolidated basis, is included in the table below.

CH Energy Group Consolidated

Earnings per Share (Basic)

	Three Months Ended September 30,									Nine Months Ended September 30,
	2011			2010			Change			2011			2010			Change
Central Hudson - Electric	$	0.79		$	0.64		$	0.15		$	1.54		$	1.70		$	(0.16	)
Central Hudson - Natural Gas		(0.03	)		(0.04	)		0.01			0.47			0.56			(0.09	)
Griffith		(0.15	)		(0.14	)		(0.01	)		0.03			0.01			0.02
Other Businesses and Investments		(0.06	)		(0.35	)		0.29			(0.01	)		(0.43	)		0.42
Total CH Energy Group Consolidated Earnings, as reported	$	0.55		$	0.11		$	0.44		$	2.03		$	1.84		$	0.19

Earnings for CH Energy Group totaled $0.55 and $2.03 per share for the three and nine months ended September 30, 2011.

Details by business unit were as follows:

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Central Hudson

Earnings per Share (Basic)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011		2010		Change		2011		2010		Change
Central Hudson - Electric	$	0.79	$	0.64	$	0.15	$	1.54	$	1.70	$	(0.16)
Central Hudson - Natural Gas		(0.03)		(0.04)		0.01		0.47		0.56		(0.09)
Total Central Hudson Earnings	$	0.76	$	0.60	$	0.16	$	2.01	$	2.26	$	(0.25)
					Three Month Change						Nine Month Change
Uncollectible deferral in 2010					$	-					$	(0.14)
Sales tax						-						(0.01)
Storm deferral petition disallowance						-						(0.03)
Delivery revenue						0.11						0.32
Lower/(higher) trimming costs						0.08						(0.10)
Higher weather related restoration costs						(0.04)						(0.15)
Higher depreciation						(0.02)						(0.09)
Higher property and other taxes						(0.02)						(0.14)
Other						0.05						0.09
					$	0.16					$	(0.25)

Earnings from Central Hudson's electric and natural gas operations increased during the three months ended September 30, 2011 and decreased during the nine month period when compared to the same periods in 2010.

For the three month period, the increase in earnings per share was primarily due to higher delivery revenues and reduced expenses that resulted from an acceleration of  tree trimming into the first half of 2011 to take advantage of cost savings and favorable tree trimming weather.  These positives were partially reduced by the impact of expenses associated with restoring service following Tropical Storm Irene during the third quarter of 2011.

During the nine months ended September 30, 2011 as compared to the same period in 2010, the decrease in earnings was primarily due to a 2010 regulatory deferral related to uncollectible expenses, the impact of weather related service restoration and the accelerated tree trimming expenses in the first six months of 2011 discussed above.  Higher delivery revenues helped to reduce the unfavorable impact of these items.

Normal increases in the cost of doing business, such as depreciation and property taxes in both periods in 2011 compared to the same periods in 2010 were covered by the higher delivery revenues discussed above.

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Griffith

Earnings per Share (Basic)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011		2010		Change		2011		2010		Change
Griffith - Fuel Distribution Earnings	$	(0.15)	$	(0.14)	$	(0.01)	$	0.03	$	0.01	$	0.02
					Three Month Change						Nine Month Change
Discontinued operations					$	-					$	0.02
Margin on petroleum sales						0.01						0.04
Weather impact on sales (including hedging)						-						0.04
Weather-normalized sales (including conservation)						(0.01)						(0.08)
Operating expenses						-						0.02
Other						(0.01)						(0.02)
					$	(0.01)					$	0.02

 Griffith's earnings decreased in the three months ended September 30, 2011 compared to the same period in 2010 due to reduced weather normalized volumes and other expenses partially offset by increased margins.

For the nine months ended September 30, 2011 compared to the same period in 2010, Griffith’s earnings increased due to increased margins, colder weather and the related hedge.  Additionally, a reduction to the environmental reserve related to the 2009 divestiture favorably impacted the nine month year-over-year earnings.  These improvements were partially offset by lower weather normalized volumes, which Management believes is a response by customers to delivered heating oil prices which were 43% higher in 2011 compared to a similar period in 2010.

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Other Businesses and Investments

Earnings per Share (Basic)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011		2010		Change		2011		2010		Change
Other Businesses & Investments Earnings	$	(0.06)	$	(0.35)	$	0.29	$	(0.01)	$	(0.43)	$	0.42
					Three Month Change						Nine Month Change
Divested operations:
Operations					$	(0.03)					$	-
Gain from sales						0.24						0.20
Penalty on early retirement of debt following divestiture						(0.11)						(0.11)
Income taxes related to 2010 deductions for prior periods						(0.11)						(0.06)
Ethanol investment impairment in 2010						0.44						0.44
Wind investment impairment in 2011						(0.14)						(0.14)
Other						-						0.09
					$	0.29					$	0.42

The earnings of CH Energy Group Holding Company and CHEC’s partnerships and other investments increased in the three and nine months ended September 30, 2011 compared to the same periods in 2010.  For both periods, the year-over-year change was impacted by an impairment charge recorded on CHEC’s ethanol investment in the third quarter of 2010 and an impairment charge on a wind investment in the third quarter of 2011.  The net increase to earnings resulting from CHEC’s sale of its investments in Shirley Wind and CH-Auburn in the third quarter favorably impacted both periods.  Proceeds from the sale of these investments were used to repurchase CH Energy Group Common Stock and to pay down debt at CH Energy Group Holding Company, which provided corporate financing for these investments.  As a result of the early retirement of debt, a prepayment penalty was incurred in the third quarter of 2011.  The decrease noted above for income taxes relates to favorable adjustments recorded by CH Energy Group Holding Company in the third quarter of the prior year.

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RESULTS OF OPERATIONS

A breakdown by business unit of CH Energy Group's operating revenues (net of divestitures) and net income for the three and nine months ended September 30, 2011 and 2010 are illustrated below  (Dollars in Thousands):

	Three Months Ended September 30, 2011									Three Months Ended September 30, 2010
Business Unit	Operating Revenues				Net Income (loss) attributable to CH Energy Group					Operating Revenues				Net Income (loss) attributable to CH Energy Group
Electric(1)	$	149,706	68	%	$	12,060		145	%	$	165,304	74	%	$	10,112		568	%
Gas(1)		18,462	8	%		(637	)	(8	) %		18,823	8	%		(614	)	(34	) %
Total Central Hudson		168,168	76	%		11,423		137	%		184,127	82	%		9,498		534	%
Griffith(1),(3)		52,587	24	%		(2,269	)	(27	) %		39,230	18	%		(2,254	)	(127	) %
Other Businesses and Investments(2)		300	-	%		(826	)	(10	) %		300	-	%		(5,465	)	(307	) %
Total CH Energy Group	$	221,055	100	%	$	8,328		100	%	$	223,657	100	%	$	1,779		100	%

(1)	A portion of the revenues above represent amounts collected from customers for the recovery of purchased electric and natural gas costs at Central Hudson and the cost of purchased petroleum products at Griffith and therefore have no material impact on net income.  A breakout of these components is as follows:
	Electric 3rd Quarter 2011: 28% cost recovery revenues + 40% other revenues = 68%
	Electric 3rd Quarter 2010: 34% cost recovery revenues + 40% other revenues = 74%
	Natural gas 3rd Quarter 2011: 3% cost recovery revenues + 5% other revenues = 8%
	Natural gas 3rd Quarter 2010: 3% cost recovery revenues + 5% other revenues = 8%
	Griffith 3rd Quarter 2011: 20% commodity costs + 4% other revenues = 24%
	Griffith 3rd Quarter 2010: 14% commodity costs + 4% other revenues = 18%
(2)	Net income for Other Businesses and Investments for the three months ended September 30, 2011 and 2010 includes net income from discontinued operations of $3,671 and $333, respectively.
(3)	Net income for Griffith for the three months ended September 30, 2011 includes a loss from discontinued operations of $12.

	Nine Months Ended September 30, 2011									Nine Months Ended September 30, 2010
Business Unit	Operating Revenues				Net Income (loss) attributable to CH Energy Group					Operating Revenues				Net Income (loss) attributable to CH Energy Group
Electric(1)	$	418,511	55	%	$	23,774		76	%	$	436,362	60	%	$	26,800		92	%
Gas(1)		127,941	17	%		7,175		23	%		120,371	17	%		8,847		31	%
Total Central Hudson		546,452	72	%		30,949		99	%		556,733	77	%		35,647		123	%
Griffith(1),(3)		208,342	28	%		449		2	%		165,808	23	%		204		1	%
Other Businesses and Investments(2)		900	-	%		(168	)	(1	) %		901	-	%		(6,869	)	(24	) %
Total CH Energy Group	$	755,694	100	%	$	31,230		100	%	$	723,442	100	%	$	28,982		100	%

(1)	A portion of the revenues above represent amounts collected from customers for the recovery of purchased electric and natural gas costs at Central Hudson and the cost of purchased petroleum products at Griffith and therefore have no material impact on net income.  A breakout of these components is as follows:
	Electric YTD 2011: 22% cost recovery revenues + 33% other revenues = 55%
	Electric YTD 2010: 27% cost recovery revenues + 33% other revenues = 60%
	Natural gas YTD 2011: 8% cost recovery revenues + 9% other revenues = 17%
	Natural gas YTD 2010: 8% cost recovery revenues + 9% other revenues = 17%
	Griffith YTD 2011: 22% commodity costs + 6% other revenues = 28%
	Griffith YTD 2010: 17% commodity costs + 6% other revenues = 23%
(2)	Net income for Other Businesses and Investments for the nine months ended September 30, 2011 and 2010 includes net income from discontinued operations of $3,349 and ($643), respectively.
(3)	Net income for Griffith for the nine months ended September 30, 2011 includes net income from discontinued operations of $310.

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Central Hudson

The following discussions and analyses include explanations of significant changes in operating revenues, operating expenses, volumes delivered, other income, interest charges, and income taxes between the three and nine months ended September 30, 2011 and the three and nine months ended 2010 for Central Hudson’s regulated electric and natural gas businesses.

Income Statement Variances

(Dollars In Thousands)

	Three Months Ended September 30,				Increase/(Decrease) in
	2011		2010		Amount			Percent
Operating Revenues	$	168,168	$	184,127	$	(15,959	)		(8.7	) %
Operating Expenses:
Purchased electricity, fuel and natural gas		67,071		84,107		(17,036	)		(20.3	) %
Depreciation and amortization		8,909		8,526		383			4.5	%
Other operating expenses		67,124		69,637		(2,513	)		(3.6	) %
Total Operating Expenses		143,104		162,270		(19,166	)		(11.8	) %
Operating Income		25,064		21,857		3,207			14.7	%
Other Income, net		1,855		258		1,597			619.0	%
Interest Charges		7,401		6,064		1,337			22.0	%
Income before income taxes		19,518		16,051		3,467			21.6	%
Income Taxes		7,853		6,311		1,542			24.4	%
Net income	$	11,665	$	9,740	$	1,925			19.8	%

	Nine Months Ended September 30,				Increase/(Decrease) in
	2011		2010		Amount			Percent
Operating Revenues	$	546,452	$	556,733	$	(10,281	)		(1.8	) %
Operating Expenses:
Purchased electricity, fuel and natural gas		232,221		256,032		(23,811	)		(9.3	) %
Depreciation and amortization		26,791		25,362		1,429			5.6	%
Other operating expenses		217,763		198,644		19,119			9.6	%
Total Operating Expenses		476,775		480,038		(3,263	)		(0.7	) %
Operating Income		69,677		76,695		(7,018	)		(9.2	) %
Other Income, net		5,042		2,605		2,437			93.6	%
Interest Charges		22,185		18,801		3,384			18.0	%
Income before income taxes		52,534		60,499		(7,965	)		(13.2	) %
Income Taxes		20,858		24,125		(3,267	)		(13.5	) %
Net income	$	31,676	$	36,374	$	(4,698	)		(12.9	) %

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Delivery Volumes

Delivery volumes for Central Hudson vary in response to weather conditions and customer behavior.  Electric deliveries peak in the summer and deliveries of natural gas used for heating purposes peak in the winter.  Delivery volumes also vary as customers respond to the price of the particular energy product and changes in local economic conditions.

The following chart reflects the change in the level of electric and natural gas deliveries for Central Hudson in the three and nine months ended September 30, 2011 compared to the same period in 2010.  Deliveries of electricity and natural gas to residential and commercial customers have historically contributed the most to Central Hudson's earnings.  Industrial sales and interruptible sales have a negligible impact on earnings.  Effective July 1, 2009 and continuing in the 2010 Rate Order, Central Hudson’s delivery rate structure includes a RDM which provides the ability to record revenues equal to those forecasted in the development of current rates for most of Central Hudson’s customers.  As a result, fluctuations in actual delivery volumes do not have a significant impact on Central Hudson’s earnings.

Electric Deliveries

(In Gigawatt-Hours)

	Actual Deliveries					Weather Normalized Deliveries(1)
	Three Months Ended					Three Months Ended
	September 30,		Variation in			September 30,		Variation in
	2011	2010	Amount	Percent		2011	2010	Amount	Percent
Residential	585	618	(33)	(5)	%	548	572	(24)	(4)	%
Commercial	542	551	(9)	(2)	%	525	533	(8)	(2)	%
Industrial and other	299	314	(15)	(5)	%	298	315	(17)	(5)	%
Total Deliveries	1,426	1,483	(57)	(4)	%	1,371	1,420	(49)	(3)	%

	Actual Deliveries					Weather Normalized Deliveries(1)
	Nine Months Ended					Nine Months Ended
	September 30,		Variation in			September 30,		Variation in
	2011	2010	Amount	Percent		2011	2010	Amount	Percent
Residential	1,654	1,630	24	1	%	1,600	1,593	7	-	%
Commercial	1,516	1,503	13	1	%	1,493	1,483	10	1	%
Industrial and other	839	875	(36)	(4)	%	836	874	(38)	(4)	%
Total Deliveries	4,009	4,008	1	-	%	3,929	3,950	(21)	(1)	%

(1) Central Hudson uses an internal analysis based on historical weather data to remove the estimated impacts of weather on delivery volumes.

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Natural Gas Deliveries

(In Million Cubic Feet)

	Actual Deliveries					Weather Normalized Deliveries(1)
	Three Months Ended					Three Months Ended
	September 30,		Variation in			September 30,		Variation in
	2011	2010	Amount	Percent		2011	2010	Amount	Percent
Residential	301	295	6	2	%	340	320	20	6	%
Commercial	577	585	(8)	(1)	%	604	600	4	1	%
Industrial and other(2)	2,573	4,583	(2,010)	(44)	%	486	568	(82)	(14)	%
Total Deliveries	3,451	5,463	(2,012)	(37)	%	1,430	1,488	(58)	(4)	%

	Actual Deliveries					Weather Normalized Deliveries(1)
	Nine Months Ended					Nine Months Ended
	September 30,		Variation in			September 30,		Variation in
	2011	2010	Amount	Percent		2011	2010	Amount	Percent
Residential	4,127	3,679	448	12	%	4,096	3,934	162	4	%
Commercial	5,142	4,422	720	16	%	5,132	4,675	457	10	%
Industrial and other(2)	5,579	7,512	(1,933)	(26)	%	1,664	1,738	(74)	(4)	%
Total Deliveries	14,848	15,613	(765)	(5)	%	10,892	10,347	545	5	%

(1)	Central Hudson uses an internal analysis based on historical weather data to remove the estimated impacts of weather on delivery volumes.
(2)	Actual deliveries include interruptible natural gas deliveries.  Weather normalized deliveries exclude interruptible natural gas deliveries.

Electric deliveries to residential and commercial customers decreased during the three months ended September 30, 2011 as compared to the prior period primarily due to lower sales per customer.  Electric delivery volumes to residential and commercial customers for the first nine months of 2011 were consistent with the same period in 2010.  Favorable impacts of colder weather in the first half of the year were offset by the decreases in the third quarter.

 The year-over-year variance for natural gas deliveries to residential and commercial customers during the three months ended September 30, 2011 when compared to the same periods in 2010 was driven by an increase in sales per customer, which was partially offset by warmer weather experienced in the third quarter of 2011 as compared to the prior year.  For the nine months ended September 30, 2011, the year-over-year variance in natural gas deliveries to residential and commercial customers also included the favorable impacts of colder weather experienced during the first half of 2011 compared to 2010.

The decrease in natural gas industrial and other deliveries for the three and nine months ended September 30, 2011 as compared to the prior year was driven primarily by a decrease in transportation delivery volumes to electric generation facilities, which sell their electricity to the NYISO market and whose output increased in the third quarter of 2010 to the meet the increased electric demand during that period.

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Revenues

Central Hudson’s revenues consist of two major categories: those which offset specific expenses in the current period (matching revenues), and those that impact earnings.  Matching revenues recover Central Hudson's actual costs for particular expenses.  Any difference between these revenues and the actual expenses incurred is deferred for future recovery from or refund to customers and therefore does not impact earnings.

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Change in Central Hudson Revenues - Electric

(In Thousands)

	Three Months Ended							Nine Months Ended
	September 30,				Increase /			September 30,				Increase /
	2011		2010		(Decrease)			2011		2010		(Decrease)
Revenues with Matching Expense Offsets:(1)
Energy cost adjustment	$	59,609	$	76,236	$	(16,627	)	$	165,547	$	193,043	$	(27,496	)
Sales to others for resale		1,125		654		471			3,249		3,370		(121	)
Other revenues with matching offsets		22,315		23,826		(1,511	)		64,799		61,332		3,467
Subtotal		83,049		100,716		(17,667	)		233,595		257,745		(24,150	)
Revenues Impacting Earnings:
Customer sales		62,536		61,848		688			175,923		167,304		8,619
RDM and other regulatory mechanisms		1,340		141		1,199			1,462		3,609		(2,147	)
Pole attachments and other rents		1,231		1,025		206			3,136		3,123		13
Finance charges		843		852		(9	)		2,557		2,446		111
Other revenues		707		722		(15	)		1,838		2,135		(297	)
Subtotal		66,657		64,588		2,069			184,916		178,617		6,299
Total Electric Revenues	$	149,706	$	165,304	$	(15,598	)	$	418,511	$	436,362	$	(17,851	)

(1) Revenues with matching offsets do not affect earnings since they offset related costs, the most significant being energy cost adjustment revenues, which provide for the recovery of purchased electricity costs.  Other related costs include authorized business expenses recovered through rates and the cost of special programs authorized by the PSC and funded with certain available credits.  Changes in revenues from electric sales to other utilities also do not affect earnings since any related profits or losses are returned or charged, respectively, to customers.

Change in Central Hudson Revenues - Natural Gas

(In Thousands)

	Three Months Ended							Nine Months Ended
	September 30,				Increase /			September 30,					Increase /
	2011		2010		(Decrease)			2011			2010		(Decrease)
Revenues with Matching Expense Offsets:(1)
Energy cost adjustment	$	2,323	$	2,741	$	(418	)	$	46,445		$	40,856	$	5,589
Sales to others for resale		3,290		3,839		(549	)		15,106			17,129		(2,023	)
Other revenues with matching offsets		2,223		2,152		71			17,032			14,608		2,424
Subtotal		7,836		8,732		(896	)		78,583			72,593		5,990
Revenues Impacting Earnings:
Customer sales		8,636		7,990		646			46,309			38,534		7,775
RDM and other regulatory mechanisms		569		774		(205	)		(1,538	)		4,796		(6,334	)
Interruptible profits		687		629		58			1,981			1,704		277
Finance charges		228		193		35			923			823		100
Other revenues		506		505		1			1,683			1,921		(238	)
Subtotal		10,626		10,091		535			49,358			47,778		1,580
Total Natural Gas Revenues	$	18,462	$	18,823	$	(361	)	$	127,941		$	120,371	$	7,570

(1) Revenues with matching offsets do not affect earnings since they offset related costs, the most significant being energy cost adjustment revenues, which provide for the recovery of purchased natural gas costs.  Other related costs include authorized business expenses recovered through rates and the cost of special programs authorized by the PSC and funded with certain available credits.  For natural gas sales to other entities for resale, 85% of such profits are returned to customers.

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Electric revenues decreased in the three and nine months ended September 30, 2011 as compared to the same periods in 2010, primarily due to lower energy cost adjustment revenues.  The lower energy cost adjustment revenues are due to lower purchased volumes and lower wholesale prices in both periods.  During the three month period, lower revenues collected for previously deferred purchased electricity costs contributed to the additional decrease.  During the nine month period, higher revenues collected for previously deferred purchased electricity costs partially reduced the change in energy cost adjustment revenues.

Partially offsetting the decrease in electric revenues for the nine month period were increased revenues from customer sales due to higher delivery rates and other revenues with matching offsets.

Natural gas revenues were relatively unchanged during the three months ended September 30, 2011 as compared to the prior period and increased year-to-date compared to 2010.  This increase was primarily due to higher customer sales, energy cost adjustment revenues and revenues with matching offsets.  These increases were partially reduced by lower revenue stabilization revenue, primarily related to RDMs and lower sales to others for resale.  Increased gas revenues from customer sales are due to higher delivery rates as compared to prior periods.  The higher gas energy cost adjustment revenues for the nine months resulted primarily from higher revenues required to be recovered from previously deferred gas costs partially reduced by lower wholesale gas prices.  Lower RDMs are a result of greater excess of actual delivery revenue in the current year over the levels provided in PSC approved rates as compared to the excess in the prior year.  Central Hudson set aside this excess revenue for future customer benefit.

Revenues with matching offsets increased for both electric and gas during the nine months ended September 30, 2011 as compared to the same periods in 2010 due to an increase in rates related to new NYS energy efficiency programs.

Operating Expenses

The most significant elements of Central Hudson’s operating expenses are purchased electricity and purchased natural gas; however, changes in these costs do not affect earnings since they are offset by changes in related revenues recovered through Central Hudson’s energy cost adjustment mechanisms.  Additionally, there are other costs that are matched to revenues largely from customer billings, notably the cost of pensions and OPEBs, the Temporary State Assessment, and NYS energy efficiency programs.

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Total utility operating expenses decreased 12% and 1% in the three and nine months ended September 30, 2011 compared to the same periods in 2010.  The following summarizes the change in operating expenses:

Change in Central Hudson Operating Expenses

(In Thousands)

	Three Months Ended							Nine Months Ended
	September 30,				Increase /			September 30,					Increase /
	2011		2010		(Decrease)			2011		2010			(Decrease)
Expenses Currently Matched to Revenues:(1)
Purchased electricity	$	60,734	$	76,890	$	(16,156	)	$	168,796	$	196,413		$	(27,617	)
Purchased natural gas		5,613		6,580		(967	)		61,551		57,985			3,566
Temporary State Assessment		4,744		4,686		58			16,014		14,224			1,790
Pension		5,699		6,501		(802	)		20,195		22,194			(1,999	)
OPEB		1,581		1,572		9			5,059		5,209			(150	)
NYS energy programs		7,038		7,707		(669	)		21,998		18,435			3,563
MGP site remediations		1,120		1,100		20			3,393		2,552			841
Other matched expenses		4,356		4,412		(56	)		15,172		13,326			1,846
Subtotal		90,885		109,448		(18,563	)		312,178		330,338			(18,160	)
Other Expense Variations:
Tree trimming		2,316		4,382		(2,066	)		12,816		10,238			2,578
Property taxes(2)		8,769		8,022		747			26,226		23,095			3,131
Weather related service restoration (3), (4)		2,927		1,313		1,614			9,061		3,910			5,151
Depreciation		8,909		8,526		383			26,791		25,362			1,429
Uncollectible expense		1,830		1,766		64			5,176		5,538			(362	)
Uncollectible deferrals		-		-		-			-		(3,702	)		3,702
Purchased natural gas incentive arrangements		724		637		87			1,874		1,634			240
Other expenses		26,744		28,176		(1,432	)		82,653		83,625			(972	)
Subtotal		52,219		52,822		(603	)		164,597		149,700			14,897
Total Operating Expenses	$	143,104	$	162,270	$	(19,166	)	$	476,775	$	480,038		$	(3,263	)

(1)	Includes expenses that, in accordance with the 2009 and 2010 Rate Orders, are adjusted in the current period to equal the revenues earned for the applicable expenses.
(2)	Central Hudson is authorized to defer 90% of any difference between actual property tax expense and the rate allowances for each Rate Year.
(3)	Three and nine months ended September 30, 2010 does not include $19.3 million in incremental costs related to the February 2010 significant storm event deferred for future recovery from customers.  See further discussion below.
(4)	Three and nine months ended September 30, 2011 does not include $12.8 million in incremental costs related to the August 2011 Tropical Storm Irene event deferred for future recovery from customers.  See further discussion below.

In addition to the required adjustment to match revenues collected from customers, the variation in purchased electricity for the three and nine months ended September 30, 2011 compared to the same period in the prior year was driven primarily by lower purchased volumes and lower wholesale prices.  On a year-over-year comparison, higher revenues collected for previously deferred purchased electricity cost partially offset the decrease.  The increase in purchased natural gas for the nine months ended September 30, 2011 compared to 2010 is the result of higher revenues collected for previously deferred purchased gas costs partially reduced by lower wholesale gas prices and lower purchased volumes.

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Variations in other expenses currently matched to revenues, including increases in NYS energy programs, Temporary State Assessment, MGP site remediations and other matched expenses and decreases in pensions and OPEBs are due to a change in the level of expenses recorded, with a corresponding change in revenues resulting from a change in the amounts included in delivery rates as authorized in the 2010 Rate Order.

Weather related service restoration costs can fluctuate from year-to-year based on changes in the number and severity of storms each year.  The decrease in expenses associated with tree-trimming in the third quarter and increase in year-to-date is a result of accelerated trimming in the first half of 2011 to take advantage of contractor crew availability, favorable trimming and pricing conditions.  In addition, the reassignment of tree trimming crews to assist with the restoration efforts of Tropical Storm Irene during the last week of August 2011 contributed to the decrease in third quarter tree-trimming expenses.  In February 2010, another significant storm event and the reassignment of tree trimming crews to assist with restoration efforts also impacts year-over-year results.  The 2010 and 2011 costs do not include incremental costs from these major storm events except the incremental storm costs related to gas emergencies as a result of the impacts of Tropical Storm Irene during the August 2011 storm.  Approximately $0.6 million of incremental gas costs are included in 2011 weather related storm restoration costs and Central Hudson is currently analyzing the gas costs incurred during the storm and will evaluate the results to determine if the costs meet the requirements for deferral accounting treatment.   Incremental costs include such items as the costs of mutual aid crews and contractors from other areas and overtime costs for Central Hudson crews, which were deferred for future recovery from customers.  For the February 2010 storm, Central Hudson filed a petition with the PSC for approval and recovery on September 23, 2010.  On April 14, 2011 the Commission issued an Order authorizing deferral of $18.8 million of the incremental electric storm restoration expense related to the February 2010 storm.  Central Hudson recorded $0.8 million of storm costs from the February 2010 storm disallowed by the Commission in its April 14th Order in the first quarter of 2011.  For the August 2011 storm, Management believes that the incremental electricity restoration costs associated with Tropical Storm Irene of approximately $12.8 million are probable of future recovery from customers.

The increase in expenses related to the uncollectible deferral during the nine months ended September 30, 2011 as compared to the same period in 2010 is due to Central Hudson deferring for future recovery $2.6 million in uncollectible expense over rate allowances for the rate year ended June 30, 2010.  In addition, Central Hudson deferred an additional $1.1 million of gas uncollectible expense during the second quarter of 2010 based on the PSC Order issued in May 2010, which covered the calendar year 2009 rather than the rate year ended June 30, 2009 as requested by the company.  Central Hudson did not record uncollectible deferrals in the three or nine month periods ending September 30, 2011.

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Other Income

Other income and deductions for Central Hudson for the three and nine months ended September 30, 2011, increased $1.6 million and $2.4 million compared to the prior periods.  For both the three and nine month period, increases in regulatory adjustments related to changes in interest costs on Central Hudson’s variable rate debt resulted from the redemption of Series C and D notes in December 2010 with proceeds from the Series G medium-term notes.  Additional increases during the nine month period included increase in regulatory carrying charges from customers related to pension costs and MGP and interest on undercollected gas cost adjustments.  These increases were partially offset by decreases in carrying charges from customers relating to deferral costs of the February 2010 storm event and the deferred uncollectible expense noted above.  For the three months ended September 30, 2011, the increase in regulatory carrying charges from customers was due primarily to pension costs.

Interest Charges

Central Hudson’s interest charges increased $1.3 million and $3.4 million for the three and nine months ended September 30, 2011 compared to the same period in 2010.  The increase is primarily the result of the higher interest rates associated with the $82.2 million medium-term notes issued in December 2010 compared to the $82.2 million variable rate series C and D notes retired in December 2010.  An overall higher outstanding debt balance during the three and nine months ended September 30, 2011 as compared to the same periods in 2010 also resulted in increased interest charges.

Income Taxes

Income taxes for Central Hudson increased $1.5 million and decreased $3.3 million for the three and nine months ended September 30, 2011 when compared to the same period in 2010 primarily due to the respective change in pre-tax book income for both periods noted.

CH Energy Group

In addition to the impacts on Central Hudson discussed above, CH Energy Group’s sales volumes, revenues and operating expenses, income taxes and other income were impacted by Griffith and the other businesses described below.  The results of Griffith and the other businesses described below exclude inter-company interest income and expense which are eliminated in consolidation.

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Income Statement Variances

(Dollars In Thousands)

	Three Months Ended September 30,						Increase/(Decrease) in
	2011			2010			Amount			Percent
Operating Revenues	$	221,055		$	223,657		$	(2,602	)		(1.2	) %
Operating Expenses:
Purchased electricity, fuel, natural gas and petroleum		110,635			114,375			(3,740	)		(3.3	) %
Depreciation and amortization		10,180			9,766			414			4.2	%
Other operating expenses		78,237			80,818			(2,581	)		(3.2	) %
Total Operating Expenses		199,052			204,959			(5,907	)		(2.9	) %
Operating Income		22,003			18,698			3,305			17.7	%
Other Income (Deductions), net		(2,387	)		(11,379	)		8,992			79.0	%
Interest Charges		11,155			6,879			4,276			62.2	%
Income before income taxes, non-controlling interest and preferred dividends of subsidiary		8,461			440			8,021			1,823.0	%
Income Taxes (Benefit)		3,550			(1,360	)		4,910			361.0	%
Net income from continuing operations		4,911			1,800			3,111			172.8	%
Net income from discontinued operations, net of tax		3,659			333			3,326			998.8	%
Non-controlling interest in subsidiary		-			112			(112	)		(100.0	) %
Dividends declared on Preferred Stock of subsidiary		242			242			-			-	%
Net income attributable to CH Energy Group	$	8,328		$	1,779		$	6,549			368.1	%

	Nine Months Ended September 30,					Increase/(Decrease) in
	2011		2010			Amount			Percent
Operating Revenues	$	755,694	$	723,442		$	32,252			4.5	%
Operating Expenses:
Purchased electricity, fuel, natural gas and petroleum		399,780		381,384			18,396			4.8	%
Depreciation and amortization		30,599		29,049			1,550			5.3	%
Other operating expenses		253,017		234,238			18,779			8.0	%
Total Operating Expenses		683,396		644,671			38,725			6.0	%
Operating Income		72,298		78,771			(6,473	)		(8.2	) %
Other Income (Deductions), net		853		(10,126	)		10,979			108.4	%
Interest Charges		27,640		21,287			6,353			29.8	%
Income before income taxes, non-controlling interest and preferred dividends of subsidiary		45,511		47,358			(1,847	)		(3.9	) %
Income Taxes		17,213		17,278			(65	)		(0.4	) %
Net income from continuing operations		28,298		30,080			(1,782	)		(5.9	) %
Net income (loss) from discontinued operations, net of tax		3,659		(643	)		4,302			669.1	%
Non-controlling interest in subsidiary		-		(272	)		272			100.0	%
Dividends declared on Preferred Stock of subsidiary		727		727			-			-	%
Net income attributable to CH Energy Group	$	31,230	$	28,982		$	2,248			7.8	%

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Griffith

Sales Volumes

Delivery and sales volumes for Griffith vary in response to weather conditions, changes in our customer base and customer behavior.  Deliveries of petroleum products used for heating purposes peak in the winter.  Sales also vary as customers respond to the price of the particular energy product and changes in local economic conditions.

Changes in sales volumes of petroleum products, including the impact of acquisitions, are set forth below.

Actual & Weather Normalized Deliveries

(In Thousands of Gallons)

	Actual Deliveries										Weather Normalized Deliveries(1)
	Three Months Ended September 30,				Increase / (Decrease) in						Three Months Ended September 30,				Increase / (Decrease) in
	2011		2010		Amount			Percent			2011		2010		Amount			Percent
Heating Oil
Base company volume(2)		2,383		2,117		266			13	%		2,362		2,209		153			7	%
Acquisitions volume		45		6		39		▲		%		45		6		39		▲		%
Total Heating Oil		2,428		2,123		305			14	%		2,407		2,215		192			9	%
Motor Fuels
Base company volume(2)		10,939		12,132		(1,193	)		(10	) %		10,939		12,132		(1,193	)		(10	) %
Acquisitions volume		816		4		812		▲		%		816		4		812		▲		%
Total Motor Fuels		11,755		12,136		(381	)		(3	) %		11,755		12,136		(381	)		(3	) %
Propane and Other
Base company volume(2)		100		95		5			5	%		99		98		1			1	%
Total Propane and Other		100		95		5			5	%		99		98		1			1	%
Total
Base company volume(2)		13,422		14,344		(922	)		(6	) %		13,400		14,439		(1,039	)		(7	) %
Acquisitions volume		861		10		851		▲		%		861		10		851		▲		%
Total		14,283		14,354		(71	)		-	%		14,261		14,449		(188	)		(1	) %

(1)	Griffith uses an internal analysis based on historical weather data to remove the estimated impacts of weather on delivery volumes.
(2)	For the purpose of this chart, "Base company” excludes any impact from acquisitions made by Griffith in 2011.
▲	Percentage change greater than 500%

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Actual & Weather Normalized Deliveries

(In Thousands of Gallons)

	Actual Deliveries										Weather Normalized Deliveries(1)
	Nine Months Ended September 30,				Increase / (Decrease) in						Nine Months Ended September 30,				Increase / (Decrease) in
	2011		2010		Amount			Percent			2011		2010		Amount			Percent
Heating Oil
Base company volume(2)		21,248		22,933		(1,685	)		(7	) %		21,234		23,549		(2,315	)		(10	) %
Acquisitions volume		439		6	��	433		▲		%		439		6		433		▲		%
Total Heating Oil		21,687		22,939		(1,252	)		(5	) %		21,673		23,555		(1,882	)		(8	) %
Motor Fuels
Base company volume(2)		32,077		34,779		(2,702	)		(8	) %		32,077		34,779		(2,702	)		(8	) %
Acquisitions volume		2,214		4		2,210		▲		%		2,214		4		2,210		▲		%
Total Motor Fuels		34,291		34,783		(492	)		(1	) %		34,291		34,783		(492	)		(1	) %
Propane and Other
Base company volume(2)		734		746		(12	)		(2	) %		734		764		(30	)		(4	) %
Total Propane and Other		734		746		(12	)		(2	) %		734		764		(30	)		(4	) %
Total
Base company volume(2)		54,059		58,458		(4,399	)		(8	) %		54,045		59,092		(5,047	)		(9	) %
Acquisitions volume		2,653		10		2,643		▲		%		2,653		10		2,643		▲		%
Total		56,712		58,468		(1,756	)		(3	) %		56,698		59,102		(2,404	)		(4	) %

(1)	Griffith uses an internal analysis based on historical weather data to remove the estimated impacts of weather on delivery volumes.
(2)	For the purpose of this chart, "Base company” excludes any impact from acquisitions made by Griffith in 2011.
▲	Percentage change greater than 500%

Actual and Weather Normalized Delivery Volumes as % of Total Volumes

	Three Months Ended September 30,												Nine Months Ended September 30,
	2011						2010						2011						2010
	Actual			Weather Normalized			Actual			Weather Normalized			Actual			Weather Normalized			Actual			Weather Normalized
Heating Oil - Base Company		17	%		17	%		15	%		15	%		37	%		37	%		39	%		40	%
Heating Oil - Acquisitions		-	%		-	%		-	%		-	%		1	%		1	%		-	%		-	%
Motor Fuels - Base Company		78	%		78	%		84	%		84	%		57	%		57	%		60	%		59	%
Motor Fuels - Acquisitions		4	%		4	%		-	%		-	%		4	%		4	%		-	%		-	%
Propane and Other - Base Company		1	%		1	%		1	%		1	%		1	%		1	%		1	%		1	%
Total		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%

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Sales of petroleum products decreased slightly (less than 1%) in the three months ended September 30, 2011 compared to the same period in 2010 due primarily to a decrease in motor fuels volume which continues to be depressed by the sluggish economy. This decrease was offset by an increase in the sale of petroleum products related to acquisitions completed in 2011 and the third quarter of 2010.

Sales of petroleum products decreased 3% in the nine months ended September 30, 2011 compared to the same period in 2010 due primarily to customer conservation in response to higher oil prices, partially offset by an increase in sales related to acquisitions.

Gross Profit

A breakdown of Griffith's gross profit by product and service line for the three and nine months ended September 30, 2011 and 2010 illustrated below (Dollars in Thousands):

	Three Months Ended September 30,
Product and Service Line	2011				2010
Heating oil - Base Company	$	1,208	16	%	$	1,115	15	%
Heating oil - Acquisitions		25	-	%		-	-	%
Motor fuels - Base Company		2,644	36	%		2,724	38	%
Motor fuels - Acquisitions		210	3	%		-	-	%
Propane and Other - Base Company		78	1	%		88	1	%
Service and installations - Base Company		3,064	41	%		3,109	43	%
Service and installations - Acquisitions		24	-	%		-	-	%
Other - Base Company		222	3	%		233	3	%
Total	$	7,475	100	%	$	7,269	100	%

	Nine Months Ended September 30,
Product and Service Line	2011				2010
Heating oil - Base Company	$	16,704	46	%	$	16,530	46	%
Heating oil - Acquisitions		262	1	%		-	-	%
Motor fuels - Base Company		7,742	21	%		7,978	23	%
Motor fuels - Acquisitions		591	2	%		-	-	%
Propane and Other - Base Company		953	3	%		1,010	3	%
Service and installations - Base Company		9,227	25	%		9,343	26	%
Service and installations - Acquisitions		64	-	%		-	-	%
Other - Base Company		802	2	%		896	2	%
Total	$	36,345	100	%	$	35,757	100	%

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Revenues

Change in Griffith Revenues

(In Thousands)

	Three Months Ended							Nine Months Ended
	September 30,				Increase /			September 30,				Increase /
	2011		2010		(Decrease)			2011		2010		(Decrease)
Revenues
Heating Oil(1)	$	8,475	$	5,532	$	2,943		$	77,235	$	65,768	$	11,467
Heating Oil - Acquisitions		162		15		147			1,526		15		1,511
Motor Fuels(1)		36,077		28,411		7,666			104,930		83,050		21,880
Motor Fuels - Acquisitions		2,679		11		2,668			7,345		11		7,334
Other(1)		558		460		98			3,576		2,923		653
Service Revenues(1)		4,595		4,778		(183	)		13,630		14,019		(389	)
Service Revenues - Acquisitions		41		23		18			100		22		78
Total	$	52,587	$	39,230	$	13,357		$	208,342	$	165,808	$	42,534

(1) These line items exclude the impact of acquisitions made by Griffith in 2011 and 2010 for the analysis which compares the three and nine months ended September 30, 2011 to 2010.

Revenues, net of the effect of weather hedging contracts increased in the three and nine months ended September 30, 2011 compared to the same period in 2010, due primarily to an increase in wholesale prices partially offset by a decline in sales volume.

Operating Expenses

For the three months ended September 30, 2011, operating expenses increased $13.4 million, or 32%, from $42.4 million in 2010 to $55.8 million in 2011 due to an increase in the cost of petroleum products of $13.3 million, or 44%, driven by higher wholesale market prices and partially offset by a decline in sales volume.

For the nine months ended September 30, 2011, operating expenses increased $42.2 million, or 26%, from $163.8 million in 2010 to $206 million in 2011.  The cost of petroleum products increased $42.2 million, or 34%, due to higher wholesale market prices.

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Other Businesses and Investments

Revenues and Operating Expenses

Revenue and operating expenses of other businesses and investments include the results of operations of CH-Greentree and are included in the Consolidated Financial Statements of CH Energy Group.  Results remained constant for this CHEC subsidiary during the three and nine months ended September 30, 2011 as compared to the same periods in the prior year.

Revenues and operating expenses associated with Lyonsdale, CH Shirley Wind and CH-Auburn are included in discontinued operations section in the Consolidated Financial Statements of CH Energy Group.  Revenues decreased $2.3 million and $1.9 million and operating expenses decreased $2.1 million and $3.9 million during the three and nine months ended September 30, 2011 compared to the same periods in 2010.  The primary driver of these results in the three and nine month periods is the sale of Lyonsdale in May 2011 partially reduced by operations of CH Shirley Wind which began in December 2010.

Other Income and Interest Charges

Other income and deductions and interest charges for the balance of CH Energy Group Holding Company and CHEC’s investments in partnerships and other investments (other than Griffith) for the three and nine months ended September 30, 2011 increased by $5.1 and $5.9 million compared to the same periods in 2010.  The increase in other income and deductions is primarily the result of impairment charges for 100% of CHEC’s subordinated debt, accrued interest and equity investment in Cornhusker Holdings of $11.4 million in the third quarter of 2010 and a wind investment in the third quarter of 2011 of $3.6 million.   In addition, following the sale of Shirley Wind, CH Energy Group Holding Company paid down $20 million of its 2009 Series A private placement debt.  As a result, a prepayment penalty of approximately $3.0 million was incurred.  Additional increases in both periods in 2011 compared to prior periods is due to the losses incurred during operations in 2010 related to Cornhusker operations as compared to modest income in 2011 which related to CHEC’s share of a small ethanol producer’s tax credit.

CH Energy Group – Income Taxes

Income taxes on income from continuing operations for CH Energy Group increased $4.9 million and decreased $0.1 million for the three and nine months ended September 30, 2011, compared to the same periods in 2010, primarily due to a change in pre-tax book income and the impact on the effective rate due to a third quarter 2010 adjustment to NYS excess deferred taxes.

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CAPITAL RESOURCES AND LIQUIDITY

CH Energy Group's book value per share of its Common Stock decreased from $34.03 at December 31, 2010, to $33.31 at September 30, 2011.  Common equity comprised 47.7% of total capital (including short-term debt) at September 30, 2011, a decreasefrom 50.6% at December 31, 2010.  The changes in book value per share of common stock and common equity ratio reflect the net impact of retained earnings and share repurchases during the nine months ended September 30, 2011.  Book value per share at September 30, 2010 was $33.98 and the common equity ratio was 50.6%.

Cash Flow Summary - CH Energy Group and Central Hudson

Changes in CH Energy Group’s and Central Hudson's cash and cash equivalents resulting from operating, investing, and financing activities are summarized in the following chart (In Millions):

	CH Energy Group						Central Hudson
	Nine Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Net Cash Provided By/(Used In):
Operating Activities	$	94.8		$	51.3		$	97.1		$	51.5
Investing Activities		(10.1	)		(80.4	)		(61.1	)		(53.4	)
Financing Activities		(57.3	)		(10.6	)		(1.0	)		15.0
Net change for the period		27.4			(39.7	)		35.0			13.1
Balance at beginning of period		29.4			73.4			9.6			4.8
Balance at end of period	$	56.8		$	33.7		$	44.6		$	17.9

Central Hudson’s cash and cash equivalents increased by $35.0 million and $13.1 million for the nine months ended September 30, 2011 and 2010, respectively.  CH Energy Group’s cash and cash equivalents increased $27.4 million and decreased $39.7 million for the nine months ended September 30, 2011 and 2010, respectively.

Central Hudson’s net cash provided by operations was $97.1 million and $51.5 million for the nine months ended September 30, 2011 and 2010, respectively.  Cash provided by sales exceeded the period’s expenses and working capital needs in the first nine months of 2011 and 2010, including the storm restoration costs paid for incremental electric service restoration efforts for both years, which have been deferred for future recovery from customers. As of September 30, 2011 there is approximately $9.4 million related to storm restoration efforts included in liabilities resulting from the impact of Tropical Storm Irene on Central Hudson’s service territory.  Central Hudson utilized cash from operations in excess of working capital needs to fund additional contributions to its pension and OPEB plans, which totaled $33.7 million and $36.1 million during the first nine months of 2011 and 2010, respectively.  Costs spent for MGP remediation efforts in excess of amounts collected in rates of approximately $10.8 million also impacted the cash from operations in 2010.  In 2011, amounts collected in rates were greater than remediation efforts as a result of the completion of remediation efforts at Newburgh.  Remediation efforts at the Catskill site are expected to begin in 2012.  In addition, net cash provided by operating activities at CH Energy Group was negatively impacted during the nine months ended September 30, 2011 and 2010 primarily due to an increase in Griffith’s working capital and the prepayment penalty incurred by CH Energy Group Holding Company for the early retirement of debt with a portion of the proceeds from the Shirley Wind sale.

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Central Hudson’s net cash used in investing activities of $61.1 million and $53.4 million in the nine months ended September 30, 2011 and 2010, respectively, was primarily for investments in Central Hudson’s electric and natural gas transmission and distribution systems.

Proceeds from the sale of CHEC investments in renewable energy, including Lyonsdale, Shirley Wind and CH-Auburn, and proceeds from the receipt of federal grants, reduced by additional investments in Shirley Wind and Griffith and acquisitions made by Griffith in 2011, impacted net cash used in investing activities of CH Energy Group for the nine months ended September 30, 2011.

Central Hudson’s net cash (used in) provided by financing activities was ($1.0) million and $15.0 million, respectively, for the nine months ended September 30, 2011 and 2010.  During 2011, Central Hudson paid dividends of $33 million to parent CH Energy Group.  No dividends were paid to parent during the nine months ended September 30, 2010.  In the third quarter of 2011, Central Hudson issued $33.4 million of medium term notes, the proceeds of which will be used to refund the 1999 NYSERDA Series A bonds in November 2011.  In the third quarter of 2010, Central Hudson issued $40 million in private placement long-term debt.  Central Hudson used a portion of these proceeds for refunding maturing long-term debt and retained the rest for general corporate purposes.  CH Energy Group’s short term borrowings for the nine months ended September 30, 2011 were used primarily to supplement working capital.  CH Energy Group used the proceeds from the sale of CHEC renewable energy investments to pay down debt associated with these investments and to repurchase Common Stock outstanding.  CH Energy Group repurchased approximately $48.6 million of outstanding CH Energy Group Common Stock and returned the shares to treasury during the nine months ended September 30, 2011, which included an Accelerated Share Repurchase program under which CH Energy Group paid $30 million and received 554,017 shares from a third party agent on August 17, 2011.  Dividends paid on Common Stock outstanding in both periods also impact net cash from financing activities for CH Energy Group.

Capitalization – Issuance of Treasury Stock

Effective July 1, 2011, employer matching contributions to an eligible employee’s Savings Incentive Plan (“SIP”) account will be paid in either cash or in CH Energy Group Common Stock.  During the third quarter of 2011, CH Energy Group began making employer matching contributions to the SIP with the issuance of treasury shares.  Management expects employer matching contributions to be approximately 48,000 shares per year.

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For information regarding equity compensation and the purchase of treasury shares, see Note 11 - “Equity Based Compensation” of this Quarterly Report on Form 10-Q.

Contractual Obligations

Other contractual obligations and commitments of CH Energy Group are disclosed in Note 12 – “Commitments and Contingencies” of this Quarterly Report on Form 10-Q under the caption “Electric Purchase Commitments.”

Central Hudson determines the amount it will contribute to its pension plan (the “Retirement Plan”) based on several factors, including the value of plan assets relative to plan liabilities, the discount rate, expected return on plan assets, legislative requirements, regulatory considerations, and available corporate resources.  The amount of the Retirement Plan’s liabilities is affected by the discount rate used to determine benefit obligations and the accrual of additional benefits.  Funding for the Retirement Plan totaled $32.0 million and $31.4 million for the nine months ended September 30, 2011 and 2010, respectively. No additional funding of the plan is expected for the remainder of 2011.

During the nine months ended September 30, 2011 and 2010 employer contributions for OPEB plans were $1.2 million and $4.3 million, respectively.  The determination of future funding depends on a number of factors, including the discount rate, expected return on plan assets, medical claims assumptions used, benefit changes, regulatory considerations and corporate resources. No additional funding of the plan is expected for the remainder of 2011.

During the first quarter of 2010, Management began a transition to a long-duration investment strategy that is intended to reduce the year-to-year volatility of the funded status of the plan and of the level of contributions by more closely aligning the characteristics of plan assets with liabilities.  Management cannot currently predict what impact future financial market volatility may have on the funded status of the plan or future funding decisions.

Under the policy of the PSC regarding pension and OPEB costs, Central Hudson recovers these costs through customer rates with differences between actual cost and rate allowances deferred for future recovery from or return to customers.  Based on the current policy, Central Hudson expects to fully recover its net periodic pension and OPEB costs over time.

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Financing Program

CH Energy Group believes that it is well positioned with a strong balance sheet and strong liquidity.  Significant capacity is available on CH Energy Group’s and Central Hudson’s committed credit facilities.  Central Hudson’s investment-grade credit ratings help facilitate access to long-term debt.  However, Management can make no assurance in regards to the continued availability of financing or the terms and costs.  With the exception of the issuance of treasury shares to satisfy its obligations under certain employee benefit plans and compensation plans, no equity issuance is currently planned for 2011.

At September 30, 2011, CH Energy Group and its subsidiaries maintained credit facilities with JPMorgan Chase Bank, N.A., Bank of America, N.A., HSBC Bank USA, N.A. and KeyBank National Association.  On October 19, 2011, Central Hudson entered into a new $150 million committed revolving credit facility with JPMorgan Chase Bank, N.A., Bank of America, N.A., HSBC Bank USA, N.A., KeyBank National Association and RBS Citizens Bank, N.A. as the participating banks.  The new credit facility has a term of up to five years.  The existing $125 million facility was terminated as of the effective date of the new agreement.  If these lenders are unable to fulfill their commitment under these facilities, funding may not be available as needed.

Outstanding Balances

(In Thousands)

	September 30,		December 31,		September 30,
	2011		2010		2010
CH Energy Group Holding Company:
Current maturities of long-term debt at Holding Company	$	973	$	941	$	-
$150 million revolving credit facility at Holding Company		5,000		-		-
Central Hudson:
Current maturities of long-term debt		69,400		-		-
$125 million revolving credit facility		-		-		-
CH Energy Group Consolidated:
Current maturities of long-term debt at Holding Company and Central Hudson		70,373		941		-
$150 million revolving credit facility at Holding Company, $125 million at Central Hudson		5,000		-		-

Central Hudson’s current senior unsecured debt rating/outlook is ‘A’/stable by both Standard & Poor’s Rating Services (“Standard & Poor’s”) and Fitch Ratings and ‘A3’/stable by Moody’s Investors Service (“Moody’s”)1.

1 These ratings reflect only the views of the rating agency issuing the rating, are not recommendations to buy, sell, or hold securities of Central Hudson and may be subject to revision or withdrawal at any time by the rating agency issuing the rating.  Each rating should be evaluated independently of any other rating.

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CH Energy Group and Central Hudson believe they will be able to meet their short-term and long-term cash requirements, assuming that Central Hudson’s future rate plans reflect the costs of service, including a reasonable return on invested capital.

NYSERDA

Central Hudson’s Series B NYSERDA Bonds total $33.7 million at September 30, 2011.  These bonds 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 from 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 do not have any impact on earnings.

To mitigate the potential cash flow impact from unexpected increases in short-term interest rates on Series B Bonds, 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 aligned with Series B and will expire on April 1, 2012.  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.

Central Hudson is currently evaluating what actions, if any, it may take in the future in connection with its Series B NYSERDA Bonds.  Potential actions may include converting the debt to another interest rate mode or refinancing with taxable bonds.

On September 30, 2011, Central Hudson issued $33.4 million of its Series G registered unsecured Medium Term Notes in two maturities.  The first maturity bears interest at the rate of 3.378% per annum on a principal amount of $23.4 million and matures on April 1, 2022.  The second maturity bears interest at the rate of 4.707% per annum on a principal amount of $10.0 million and matures on April 1, 2042.  On September 29, 2011, a notice of redemption was provided to NYSERDA and as such, the 1999 Series A bonds are shown as current maturities of long-term debt in the Central Hudson and CH Energy Group Consolidated Balance Sheets.  In November 2011, Central Hudson used the proceeds from the sale of the notes for refunding its 1999 Series A NYSERDA Bonds in the principal amount of $33.4 million bearing interest at the rate of 5.45%.  No bonds of this 1999 Series A remained outstanding following the redemption.

For additional information related to CH Energy Group’s and Central Hudson’s financing program, please see Note 7 – “Short-term Borrowing Arrangements,” Note 8 – “Capitalization – Common and Preferred Stock” and Note 9 – “Capitalization – Long-term Debt” to the Financial Statements of the Corporations’ 10-K Annual Report.

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REGULATORY MATTERS – PSC PROCEEDINGS

Petition of Central Hudson Gas & Electric Corporation for Commission Approval of a Plan for Deferred Accounting for Future Recovery with Carrying Charges of Three Items and Funding These and Certain Other Deferrals through Balance Sheet Offsets

(Case 10-M-0473)

Background:  On September 23, 2010, Central Hudson filed a petition with the PSC to defer for future recovery with carrying charges $19.4 million incremental electric storm restoration expense, $2.6 million incremental electric bad debt write-off expense, $1.9 million incremental electric property tax expense and $0.7 million incremental gas property tax expense above the respective rate allowances during the twelve months ended June 30, 2010.  In December 2010, Central Hudson provided an update and amended the incremental storm expense deferral request to $19.7 million.  The petition also requested approval for recovery via offsets of the foregoing against significant tax refunds resulting from a change in the way Central Hudson treats certain capital expenditures for tax purposes.  Additional offsets against other deferred items, notably including MGP site investigation and remediation costs were also included in the petition given the size of the tax refunds.  On April 14, 2011, the Commission issued an Order authorizing deferral of $18.8 million (denial of $0.8 million) of the incremental electric storm restoration expense and the $2.6 million of incremental bad debt expense and denying deferral of the Company’s $2.5 million of incremental electric and gas property tax expense.  The PSC also approved the ratemaking treatment proposed by the Company in its filing and the offsets have been recorded as of March 31, 2011.  On May 13, 2011, Central Hudson filed a Petition for Clarification and Rehearing on the PSC’s April 14, 2011 Order.  The petition seeks clarification concerning recovery of the costs to achieve and rehearing for reconsideration and recovery of a portion of certain costs denied by the Commission for deferral accounting treatment proposed by the Company in its September 23, 2010 petition filing related to the incremental electric storm restoration expense.  Central Hudson cannot predict the final outcome of this proceeding.

Management Audit

(Case 09-M-0764 – Comprehensive Management Audit of Central Hudson Gas & Electric Business)

Background:  In February 2010, the PSC selected NorthStar Consulting Group (“NorthStar”) as the independent third-party consultant to conduct a comprehensive management audit of Central Hudson’s construction planning processes and operational efficiencies of its electric and gas businesses.  The PSC is allowed to audit New York utilities every five years.  Audit work officially commenced on March 24, 2010.  In October 2010, the audit scope was expanded to examine affiliate transactions and accounting.  A final report to the PSC of NorthStar’s findings and recommendations was completed February 28, 2011.  On March 25, 2011, Central Hudson filed its audit comment letter with the PSC.  On May 20, 2011, the Commission accepted NorthStar’s Audit Report and issued its Order directing Central Hudson to file an implementation plan based on the report’s twenty recommendations.  Central Hudson submitted its implementation plan to the Commission on July 1, 2011.  The DPS Staff has initiated discovery on the implementation plan with a series of data requests.  On September 15, 2011, Central Hudson presented an interim mid-term review to the DPS Staff to discuss the Company’s progress on the twenty recommendations. The Company’s first Implementation Plan filing to report on its progress is due November 1, 2011.  No prediction can be made regarding the outcome of the matter at this time.

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SIR Proceeding

(Case 11-M-0034 – Proceeding on Motion of the Commission to Commence a Review and Evaluation of the Treatment of the States’ Regulated Utilities’ Site Investigation and Remediation (“SIR”) Costs)

Background:  In February 2011, the PSC initiated a proceeding to review and evaluate the treatment of MGP SIR costs.  In addition to all the NYS gas and electric utilities and Department of Public Safety Staff, Multiple Intervenors, the NYS Department of Environmental Conservation and the Environmental Energy Alliance are parties to the case.  The proceeding began with a data gathering phase from all utilities on the history of sites and efforts and also to address cost control issues, allocation of responsibility and alternate rate treatments.  In keeping with the Commission’s interest in having this proceeding move forward expeditiously and requiring that recommendations on these issues be presented for its determination before the end of the year, the Administrative Law Judge has established a case procedure and schedule, adopting a comment oriented proceeding:

·	Staff Discovery	Ongoing
·	Staff Policy Whitepaper	June 29
·	Technical Conference	July 12
·	Initial Comments	August 4
·	Reply Comments	September 9

 In addition to providing the SIR case history, an overview of Federal and NYS regulatory context, MGP sites’ histories, current Commission SIR rate treatment and a discussion of utility comments, Staff’s Whitepaper reports that there does not appear to be any deficiency in utility cost control practices, with adequate controls in place.  Staff also finds that rate recovery for prudent and verifiable legally imposed clean up costs is a reasonable approach and warns that sharing or less than full recovery will have cost capital impacts.  No prediction can be made regarding the outcome of the matter at this time.

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Energy Efficiency Portfolio Standard and State Energy Planning

(Case 07-M-0548 - Proceeding on Motion of the PSC Regarding an Energy Efficiency Portfolio Standard and Governor Paterson’s Executive Order issued April 9, 2008)

Background:  New York State has established a goal of substantially reducing electricity usage and created a State Energy Planning Board which is authorized to create and implement a State Energy Plan (“SEP”).  In support of this goal, the PSC is investigating various approaches to reduce customers’ demand for energy and to provide utility incentives for meeting specified energy savings targets.

Notable Activity:

·   During 2009 and 2010 Central Hudson received approval through the Energy Efficiency Portfolio Standard (“EEPS”) proceedings to implement various programs to electric and natural gas residential and commercial customers.

·   In December 2010, the PSC issued an Order combining energy savings targets to create a single 2008-2011 target and continuing the system of utility shareholder financial incentives established in the EEPS proceeding.  Calendar year targets will be in effect for 2012 and beyond.

·   At the end of September 2011, Central Hudson achieved enough projected energy savings through committed contracts with residential and commercial customers to earn incentives under the 2008-2011 defined targets.  The incentive amount achieved is immaterial as of September 30, 2011.  However, Management believes additional incentives will be achieved in the fourth quarter, which will result in an increase to earnings as the incentives are earned.

·   In a statewide Order issued October 25, 2011, the PSC reauthorized Central Hudson’s EEPS programs subject to continuous improvement, for the four year period ending December 31, 2015.  The Order also directed the Secretary to initiate a process to establish a new two-step incentive mechanism within the first quarter of 2012, with the first step oriented toward individual utility performance and the second step oriented toward the achievement of statewide jurisdictional goals to be in effect 2012 through 2015. This new mechanism would only contain positive incentive adjustments.

Other PSC Proceedings

During the third quarter of 2011, there has been no significant activity related to the following proceedings:

·   Advanced Metering Infrastructure

·   The American Recovery and Reinvestment Act of 2009

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OTHER MATTERS

Changes in Accounting Standards

See Note 1 – “Summary of Significant Accounting Policies” and Note 3 – “New Accounting Guidance” for discussion of relevant changes, which discussion is incorporated by reference herein.

Off-Balance Sheet Arrangements

CH Energy Group and Central Hudson do not have any off-balance sheet arrangements.

FORWARD-LOOKING STATEMENTS

Statements included in this Quarterly Report on Form 10-Q and any documents incorporated by reference which are not historical in nature are intended to be, and are hereby identified as, “forward-looking statements” for purposes of the safe harbor provided by Section 21E of the Exchange Act.  Forward-looking statements may be identified by words including “anticipates,” “intends,” “estimates,” “believes,” “projects,” “expects,” “plans,” “assumes,” “seeks,” and similar expressions.  Forward-looking statements including, without limitation, those relating to CH Energy Group’s and Central Hudson’s future business prospects, revenues, proceeds, working capital, investment valuations, liquidity, income, and margins, are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements, due to several important factors, including those identified from time-to-time in the forward-looking statements.  Those factors include, but are not limited to: deviations from normal seasonal weather and storm activity; fuel prices; energy supply and demand; potential future acquisitions; legislative, regulatory, and competitive developments; interest rates; access to capital; market risks; electric and natural gas industry restructuring and cost recovery; the ability to obtain adequate and timely rate relief; changes in fuel supply or costs including future market prices for energy, capacity, and ancillary services; the success of strategies to satisfy electricity, natural gas, fuel oil, and propane requirements; the outcome of pending litigation and certain environmental matters, particularly the status of inactive hazardous waste disposal sites and waste site remediation requirements; and certain presently unknown or unforeseen factors, including, but not limited to, acts of terrorism.  CH Energy Group and Central Hudson undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

Given these uncertainties, undue reliance should not be placed on the forward-looking statements.

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ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk

Reference is made to Part II, Item 7A of the Corporations’ 10-K Annual Report for a discussion of market risk.  The practices employed by CH Energy Group and Central Hudson to mitigate these risks - which were discussed in the Corporations’ 10-K Annual Report - continue to operate effectively.  For related discussion on this activity, see, in the Financial Statements of the Corporations’ 10-K Annual Report, Note 14 – “Accounting for Derivative Instruments and Hedging Activities” and Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the sub-caption “Capital Resources and Liquidity,” and Note 9 – “Capitalization - Long-Term Debt” and Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the sub-caption “Financing Program” of this Quarterly Report on Form 10-Q.

ITEM 4 – Controls and Procedures

The Chief Executive Officer and Chief Financial Officer of CH Energy Group and Central Hudson evaluated the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q and based on the evaluation, concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Corporations’ controls and procedures are effective.

There were no changes to the Corporations’ internal control over financial reporting that occurred during the Corporations’ last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporations’ internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1 – Legal Proceedings

For information about developments regarding certain legal proceedings, see Item 3 (“Legal Proceedings”) of the Corporations’ 10-K Annual Report, and Note 12 – “Commitments and Contingencies” of that 10-K and/or Note 12 – “Commitments and Contingencies” of this Quarterly Report on Form 10-Q.

ITEM 1A – Risk Factors

For a discussion identifying risk factors that could cause actual results to differ materially from those anticipated, see the discussion under “Item 1A – Risk Factors” of the Corporations’ 10-K Annual Report.

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

The following table provides a summary of shares repurchased by CH Energy Group for the quarter ended September 30, 2011:

	Total Number of Shares Purchased(1)	Average Price Paid per Share(2)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(3)	Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs(3)
July 1-31, 2011	-	$	-	-	1,605,341
August 1-31, 2011	554,017	$	54.15	554,017	1,051,324
September 1-30, 2011	-	$	-	-	1,051,324
Total	554,017	$	54.15	554,017

(1)	Includes the repurchase of shares through the Company's authorized stock repurchase program.
(2)	Actual price paid per share of CH Energy Group's common stock on the date the stock was repurchased.
(3)	On July 31, 2007, the Board of Directors authorized the repurchase of up to 2,000,000 shares or approximately 13% of CH Energy Group's outstanding common stock on that date, from time to time, over the five year period ending July 31, 2012.

ITEM 6 – Exhibits

Incorporated herein by reference to the Exhibit Index for this Quarterly Report on Form 10-Q, which is located immediately after the signature pages to this report.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.

	CH ENERGY GROUP, INC.
	(Registrant)
By:	/s/ Kimberly J. Wright
	Kimberly J. Wright
	Vice President - Accounting and Controller
	CENTRAL HUDSON GAS & ELECTRIC CORPORATION
	(Co-Registrant)
By:	/s/ Kimberly J. Wright
	Kimberly J. Wright
	Controller

Dated: November 9, 2011

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EXHIBIT INDEX

Following is the list of Exhibits, as required by Item 601 of Regulation S-K, filed as part of this Quarterly Report on Form 10-Q:

Exhibit No. (Regulation S-K Item 601 Designation)	Exhibit Description
10.1	Accelerated Share Repurchase Agreement, dated August 16, 2011, between CH Energy Group, Inc. and J.P. Morgan Securities LLC.
12.1	CH Energy Group Statement showing the computation of the ratio of earnings to fixed charges.
12.2	Central Hudson Statement showing the computation of the ratio of earnings to fixed charges and ratio of earnings to fixed charges and preferred dividends.
31.1.1	Rule 13a-14(a)/15d-14(a) Certification by Mr. Lant.
31.1.2	Rule 13a-14(a)/15d-14(a) Certification by Mr. Capone.
31.2.1	Rule 13a-14(a)/15d-14(a) Certification by Mr. Lant.
31.2.2	Rule 13a-14(a)/15d-14(a) Certification by Mr. Capone.
32.1.1	Section 1350 Certification by Mr. Lant.
32.1.2	Section 1350 Certification by Mr. Capone.
32.2.1	Section 1350 Certification by Mr. Lant.
32.2.2	Section 1350 Certification by Mr. Capone.
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase.
101.DEF	XBRL Taxonomy Extension Definition Linkbase.
101.LAB	XBRL Taxonomy Extension Label Linkbase.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase.

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