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Proc-Type: 2001,MIC-CLEAR
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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______________________________________March 31, 2009 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 Registrant, State of Incorporation IRS Employer 0-30512 CH Energy Group, Inc. 14-1804460 (Incorporated in New York) 284 South Avenue Poughkeepsie, New York 12601-4839 (845) 452-2000 1-3268 Central Hudson Gas & Electric Corporation 14-0555980 (Incorporated in New York) 284 South Avenue Poughkeepsie, New York 12601-4839 (845) 452-2000 Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
Yes x No o Indicate by check mark whether CH Energy Group 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(17 CFR § 232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o Indicate by check mark whether Central Hudson Gas & Electric Corporation 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(17 CFR § 232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes x No o Indicate by check mark whether CH Energy Group, Inc. is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large Accelerated Filer oAccelerated Filer x Non-Accelerated Filer o Smaller Reporting Company o Indicate by check mark whether Central Hudson Gas & Electric Corporation is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one): Large Accelerated Filer oAccelerated Filer o Non-Accelerated Filer x Smaller Reporting Company o Indicate by check mark whether CH Energy Group, Inc. is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x Indicate by check mark whether Central Hudson Gas & Electric Corporation is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x As of the close of business on April 30, 2009, (i) CH Energy Group, Inc. had outstanding 15,785,199 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 MARCH 31, 2009 TABLE OF CONTENTS TABLE OF CONTENTS PAGE MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 53 88 88 89 89 90 91 92 CERTIFICATIONS 95 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) Three Months Ended 2009 2008 Operating Revenues Electric $ 156,753 $ 143,814 Natural gas 90,123 76,219 Competitive business subsidiaries: Petroleum Products 120,578 178,566 Other 11,019 11,193 Total Operating Revenues 378,473 409,792 Operating Expenses Operation: Purchased electricity and fuel used in electric generation 91,751 84,334 Purchased natural gas 64,825 53,138 Purchased petroleum 86,271 150,858 Other expenses of operation - regulated activities 46,321 42,913 Other expenses of operation - competitive business subsidiaries 24,187 23,668 Depreciation and amortization 10,162 9,460 Taxes, other than income tax 10,143 9,463 Total Operating Expenses 333,660 373,834 Operating Income 44,813 35,958 Other Income and Deductions Income from unconsolidated affiliates 230 269 Interest on regulatory assets and investment income 1,116 1,273 Reserve for note receivable (1,299 ) — Other - net (709 ) 441 Total Other Income (662 ) 1,983 Interest Charges Interest on long-term debt 4,780 5,089 Interest on regulatory liabilities and other interest 1,507 1,288 Total Interest Charges 6,287 6,377 Income before income taxes, non-controlling interest and preferred dividends of subsidiary 37,864 31,564 Income Taxes 14,533 11,937 Net Income 23,331 19,627 Net (loss) income attributable to non-controlling interest: Non-controlling interest in subsidiary (32 ) 84 Dividends declared on Preferred Stock of subsidiary 242 242 Net income attributable to CH Energy Group 23,121 19,301 Dividends declared on Common Stock 8,524 8,518 Change in Retained Earnings $ 14,597 $ 10,783 Common Stock: Average shares outstanding Basic 15,771 15,762 Diluted 15,828 15,818 Amounts attributable to CH Energy Group common shareholders Earnings per share Basic $ 1.47 $ 1.23 Diluted $ 1.46 $ 1.22 Dividends Declared Per Share $ 0.54 $ 0.54 The Notes to Financial Statements are an integral part hereof. - 5 - Three Months Ended 2009 2008 Net Income $ 23,331 $ 19,627 Other Comprehensive Income: Fair value of cash flow hedges - FAS 133: Unrealized gains - net of tax of ($1) and ($181) 1 273 Reclassification for gains realized in net income - net of tax of $0 and $465 — (699 ) Net unrealized losses on investments held by equity method investees - net of tax of $0 and $186 — (279 ) Other comprehensive income (loss) 1 (705 ) Comprehensive Income 23,332 18,922 Comprehensive income attributable to non-controlling interest 210 326 Comprehensive income attributable to CH Energy Group $ 23,122 $ 18,596 The Notes to Financial Statements are an integral part hereof. - 6 - (UNAUDITED) (In Thousands) Three Months Ended 2009 2008 Operating Activities: Net income $ 23,331 $ 19,627 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 8,857 8,266 Amortization 1,305 1,194 Deferred income taxes - net (12,932 ) 3,524 Provision for uncollectibles 5,250 2,637 Distributed equity in earnings of unconsolidated affiliates 370 148 Pension expense 3,596 3,681 Other post-employment benefits (“OPEB”) expense 2,864 2,932 Regulatory liability - rate moderation — (3,068 ) Regulatory asset amortization 1,751 1,722 Gain on sale of property and plant (38 ) — Changes in operating assets and liabilities - net of business acquisitions: Accounts receivable, unbilled revenues and other receivables (18,241 ) (17,826 ) Fuel, materials and supplies 10,550 12,215 Special deposits and prepayments (5,913 ) 1,256 Accounts payable (13,558 ) 9,215 Accrued income taxes and interest 25,324 3,029 Customer advances (12,860 ) (15,877 ) Pension plan contribution (2,632 ) (131 ) OPEB contribution — (1,509 ) Regulatory asset - Manufactured gas plant (“MGP”) site remediations (877 ) 174 Deferred natural gas and electric costs 31,728 (7,598 ) Other - net 3,165 (283 ) Net cash provided by operating activities 51,040 23,328 Investing Activities: Proceeds from sale of short-term investments — 3,545 Proceeds from sale of property and plant 160 — Additions to utility and other property and plant (23,336 ) (17,673 ) Acquisitions made by competitive business subsidiaries — (9,217 ) Other - net (5 ) 45 Net cash used in investing activities (23,181 ) (23,300 ) Financing Activities: Redemption of long-term debt (20,000 ) — Borrowings of short-term debt - net 9,500 10,500 Dividends paid on Preferred Stock of subsidiary (242 ) (242 ) Dividends paid on Common Stock (8,523 ) (8,518 ) Debt issuance costs (111 ) (3 ) Net cash (used in) provided by financing activities (19,376 ) 1,737 Net Change in Cash and Cash Equivalents 8,483 1,765 Cash and Cash Equivalents at Beginning of Period 19,825 11,313 Cash and Cash Equivalents at End of Period $ 28,308 $ 13,078 Supplemental Disclosure of Cash Flow Information: Interest paid $ 6,434 $ 7,347 Federal and state income tax paid $ 465 $ 5,008 Additions to plant included in liabilities $ 3,812 $ 2,290 The Notes to Financial Statements are an integral part hereof. - 7 - (In Thousands) March 31, December 31, March 31, (UNAUDITED) (UNAUDITED) ASSETS Utility Plant Electric $ 875,292 $ 862,465 $ 824,584 Natural gas 267,985 263,874 255,028 Common 138,236 135,732 117,656 1,281,513 1,262,071 1,197,268 Less: Accumulated depreciation 376,168 369,925 359,978 905,345 892,146 837,290 Construction work in progress 54,833 53,778 60,650 Net Utility Plant 960,178 945,924 897,940 Non-Utility Property & Plant Griffith non-utility property & plant 42,460 42,691 41,089 Other non-utility property & plant 15,736 15,345 12,988 58,196 58,036 54,077 Less: Accumulated depreciation - Griffith 23,953 23,398 21,398 Less: Accumulated depreciation - other 2,424 2,212 1,579 Net Non-Utility Property & Plant 31,819 32,426 31,100 Current Assets Cash and cash equivalents 28,308 19,825 13,078 Accounts receivable from customers - net of allowance for doubtful accounts; $8.8 million, $8.8 million and $5.4 million, respectively 147,253 131,727 155,714 Accrued unbilled utility revenues 11,863 12,657 11,433 Other receivables 7,402 7,914 5,739 Fuel, materials and supplies 26,035 36,585 21,511 Regulatory assets 31,779 60,502 41,404 Fair value of derivative instruments — — 1,100 Special deposits and prepayments 27,281 21,344 26,852 Accumulated deferred income tax 20,185 7,498 4,759 Total Current Assets 300,106 298,052 281,590 Deferred Charges and Other Assets Regulatory assets - pension plan 194,880 197,934 47,480 Regulatory assets - OPEB 1,746 4,257 14,294 Regulatory assets - other 119,096 109,743 86,548 Goodwill 67,455 67,455 67,509 Other intangible assets - net 35,090 36,129 39,035 Unamortized debt expense 5,026 5,009 4,251 Investments in unconsolidated affiliates 9,277 9,711 11,613 Other investments 7,281 7,815 8,328 Other 14,964 15,728 16,531 Total Deferred Charges and Other Assets 454,815 453,781 295,589 Total Assets $ 1,746,918 $ 1,730,183 $ 1,506,219 The Notes to Financial Statements are an integral part hereof. - 8 - CH ENERGY GROUP CONSOLIDATED BALANCE SHEET (CONT’D) March 31, December 31, March 31, (UNAUDITED) (UNAUDITED) 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) 15,785,199 shares, 15,783,083shares, and 15,774,100 shares outstanding, respectively $ 1,686 $ 1,686 $ 1,686 Paid-in capital 350,797 350,873 350,739 Retained earnings 231,231 216,634 226,422 Treasury stock - 1,076,888 shares, 1,079,004 shares, and 1,087,987 shares, respectively (45,271 ) (45,386 ) (45,716 ) Accumulated other comprehensive income 56 55 468 Capital stock expense (328 ) (328 ) (328 ) Total CH Energy Group Common Shareholders’ Equity 538,171 523,534 533,271 Non-controlling interest in subsidiary 1,416 1,448 1,429 Preferred Stock of subsidiary 21,027 21,027 21,027 Total Equity 560,614 546,009 555,727 Long-term debt 413,895 413,894 383,892 Total Capitalization 974,509 959,903 939,619 Current Liabilities Current maturities of long-term debt — 20,000 20,000 Notes payable 45,000 35,500 53,000 Accounts payable 38,015 52,824 50,660 Accrued interest 4,650 5,899 4,312 Dividends payable 8,766 8,765 8,760 Accrued vacation and payroll 7,060 6,628 7,297 Customer advances 17,582 30,442 7,168 Customer deposits 8,389 8,445 8,249 Regulatory liabilities 4,565 4,275 7,078 Fair value of derivative instruments 20,514 15,759 — Accrued environmental remediation costs 5,780 5,757 4,253 Accrued income taxes 27,014 441 5,678 Deferred revenues 6,919 8,827 6,385 Other 30,820 27,974 16,651 Total Current Liabilities 225,074 231,536 199,491 Deferred Credits and Other Liabilities Regulatory liabilities - OPEB — — 1,839 Regulatory liabilities - other 134,599 130,893 113,105 Operating reserves 4,650 5,155 5,364 Accrued environmental remediation costs 22,251 21,796 14,639 Accrued OPEB costs 53,809 52,645 55,390 Accrued pension costs 162,494 161,674 12,035 Other 11,834 12,478 18,498 Total Deferred Credits and Other Liabilities 389,637 384,641 220,870 Accumulated Deferred Income Tax 157,698 154,103 146,239 Commitments and Contingencies Total Capitalization and Liabilities $ 1,746,918 $ 1,730,183 $ 1,506,219 The Notes to Financial Statements are an integral part hereof. - 9 - CH ENERGY GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) CH Energy Group Common Shareholders Common Stock Treasury Stock Shares Amount Shares Amount Paid-In Capital Retained Accumulated Other Non- Preferred Total Balance at January 1, 2008 16,862,087 $ 1,686 (1,100,087 ) $ (46,252 ) $ 351,230 $ (328 ) $ 215,639 $ 1,173 $ 1,345 $ 21,027 $ 545,520 Comprehensive income: Net income 19,301 84 242 19,627 Change in fair value: Derivative instruments 273 273 Investments (699 ) (699 ) Reclassification adjustments for losses recognized in net income (279 ) (279 ) Dividends declared: On Preferred Stock of subsidiary (242 ) (242 ) On Common Stock ($2.16 per share) (8,518 ) (8,518 ) Treasury shares issued 12,100 536 (491 ) 45 Balance at March 31, 2008 16,862,087 $ 1,686 (1,087,987 ) $ (45,716 ) $ 350,739 $ (328 ) $ 226,422 $ 468 $ 1,429 $ 21,027 $ 555,727 Balance at January 1, 2009 16,862,087 $ 1,686 (1,079,004 ) $ (45,386 ) $ 350,873 $ (328 ) $ 216,634 $ 55 $ 1,448 $ 21,027 $ 546,009 Comprehensive income: Net income 23,121 (32 ) 242 23,331 Change in fair value: Derivative instruments 1 1 Investments — Reclassification adjustments for losses recognized in net income — Dividends declared: On Preferred Stock of subsidiary (242 ) (242 ) On Common Stock ($2.16 per share) (8,524 ) (8,524 ) Treasury shares issued 2,116 115 (76 ) 39 Balance at March 31, 2009 16,862,087 $ 1,686 (1,076,888 ) $ (45,271 ) $ 350,797 $ (328 ) $ 231,231 $ 56 $ 1,416 $ 21,027 $ 560,614 The Notes to Financial Statements are an integral part hereof. - 10 - CENTRAL HUDSON STATEMENT OF INCOME (UNAUDITED) Three Months Ended 2009 2008 Operating Revenues Electric $ 156,753 $ 143,814 Natural gas 90,123 76,219 Total Operating Revenues 246,876 220,033 Operating Expenses Operation: Purchased electricity and fuel used in electric generation 90,523 82,606 Purchased natural gas 64,825 53,138 Other expenses of operation 46,321 42,913 Depreciation and amortization 8,009 7,364 Taxes, other than income tax 9,967 9,302 Total Operating Expenses 219,645 195,323 Operating Income 27,231 24,710 Other Income and Deductions Interest on regulatory assets and other interest income 746 892 Other - net (360 ) 596 Total Other Income 386 1,488 Interest Charges Interest on other long-term debt 4,780 5,089 Interest on regulatory liabilities and other interest 1,438 1,100 Total Interest Charges 6,218 6,189 Income Before Income Taxes 21,399 20,009 Income Taxes 8,806 8,262 Net Income 12,593 11,747 Dividends Declared on Cumulative Preferred Stock 242 242 Income Available for Common Stock $ 12,351 $ 11,505 The Notes to Financial Statements are an integral part hereof. - 11 - CENTRAL HUDSON STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) Three Months Ended 2009 2008 Net Income $ 12,593 $ 11,747 Other Comprehensive Income — — Comprehensive Income $ 12,593 $ 11,747 The Notes to Financial Statements are an integral part hereof. - 12 - CENTRAL HUDSON STATEMENT OF CASH FLOWS (UNAUDITED) Three Months Ended 2009 2008 Operating Activities: Net Income $ 12,593 $ 11,747 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 7,743 7,177 Amortization 266 187 Deferred income taxes - net (13,344 ) 2,457 Provision for uncollectibles 2,885 1,820 Pension expense 3,596 3,681 OPEB expense 2,864 2,932 Regulatory liability - rate moderation — (3,068 ) Regulatory asset amortization 1,751 1,722 Changes in operating assets and liabilities - net: Accounts receivable, unbilled revenues and other receivables (17,834 ) 3,148 Fuel, materials and supplies 11,491 9,410 Special deposits and prepayments (4,273 ) 2,164 Accounts payable (12,178 ) 10,973 Accrued income taxes and interest 21,475 2,145 Customer advances (5,419 ) (9,904 ) Pension plan contribution (2,632 ) (131 ) OPEB contribution — (1,509 ) Regulatory asset - MGP site remediations (877 ) 174 Deferred natural gas and electric costs 31,728 (7,598 ) Other - net 2,382 228 Net cash provided by operating activities 42,217 37,755 Investing Activities: Additions to utility plant (22,699 ) (17,137 ) Other - net (79 ) 46 Net cash used in investing activities (22,778 ) (17,091 ) Financing Activities: Redemption of long-term debt (20,000 ) — Borrowings (Repayments) of short-term debt - net 14,500 (20,500 ) Dividends paid on cumulative Preferred Stock (242 ) (242 ) Debt issuance costs (112 ) (2 ) Net cash used in financing activities (5,854 ) (20,744 ) Net Change in Cash and Cash Equivalents 13,585 (80 ) Cash and Cash Equivalents - Beginning of Period 2,455 3,592 Cash and Cash Equivalents - End of Period $ 16,040 $ 3,512 Supplemental Disclosure of Cash Flow Information: Interest paid $ 6,365 $ 7,231 Federal and state income tax paid $ — $ 1,946 Plant additions in liabilities $ 3,812 $ 2,290 The Notes to Financial Statements are an integral part hereof. - 13 - CENTRAL HUDSON BALANCE SHEET March 31, December 31, March 31, (UNAUDITED) (UNAUDITED) ASSETS Utility Plant Electric $ 875,292 $ 862,465 $ 824,584 Natural gas 267,985 263,874 255,028 Common 138,236 135,732 117,656 1,281,513 1,262,071 1,197,268 Less: Accumulated depreciation 376,168 369,925 359,978 905,345 892,146 837,290 Construction work in progress 54,833 53,778 60,650 Net Utility Plant 960,178 945,924 897,940 Non-Utility Property and Plant 438 445 444 Less: Accumulated depreciation 33 32 30 Net Non-Utility Property and Plant 405 413 414 Current Assets Cash and cash equivalents 16,040 2,455 3,512 Accounts receivable from customers - net of allowance for doubtful accounts; $4.5 million, $4.0 million and $3.1 million, respectively 102,058 85,352 77,757 Accrued unbilled utility revenues 11,863 12,657 11,433 Other receivables 2,414 3,447 1,985 Fuel, materials and supplies - at average cost 19,624 31,115 14,860 Regulatory assets 31,779 60,502 41,404 Fair value of derivative instruments — — 591 Special deposits and prepayments 22,870 18,573 22,317 Accumulated deferred income tax 17,350 4,685 3,756 Total Current Assets 223,998 218,786 177,615 Deferred Charges and Other Assets Regulatory assets - pension plan 194,880 197,934 47,480 Regulatory assets - OPEB 1,746 4,257 14,294 Regulatory assets - other 119,096 109,743 86,548 Unamortized debt expense 5,026 5,009 4,251 Other investments 7,173 7,697 8,284 Other 2,398 2,433 4,065 Total Deferred Charges and Other Assets 330,319 327,073 164,922 Total Assets $ 1,514,900 $ 1,492,196 $ 1,240,891 The Notes to Financial Statements are an integral part hereof. - 14 - CENTRAL HUDSON BALANCE SHEET (CONT’D) March 31, December 31, March 31, (UNAUDITED) (UNAUDITED) CAPITALIZATION AND LIABILITIES Capitalization Common Stock, 30,000,000 shares authorized; 16,862,087 shares issued and outstanding, $5 par value $ 84,311 $ 84,311 $ 84,311 Paid-in capital 174,980 174,980 174,980 Retained earnings 131,295 118,944 104,181 Capital stock expense (4,961 ) (4,961 ) (4,961 ) Cumulative Preferred Stock not subject to mandatory redemption 21,027 21,027 21,027 Total Equity 406,652 394,301 379,538 Long-term debt 413,895 413,894 383,892 Total Capitalization 820,547 808,195 763,430 Current Liabilities Current maturities of long-term debt — 20,000 20,000 Notes payable 40,000 25,500 22,000 Accounts payable 29,484 42,913 37,310 Accrued interest 4,644 5,895 4,242 Dividends payable - Preferred Stock 242 242 242 Accrued vacation and payroll 4,672 4,896 5,213 Customer advances 4,155 9,574 938 Customer deposits 8,269 8,317 8,114 Regulatory liabilities 4,565 4,275 7,078 Fair value of derivative instruments 20,516 15,759 — Accrued environmental remediation costs 5,609 5,563 4,005 Accrued income taxes 22,812 87 7,318 Other 21,328 21,284 9,609 Total Current Liabilities 166,296 164,305 126,069 Deferred Credits and Other Liabilities Regulatory liabilities - OPEB — — 1,839 Regulatory liabilities - other 134,599 130,893 113,105 Operating reserves 3,594 3,898 4,391 Accrued environmental remediation costs 21,084 20,621 13,312 Accrued OPEB costs 53,809 52,645 55,390 Accrued pension costs 162,494 161,674 12,035 Other 11,243 11,891 18,084 Total Deferred Credits and Other Liabilities 386,823 381,622 218,156 Accumulated Deferred Income Tax 141,234 138,074 133,236 Commitments and Contingencies Total Capitalization and Liabilities $ 1,514,900 $ 1,492,196 $ 1,240,891 The Notes to Financial Statements are an integral part hereof. - 15 - CENTRAL HUDSON STATEMENT OF CHANGES IN EQUITY (UNAUDITED) Central Hudson Common Shareholders Common Stock Treasury Stock Accumulated Capital Cumulative Shares Shares Paid-In Retained Total Amount Amount Balance at January 1, 2008 16,862,087 $ 84,311 — $ — $ 174,980 $ (4,961 ) $ 92,676 $ — $ 21,027 $ 368,033 Net income 11,505 242 11,747 Dividends declared: On cumulative Preferred Stock (242 ) (242 ) Balance at March 31, 2008 16,862,087 $ 84,311 — $ — $ 174,980 $ (4,961 ) $ 104,181 $ — $ 21,027 $ 379,538 Balance at January 1, 2009 16,862,087 $ 84,311 — $ — $ 174,980 $ (4,961 ) $ 118,944 $ — $ 21,027 $ 394,301 Net income 12,351 242 12,593 Dividends declared: On cumulative Preferred Stock (242 ) (242 ) Balance at March 31, 2009 16,862,087 $ 84,311 — $ — $ 174,980 $ (4,961 ) $ 131,295 $ — $ 21,027 $ 406,652 The Notes to Financial Statements are an integral part hereof. - 16 - 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’s wholly owned subsidiaries, Griffith Energy Services, Inc. (“Griffith”), CH-Auburn Energy, LLC (“CH-Auburn”) and CHEC’s Lyonsdale Biomass, LLC (“Lyonsdale”), are
consolidated in the Consolidated Financial Statements of CH Energy Group. 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 Lyonsdale. Inter-company balances and transactions have been eliminated in consolidation. 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 the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 71, Accounting for the
Effects of Certain Types of Regulation (“SFAS 71”). 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 condensed, unaudited, quarterly Financial Statements do
not contain the detail or 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, 2008 (the “Corporations’ 10-K Annual Report”). CH Energy Group’s and Central Hudson’s balance sheets as of March 31, 2008 are not required to be included in this Quarterly Report on Form 10-Q; however, these balance sheets are included for supplemental analysis purposes. - 17 - Reclassification Certain amounts in the 2008 Financial Statements have been reclassified to conform to the 2009 presentation. Effective January 1, 2009, Central Hudson adopted SFAS No. 160 – Noncontrolling Interest in Consolidated Financial Statements. In accordance with this standard, CH Energy Group modified the presentation of minority interest or non-controlling interest in the prior periods presented for CH Energy Group’s Consolidated Statement of Income, Consolidated
Statement of Cash Flow and Consolidated Balance Sheet. For more information, see Note 3 – “New Accounting Standards and Other FASB Projects”. Cash and Cash Equivalents For purposes of the Statement of Cash Flows and the Balance Sheet, CH Energy Group and Central Hudson consider temporary cash investments with a maturity (when purchased) of three months or less, to be cash equivalents. Revenue Recognition CH Energy Group’s deferred revenue balances as of March 31, 2009, December 31, 2008 and March 31, 2008 were $6.9 million, $8.8 million and $6.4 million, respectively. The deferred revenue balance will be recognized in competitive business subsidiaries’ operating revenues over the 12-month term of the respective customer contract. As required by the New York State Public Service Commission (“PSC”), Central Hudson records gross receipts tax revenues and expenses on a gross income statement presentation basis (i.e., included in both revenue and expenses). Sales and use taxes for both Central Hudson and Griffith are accounted for on a net basis (excluded from revenue). Fuel, Materials and Supplies Fuel, materials and supplies for CH Energy Group are valued using the following accounting methods: Company Valuation Method Central Hudson Average cost Griffith FIFO Lyonsdale Weighted average cost - 18 - The following is a summary of CH Energy Group’s and Central Hudson’s inventories (In Thousands): CH Energy Group March 31, December 31, March 31, Natural gas $ 11,016 $ 22,684 $ 6,304 Petroleum products and propane 2,696 2,782 4,036 Fuel used in electric generation 720 586 516 Materials and supplies 11,603 10,533 10,655 Total $ 26,035 $ 36,585 $ 21,511 Central Hudson March 31, December 31, March 31, Natural gas $ 11,016 $ 22,684 $ 6,304 Petroleum products and propane 531 550 539 Fuel used in electric generation 334 343 367 Materials and supplies 7,743 7,538 7,650 Total $ 19,624 $ 31,115 $ 14,860 Depreciation and Amortization For financial statement purposes, Central Hudson’s depreciation provisions are computed on the straight-line method using rates based on studies of the estimated useful lives and estimated net salvage value of properties. The anticipated costs of removing assets upon retirement are provided for over the life of those assets as a component of depreciation expense.
This depreciation method is consistent with industry practice and the applicable depreciation rates have been approved by the PSC. SFAS No. 143, Accounting for Asset Retirement Obligations (“SFAS 143”), precludes the recognition of expected future retirement obligations as a component of depreciation expense or accumulated depreciation. Central Hudson, however, is required to use depreciation methods and rates approved by the PSC under regulatory accounting. In accordance with
SFAS 71, Central Hudson continues to accrue for the future cost of removal for its rate-regulated natural gas and electric utility assets. In accordance with SFAS 143, Central Hudson has classified $48.2 million, $47.6 million, and $48.7 million of net cost of removal as regulatory liabilities as of March 31, 2009, December 31, 2008, and March 31, 2008, respectively. For financial statement purposes, both Griffith and Lyonsdale have depreciation provisions that are computed on the straight-line method using depreciation rates based on the estimated useful lives of depreciable property and equipment. Expenditures for major renewals and betterments, which extend the useful lives of property and equipment, are capitalized. Expenditures
for maintenance and repairs are charged to expense when incurred. Retirements, sales, and disposals of assets are recorded by - 19 - removing the cost and accumulated depreciation from the asset and accumulated depreciation accounts with any resulting gain or loss reflected in earnings. Amortization of intangibles (other than goodwill) is computed on the straight-line method over the assets’ expected useful lives. See Note 6 – “Goodwill and Other Intangible Assets” for further discussion. Earnings Per Share In the calculation of earnings per share (basic and diluted) of CH Energy Group’s common stock (“Common Stock”), earnings for CH Energy Group are reduced by the preferred stock dividends of Central Hudson. The average dilutive effect of CH Energy Group’s stock options, performance shares and restricted shares was 56,878 shares and 56,278 shares
for the three months ended March 31, 2009 and 2008, respectively. Certain stock options are excluded from the calculation of diluted earnings per share because the exercise prices of those options were greater than the average market price per share of Common Stock for some of the periods presented. Excluded from the calculation were options for 18,420 shares for the three months ended March 31, 2009, and 39,980 shares for the three months ended March 31, 2008. For additional
information regarding stock options and performance shares, see Note 11 – “Equity-Based Compensation.” Equity-Based Compensation CH Energy Group has an equity-based employee compensation plan that is described in Note 11 – “Equity-Based Compensation.” Parental Guarantees CH Energy Group and CHEC have issued guarantees in conjunction with certain commodity and derivative contracts that provide financial or performance assurance to third parties on behalf of a subsidiary. The guarantees are entered into primarily to support or enhance the creditworthiness otherwise attributed to a subsidiary on a stand-alone basis, thereby facilitating
the extension of sufficient credit to accomplish the relevant subsidiary’s intended commercial purposes. The guarantees described above have been issued to counterparties to assure the payment, when due, of certain obligations incurred by CH Energy Group subsidiaries in physical and financial transactions related to heating oil, propane, other petroleum products, and weather and commodity hedges. At March 31, 2009, the aggregate amount of subsidiary obligations covered by
these guarantees was $9.2 million. Where liabilities exist under the commodity-related contracts subject to these guarantees, these liabilities are included in CH Energy Group’s Consolidated Balance Sheet. - 20 - Other Guarantees Central Hudson has a reimbursement obligation with respect to a $6.8 million standby letter of credit issued by a financial institution to support a real estate transaction that is expected to close in mid-2009. No premium has been received or is receivable by Central Hudson in connection with this letter of credit. This uncollateralized letter of credit was issued
February 29, 2008 and expires September 30, 2009. The maximum potential amount of future payments Central Hudson could be required to make under this reimbursement obligation is $6.8 million. As of March 31, 2009, no events or circumstances had arisen that would require Central Hudson to perform under this reimbursement obligation, and the carrying amount of the liability was zero. Product Warranties Griffith offers a multi-year warranty on heating system installations and has recorded liabilities for the estimated costs of fulfilling its obligations under these warranties. CH Energy Group’s approximate aggregate potential liability for product warranties at March 31, 2009 and 2008 was not material. CH Energy Group’s liabilities for these product
warranties were determined by accruing the present value of future estimated warranty expense based on the number and type of contracts outstanding and historical costs for these contracts. FASB Interpretation Number (FIN) 46R – Consolidation of Variable Interest Entities CH Energy Group and its subsidiaries do not have any interests in special purpose entities and do not have material affiliations with any variable interest entities that require consolidation under the provisions of FIN 46R. Fair Value Measurements CH Energy Group adopted SFAS No. 157, Fair Value Measurements (“SFAS 157”) on January 1, 2008. The guidance in SFAS 157 establishes a framework for measuring fair value in GAAP, improves consistency and comparability in reporting fair value, and expands disclosures regarding fair value measurements. SFAS 157 establishes a fair value hierarchy to prioritize the inputs used in valuation techniques based on observable and unobservable data, but not the valuation techniques themselves. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability. Unobservable inputs are inputs that reflect the reporting
entity’s own assumptions about the assumptions market participants would use in pricing an asset or a liability. Classification of inputs is determined based on the lowest level input that is significant to the overall valuation. The fair value hierarchy prioritizes the inputs to valuation techniques into the three categories described below. - 21 - § Level 1 Inputs: Quoted prices (unadjusted) in active markets for identical assets or liabilities. § Level 2 Inputs: Directly or indirectly observable (market-based) information. This includes quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. § Level 3 Inputs: Unobservable inputs for the asset or liability for which there is either no market data, or for which asset and liability values are not correlated with market value. - 22 - On March 31, 2009, CH Energy Group reported one major category of assets and liabilities at fair value; derivative contracts. Derivative contracts are measured on a recurring basis. The fair value of CH Energy Group’s reportable assets and liabilities at March 31, 2009, December 31, 2008 and March 31, 2008 by category and hierarchy level follows (In
Thousands): Asset or Liability Category Fair Value Quoted Prices in Significant Significant As of March 31, 2009 Liabilities Derivative Contracts: Central Hudson - Electric $ (17,506 ) $ — $ — $ (17,506 ) Central Hudson - Natural Gas (3,010 ) (3,010 ) — — Griffith Oil - Heating Oil 2 2 — — Total Liabilities $ (20,514 ) $ (3,008 ) $ — $ (17,506 ) As of December 31, 2008 Liabilities Derivative Contracts: Central Hudson - Electric $ (5,538 ) $ — $ — $ (5,538 ) Central Hudson - Natural Gas (10,221 ) (10,221 ) — — Total Liabilities $ (15,759 ) $ (10,221 ) $ — $ (5,538 ) As of March 31, 2008 Assets Derivative Contracts: Central Hudson - Electric $ 612 $ — $ — $ 612 Griffith - Heating Oil 509 509 — — Total Assets $ 1,121 $ 509 $ — $ 612 Liabilities Derivative Contracts: Central Hudson - Electric $ (21 ) $ — $ — $ (21 ) Total Liabilities $ (21 ) $ — $ — $ (21 ) - 23 - 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 March 31, 2009 March 31, 2008 Balance at Beginning of Period $ (5,538 ) $ 77 Unrealized (losses)/gains (8,504 ) 514 Realized losses (3,464 ) — Purchases, issuances, sales and settlements — — Transfers in and/or out of Level 3 — — Balance at End of Period $ (17,506 ) $ 591 The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to derivatives still held at end of period $ — $ — For more information regarding derivative activities of the Company, see Note 14 - “Accounting for Derivative Instruments and Hedging Activities”. Common Stock Dividends CH Energy Group’s ability to pay dividends may be affected by the ability of its subsidiaries to pay dividends. The Federal Power Act limits the payment of dividends by Central Hudson to its retained earnings. More restrictive is the PSC’s limit on the dividends Central Hudson may pay to CH Energy Group which is 100% of the average annual income available
for common stock, calculated on a two-year rolling average basis. Central Hudson’s dividend would be reduced 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 CH Energy Group or any of Central Hudson’s affiliates. Further restrictions are imposed for any downgrades below this level. Central Hudson’s senior debt is
currently rated “A” or the equivalent.1 As of March 31, 2009, the amount of Central Hudson’s retained earnings that were free of restrictions was $29.0 million. CH Energy Group’s other subsidiaries do not have express restrictions on their ability to pay dividends. On March 27, 2009, the Board of Directors of CH Energy Group declared a quarterly dividend of $0.54 per share, payable May 1, 2009, to shareholders of record as of April 9, 2009. - 24 - NOTE 2 – REGULATORY MATTERS Summary of Regulatory Assets and Liabilities The following table sets forth Central Hudson’s regulatory assets and liabilities (In Thousands): March 31, December 31, March 31, Regulatory Assets (Debits): Current: Deferred purchased electric and natural gas costs $ 10,203 $ 41,931 $ 37,076 FAS 133 - deferred unrealized losses 20,515 15,759 — Residual natural gas deferred balances 1,061 2,812 4,328 31,779 60,502 41,404 Long-term: Deferred pension costs 194,880 197,934 47,480 Carrying charges - pension reserve 11,622 10,642 7,465 Deferred costs - MGP site remediation 31,854 30,397 18,420 Deferred OPEB costs (Note 10) 1,746 4,257 14,294 Deferred debt expense on re-acquired debt 5,294 5,442 5,884 Residual natural gas deferred balances 22,903 22,825 23,637 Income taxes recoverable through future rates 33,273 26,874 21,372 Storm costs 3,375 3,085 — Other 10,775 10,478 9,770 315,722 311,934 148,322 Total Regulatory Assets $ 347,501 $ 372,436 $ 189,726 Regulatory Liabilities (Credits): Current: Rate moderation - excess electric depreciation reserve $ — $ — $ 2,829 Income taxes refundable through future rates 4,565 4,275 3,658 FAS 133 - deferred unrealized gains — — 591 4,565 4,275 7,078 Long-term: Customer benefit fund 4,260 4,266 4,858 Deferred cost of removal 48,242 47,630 48,671 Excess electric depreciation reserve 32,309 32,313 32,403 Income taxes refundable through future rates 22,028 19,756 9,829 Deferred OPEB costs — — 1,839 Carrying charges - OPEB reserve 6,476 5,633 3,468 Other 21,284 21,295 13,876 134,599 130,893 114,944 Total Regulatory Liabilities $ 139,164 $ 135,168 $ 122,022 Net Regulatory Assets $ 208,337 $ 237,268 $ 67,704 - 25 - NOTE 3 - NEW ACCOUNTING STANDARDS AND OTHER FASB PROJECTS New accounting standards are summarized below, and explanations of the underlying information for all standards (except those not currently applicable to CH Energy Group and its subsidiaries) follow the chart. Impact(1) Status Category Reference Title Issued Effective 1 Under Assessment Fair Value Measurement FSP No. FAS 157-4 Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly Apr-09 Jun-09 1 Under Assessment Other-Than- Temporary- Investments FSP No. FAS 115-2 and FAS 124-2 Recognition and Presentation of Other-Than-Temporary Impairments Apr-09 Jun-09 1 Under Assessment Financial Instruments FSP No. FAS 107-1 and APB Interim Disclosures about Fair Value of Financial Instruments Apr-09 Jun-09 1 Under Assessment Postretirement Benefit Plan Assets FSP No. FAS 132 Employers’ Disclosures about Postretirement Benefit Plan Assets Dec-08 Dec-09 1 Under Assessment GAAP Hierarchy SFAS No. 162 The Hierarchy of Generally Accepted Accounting Principles May-08 TBD(2) 2 Implemented Equity Method Investments EITF 08-6 Equity Method Investment Accounting Considerations Nov-08 Jan-09 2 Implemented Liabilities Measured at Fair Value EITF 08-5 Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement Oct-08 Jan-09 2 Implemented Credit Derivatives FSP No. FAS 133-1 and FIN Disclosures About Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161 Sep-08 Jan-09 2 Implemented Derivative Instruments SFAS No. 161 Disclosures About Derivative Instruments and Hedging Activities Mar-08 Jan-09 2 Implemented Share-Based Payments FSP No. EITF 03-6-1 Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities May-08 Jan-09 2 Implemented Business Combinations SFAS No. 141R Business Combinations - Revised Dec-07 Jan-09 2 Implemented Noncontrolling Interests SFAS No. 160 Noncontrolling Interest in Consolidated Financial Statements Dec-07 Jan-09 2 Implemented Intangible Assets FSP No. FAS 142-3 Determining the Useful Life of Intangible Assets Nov-07 Jan-09 (1) Impact Key: 1 - No significant impact on the financial condition, results of operations and cash flows of CH Energy Group and its subsidiaries expected. 2 - Following the chart, the impacts are separately disclosed as of standard effective dates. (2) Effective Date of this statement is 60 days following the SEC’s approval of the PCAOB amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. - 26 - Standards Under Assessment FASB Staff Position (“FSP”) No. FAS 157-4 provides factors that should be considered in determining whether there has been a significant decrease in the volume and level of activity for an asset or liability and guidance on additional analysis that may be necessary as a result in estimating fair value in accordance with FAS 157. This FSP also includes
guidance on identifying circumstances that indicate whether a transaction is considered orderly. It is not expected that this FSP will have a significant impact on the Company. FSP No. FAS 115-2 and FAS 124-2 amends the other-than-temporary impairment guidance relating to debt securities classified as available-for-sale or held-to-maturity in accordance with FAS 115, Accounting for Certain Investments in Debt and Equity Securities. The objective of this FSP is to improve the presentation and disclosure of other-than-temporary
impairments in the financial statements. It is not expected that this FSP will have a significant impact on the Company. FSP No. FAS 107-1 and APB 28-1 amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about the fair value of financial instruments for interim reporting periods, in addition to the annual disclosures previously required. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those
disclosures in summarized financial information at interim reporting periods. This FSP is effective for interim reporting periods ending after June 15, 2009. It is not expected that this FSP will have a significant impact on the Company. FSP No. FAS 132(R)-1 provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other post-retirement plan. The FSP defines the objectives of the disclosures as providing users of the financial statements with an understanding of how investment allocation decisions are made, pertinent factors of investment policies and
strategies, major categories of plan assets, inputs and valuation techniques used to measure the fair value of plan assets, the effect of fair value measurements using significant unobservable inputs on changes in the plan assets for the period, and significant concentrations of credit risk within plan assets. In accomplishing these objectives, expanded disclosures related to pension and other post-retirement benefit plans will be made beginning for fiscal periods ending after
December 15, 2009. It is not expected that this FSP will have a significant impact on the Company. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States (the GAAP hierarchy). It is not expected that this Statement will result in a change in
current practice. - 27 - Standards Implemented Emerging Issues Task Force (“EITF”) Issue No. 08-6 provides guidance related to certain accounting considerations for equity method investments. Specifically, this guidance clarifies the accounting guidance on issues related to the determination of the initial carrying value of an equity method investment, the performance of impairment assessments of
underlying indefinite-lived intangible assets of an equity method investment, the accounting for the issuance of shares by an equity method investment, and the accounting for a change in an investment from the equity method to the cost method. CH Energy Group implemented EITF Issue No. 08-6 on January 1, 2009. There was no significant impact on the Company upon adoption of this EITF. EITF Issue No. 08-5 clarifies that the issuer of a liability with a third-party credit enhancement that is inseparable from the liability shall not include the effect of the credit enhancement in the fair value measurement of the liability, but the issuer should discuss the existence of this third-party credit enhancement. CH Energy Group implemented EITF Issue No. 08-5
on January 1, 2009. There was no significant impact on the Company upon adoption of this EITF. FSP No. FAS 133-1 and FIN 45-4 require more detailed disclosures about credit derivatives, including the potential adverse effects of changes in credit risk on the financial position, financial performance, and cash flows of the sellers of the instruments. The guidance also amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
(“SFAS 133”), to require increased disclosures by sellers of credit derivatives, including credit derivatives embedded in hybrid instruments. The FSP also amends FIN 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, to require an additional disclosure about the current status of the payment or performance risk of a guarantee. Finally, the FSP clarifies that SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities – an amendment of SFAS No. 133, is effective for any reporting period beginning after November 15, 2008. CH Energy Group implemented FSP No. FAS 133-1 and FIN 45-4 on January 1, 2009 and the required changes to disclosures related to its derivative instruments and hedging activities have been incorporated in the footnotes to the consolidated financial statements. For more information, see Note 14 –
“Accounting for Derivative Instruments and Hedging Activities”. There was no significant impact on the Company upon adoption of this FSP. SFAS No. 161 requires entities to provide qualitative disclosures about the objectives and strategies for using derivatives, and quantitative data about the fair value of and gains and losses on derivative contracts. SFAS No. 161 also requires more information about the location and amounts of derivative instruments in financial statements, how derivatives are accounted
for under SFAS 133, and how hedges affect the entity’s financial position, financial performance and cash flows. CH Energy Group implemented SFAS No. 161 on January 1, 2009. For more information, see Note 14 – “Accounting for Derivative Instruments and Hedging Activities”. There was no significant impact on the Company upon adoption of this standard. - 28 - FSP No. EITF 03-6-1 clarifies that instruments granted in share-based payment transactions are considered participating securities prior to vesting if they contain non-forfeitable rights to dividends or dividend equivalents and therefore need to be included in the computation of EPS under the two-class method described in SFAS No. 128, Earnings Per Share. CH
Energy Group implemented FSP No. EITF 03-6-1 on January 1, 2009. There was no significant impact on the Company upon adoption of this FSP. SFAS No. 141R requires that acquisition-related costs be expensed in the period incurred and can no longer be capitalized and included as a cost of the acquired business. The objective of SFAS No. 141R is to improve the relevance, representational faithfulness, and comparability of the information that an entity provides in its financial reports about a business
combination and its effects. This standard applies to all transactions or events in which an entity obtains control of one or more businesses, and to combinations achieved without the transfer of consideration. CH Energy Group implemented SFAS No. 141R on January 1, 2009. There was no significant impact on the Company upon adoption of this standard. SFAS No. 160 amends Accounting Research Bulletin (“ARB”) 51 to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. The objective of SFAS No. 160 is to improve the relevance, comparability and transparency of the financial information that an entity provides in its consolidated financial statements. CH Energy Group implemented SFAS No. 160 on January 1, 2009 and the required changes have been incorporated in the consolidated financial statements. There was no significant impact on the Company upon adoption of this standard. FSP No. FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of recognized intangible assets under SFAS No. 142, Goodwill and Other Intangible Assets. The guidance is intended to improve consistency between the recognized useful asset life, and the period of expected cash flows
used to measure the fair value of the asset. CH Energy Group implemented FSP No. FAS 142-3 on January 1, 2009. There was no significant impact on the Company upon adoption of this FSP. NOTE 4 – INCOME TAX FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS 109, titled Accounting for Income Taxes. As there are no uncertain tax positions, no interest or penalties have been recorded in the financial statements. If CH Energy Group and its subsidiaries incur any interest or
penalties on underpayment of income taxes, the amounts would be included on the line “Other liabilities” on the Consolidated Balance Sheet and on the line “Other – net” on the Consolidated Statement of Income. CH Energy Group and its subsidiaries - 29 - file a consolidated Federal and New York State income tax return, which represents the major tax jurisdictions of CH Energy Group. The statute of limitations for federal tax years 2005 through 2007 are still open for audit. The New York State income tax return is currently open for audit for tax years 2003 through 2007, and tax years 2003 through 2005 are currently under audit. NOTE 5 - ACQUISITIONS AND INVESTMENTS Acquisitions During the three months ended March 31, 2009, Griffith made no acquisitions. Investments CHEC holds a 12% interest in preferred units and subordinated notes issued by Cornhusker Holdings. Cornhusker Holdings is the owner of Cornhusker Energy Lexington, LLC, a fuel ethanol production facility located in Nebraska that began operation as of the end of January 2006. This investment is accounted for under the equity method. As of March 31, 2009, CHEC’s
total investment in Cornhusker consisted of subordinated notes totaling $9.8 million, including interest, and an equity investment of $2.5 million. The recoverability of the Company’s total investment in Cornhusker Holdings is predicated on the investee achieving its forecast indicating that it generates positive cash flow to repay the notes receivable. If the investee does not achieve its forecast, the investment and notes receivable may become impaired. In the fourth quarter of 2007, CHEC’s subsidiary, CH-Auburn Energy, LLC (“CH-Auburn”), entered into a 15-year Energy Services Agreement (“ESA”) to supply the City of Auburn, NY (the “City”) with a portion of its electricity needs by constructing and operating a 3-megawatt electric generating plant in Auburn that will burn gas
derived from wastewater sludge and a landfill to generate renewable power. As of March 31, 2009, CH-Auburn has incurred approximately $3.3 million of design and construction costs related to this investment. CH-Auburn is consolidated in the Consolidated Financial Statements of CH Energy Group. Under its renegotiated agreement with the City, the project will utilize methane gas generated by the City of Auburn landfill to produce and sell electricity to the City. A second phase
digester portion of the project was eliminated from the restructured project, but may be reinitiated by the City at a later time. In June 2007, CHEC made a $1.2 million loan to Buckeye Biopower, LLC (“Buckeye”) for development of a corn-ethanol plant. Since receipt of the loan from CHEC, the developers have entered into a lease for a site, and a Letter of Intent to provide engineering, procurement and construction for the plant. In June 2008, the developers paid CHEC all interest owed
on the loan for the initial term and extended the term of the loan for one additional year. The developers are in the process of seeking construction financing for the project. Current low crush margins for corn-to-ethanol plants and credit market conditions have made the arrangement of such financing - 30 - difficult. CHEC’s Management has notified the developers that the loan will not be extended past June 2009 and has recorded a reserve for the full outstanding balance as of March 31, 2009. NOTE 6 - GOODWILL AND OTHER INTANGIBLE ASSETS Intangible assets include separate, identifiable, intangible assets such as customer relationships, trademarks, and covenants not to compete. Intangible assets with finite lives are amortized over their useful lives. The estimated useful life for customer relationships is 15 years, which is believed to be appropriate in view of average historical customer attrition. The
estimated useful lives of trademarks range from 10 to 15 years and are based upon Management’s assessment of several variables such as brand recognition, Management’s plan for the use of the trademark, and other factors that will affect the duration of the trademark’s life. The useful life of a covenant not to compete is based on the expiration date of the covenant, generally between three and ten years. Intangible assets with indefinite useful lives and goodwill
are no longer amortized, but instead are periodically reviewed for impairment. Griffith tests the goodwill and intangible assets remaining on the balance sheet for impairment annually in the fourth quarter, and retests between annual tests if an event should occur or circumstances arise that would more likely than not reduce the fair value below its carrying amount. Amortization expense was $1.0 million for both of the three-month periods ended March 31, 2009 and 2008. The estimated
annual amortization expense for each of the next five years, assuming no new acquisitions, is approximately $4.0 million. The carrying amount for goodwill as of March 31, 2009, December 31, 2008, and March 31, 2008 was $67.5 million. For tax purposes, goodwill is amortized ratably over a 15-year period, beginning in the month of acquisition. The weighted average amortization periods for customer relationships, trademarks and covenants not to compete are 15 years, 11 years, and 8.9 years, respectively. The weighted average amortization period for all amortizable intangible assets is 14.6 years. The components of amortizable intangible assets of CH Energy Group are summarized as follows (In Thousands): March 31, 2009 December 31, 2008 March 31, 2008 Gross Accumulated Gross Accumulated Gross Accumulated Customer relationships $ 55,171 $ 23,168 $ 55,171 $ 22,248 $ 55,067 $ 19,490 Trademarks 2,956 423 2,956 372 2,956 157 Covenants not to compete 1,605 1,051 1,605 983 1,660 1,001 Total Amortizable Intangibles $ 59,732 $ 24,642 $ 59,732 $ 23,603 $ 59,683 $ 20,648 - 31 - NOTE 7 - SHORT-TERM BORROWING ARRANGEMENTS CH Energy Group maintains a $150 million revolving credit facility with several commercial banks to provide committed liquidity. This facility’s term expires in February 2013. As of March 31, 2009 and December 31, 2008, there were no borrowings under this facility. As of March 31, 2008, the loan outstanding under this facility was $6.0 million. The notes payable
balances reported in the CH Energy Group Consolidated Balance Sheet reflect the borrowings of CH Energy Group’s subsidiaries as of March 31, 2009, December 31, 2008 and March 31, 2008, as discussed below. Central Hudson maintains a revolving credit facility with several commercial banks, pursuant to PSC authorization, in the amount of $125 million, for a five-year term ending January 2, 2012. As of March 31, 2009, Central Hudson’s outstanding loan balance under this facility was $40.0 million. As of December 31, 2008 and March 31, 2008, there were no borrowings
under Central Hudson’s revolving credit facility. Both the CH Energy Group and Central Hudson credit facilities reflect commitments from JPMorgan Chase Bank, N.A., Bank of America, N.A., HSBC Bank USA, N.A. and KeyBank National Association. If these lenders are unable to fulfill their commitments under these facilities, funding may not be available as needed. Central Hudson also maintains certain uncommitted lines of credit that diversify its sources of cash and provide competitive options to minimize its cost of short-term debt. As of March 31, 2009, there was no balance outstanding on these lines of credit. As of December 31, 2008 and March 31, 2008, Central Hudson’s outstanding balance on these lines of credit, in
aggregate was $25.5 million and $22.0 million, respectively. On January 18, 2008, Griffith established an uncommitted line of credit of up to $25 million with a commercial bank for the purpose of funding seasonal working capital, and for general corporate purposes. Under the terms of the line, the maximum borrowing amount is $25 million during the period between December 1st of each year and May 31st of each
following year, and $15 million during the period between June 1st and November 30th of each year. As of March 31, 2009, December 31, 2008 and March 31, 2008, there were borrowings under this agreement of $5.0 million, $10.0 million and $25.0 million, respectively. The obligations of Griffith under the line of credit are guaranteed by CH Energy Group and CHEC. NOTE 8 – CAPITALIZATION – COMMON AND PREFERRED STOCK There were no repurchases of common or preferred stock in the three months ended March 31, 2009. NOTE 9 – CAPITALIZATION - LONG-TERM DEBT On January 15, 2009, Central Hudson redeemed at maturity $20 million of 6.0% 1999 Series C notes. - 32 - NYSERDA Central Hudson has five debt series that were issued in conjunction with the sale of tax-exempt pollution control revenue bonds by New York State Energy Research and Development Authority (“NYSERDA”). These NYSERDA bonds, totaling $166 million, are insured by Ambac Assurance Corporation (“Ambac”). The current underlying rating and outlook on these bonds and Central Hudson’s
other senior unsecured debt is ‘A’/stable by Standard & Poor’s and Fitch Ratings and ‘A2’/negative by Moody’s.1 Central Hudson’s 1998 NYSERDA Series A Bonds, totaling $16.7 million, were re-marketed on December 1, 2008. Under the terms of the applicable indenture, Central Hudson converted the bonds to a fixed rate of 6.5% which will continue until their maturity in December 2028. Prior to the December 1, 2008 re-marketing, the bonds bore interest at 3.0%. Central Hudson’s 1999 NYSERDA Series A Bonds, totaling $33.4 million, have an interest rate that is fixed to maturity in 2027 at 5.45%. Central Hudson’s 1999 NYSERDA Bonds, Series B, C, and D, totaling $115.9 million, are multi-modal bonds that are currently in auction rate mode. Beginning in 1999 when the bonds were issued, the bonds’ interest rate has been reset every 35 days in a Dutch auction. Auctions in the market for municipal auction rate securities have experienced widespread
failures since early in 2008. Generally, an auction failure occurs because there is an insufficient level of demand to purchase the bonds and the bondholders who want to sell must hold the bonds for the next interest rate period. Since February 2008, all auctions for Central Hudson’s three series of auction rate bonds have failed. As a consequence, the interest rate paid to the bondholders has been set to the then prevailing maximum rate defined in the trust indenture. Central
Hudson’s maximum rate results in interest rates that are generally higher than expected results from the auction process. For the foreseeable future, Central Hudson expects the interest rate to be set at the maximum rate, determined on the date of each auction, to be 175% of the yield on an index of tax-exempt short-term debt, or its approximate equivalent. In the first quarter of 2009, the average maximum rate applicable on the bonds was 1.08%. In its Orders, the PSC has
authorized deferral accounting treatment for the interest costs from Central Hudson’s three series of variable rate 1999 NYSERDA Bonds. As a result, variations in interest rates on these bonds are deferred for future recovery from or refund to customers and Central Hudson does not expect the auction failures to have any adverse impact on earnings. To mitigate the potential impact of unexpected increases in short-term interest rates, Central Hudson purchases interest rate caps
based on an index for short-term tax-exempt debt. A two-year, 4.5% cap on $115.9 million of debt expired March 31, 2008. Central Hudson replaced the expiring cap, effective April 1, 2008, with a one-year cap set at 3.0%. The interest rate cap is evaluated quarterly and Central Hudson would receive a payout under the terms - 33 - of the cap if the index for short-term tax-exempt debt exceeds an average of 3.0% for the quarter. During the first quarter of 2009, the average did not exceed the cap rate and therefore no payments were received. Effective April 1, 2009, Central Hudson entered into a one-year rate cap based on the monthly weighted average of an index of tax-exempt variable rate debt multiplied by 175% to replace the expired interest rate
cap. Central Hudson is currently evaluating what actions, if any, it may take in the future in connection with its 1999 NYSERDA Bonds, Series B, C and D. Potential actions may include converting the debt from auction rate to another interest rate mode or refinancing with taxable bonds. For more information regarding the Company’s financing activities subsequent to March 31, 2009, see Note 15 – “Subsequent Events”. NOTE 10 - POST-EMPLOYMENT BENEFITS Central Hudson provides certain health care and life insurance benefits for retired employees through its post-retirement benefit plans. Managerial, professional and supervisory employees (“non-union”) hired prior to January 1, 2008, may become eligible for these benefits if they reach retirement age while employed by Central Hudson. In order to reduce the
total costs of these benefits, other post-retirement benefit (“OPEB”) plan changes were negotiated with the IBEW Local 320 for unionized employees and certain retired employees effective May 1, 2008. Plans were also amended to eliminate post-retirement benefits for union employees hired on or after May 1, 2008. The following are the components of Central Hudson’s net periodic benefit costs for its pension and OPEB plans for the three months ended March 31, 2009 and 2008 (In Thousands): Pension Benefits OPEB(1) Three Months Ended Three Months Ended 2009 2008 2009 2008 Service cost $ 1,957 $ 1,942 $ 519 $ 796 Interest cost 6,455 6,239 1,791 2,262 Expected return on plan assets (4,969 ) (7,578 ) (1,271 ) (1,721 ) Amortization of: Prior service cost (credit) 544 517 (1,467 ) (891 ) Transitional obligation (asset) — — 641 641 Recognized actuarial loss 6,350 3,102 2,209 1,463 Net Periodic Benefit Cost $ 10,337 $ 4,222 $ 2,422 $ 2,550 (1) The OPEB amounts for both years reflect the effect of the Medicare Prescription Drug Improvement and Modernization Act of 2003 under the provision of FSP No. FAS 106-2, titled Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. - 34 - In accordance with the measurement date provisions of SFAS 158, Central Hudson changed its measurement date for its pension plan (the “Retirement Plan”) from September 30 to December 31 for its financial statements for the year ended December 31, 2008. Central Hudson elected the “15-month-transition approach” and recorded an adjustment in the
first quarter of 2008 to recognize the effects of the change in measurement date. This adjustment represented 3/15ths of the net periodic pension cost determined for the period from October 1, 2007 to December 31, 2008; the remaining 12/15ths of the net periodic pension cost was recorded over the twelve months ended December 31, 2008. The recording of this adjustment increased Central Hudson’s pension liability by $0.4 million, comprised of the following components (In
Thousands): Adjustment for 3/15ths of net periodic pension costs $ 2,788 Adjustment for amortization of prior service costs and actuarial losses (1) (2,426 ) Net increase to pension liability $ 362 (1) Liability recognized previously on Consolidated Balance Sheet upon initial implementation of SFAS 158. In accordance with the provisions of SFAS 158, Central Hudson’s pension liability balance (i.e., the funded status) at March 31, 2009, December 31, 2008 and March 31, 2008, was $163.0 million, $162.2 million and $12.6 million, respectively. These balances include recognition for the difference between the projected benefit obligation (“PBO”) for
pensions and the market value of the pension assets, as well as consideration for non-qualified executive plans. The following reflects the impact of the recording of SFAS 158 adjustments on the Balance Sheets of CH Energy Group and Central Hudson (In Thousands): March 31, December 31, March 31, Prefunded (accrued) pension costs prior to SFAS 158 adjustment $ 22,179 $ 29,884 $ 29,819 Additional liability required (185,190 ) (192,084 ) (42,381 ) Accrued pension liability per SFAS 158 $ (163,011 ) $ (162,200 ) $ (12,562 ) Total offset to additional liability - Regulatory assets - Retirement Plan $ 185,190 $ 192,084 $ 42,381 Pursuant to SFAS 158, gains or losses and prior service costs or credits that arise during the period but 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 records regulatory assets rather than adjusting comprehensive income to offset the
additional SFAS 158 liability. The recording of a regulatory asset is consistent with the PSC’s 1993 Statement of Policy regarding pensions and OPEB (“1993 PSC Policy”). Under the 1993 PSC Policy, differences between pension expense and rate allowances covering these costs are deferred for - 35 - future recovery from or return to customers with carrying charges accrued on cash differences. Decisions to fund Central Hudson’s Retirement Plan are based on several factors, including the value of plan assets relative to plan liabilities, legislative requirements, regulatory considerations, and available corporate resources. As a result of recent market conditions, Central Hudson’s Retirement Plan assets have significantly decreased relative to the
plan liabilities. The liabilities are affected by the discount rate used to determine benefit obligations and the accruing of additional benefits. Central Hudson considers the provisions of the Pension Protection Act of 2006 in determining its funding for the Retirement Plan for the near-time and future periods. Funding for the Retirement Plan during the three months ended March 31, 2009 was $2.5 million. There was no funding for the Retirement Plan for the three months ended March
31, 2008. During the three months ended March 31, 2009, there were no employer contributions for OPEB. Employer contributions for OPEB during the three months ended March 31, 2008 were $1.2 million. The determination of future funding depends on a number of factors, including the discount rate, expected return on plan assets, medical claims assumptions used, mortality assumptions
used, benefit changes, and corporate resources. NOTE 11 - EQUITY-BASED COMPENSATION A summary of the status of performance shares granted to executives under the 2006 Plan is as follows: Grant Date Grant Price Performance Shares Performance Shares April 25, 2006 $ 46.15 20,710 18,290 January 25, 2007 $ 51.09 21,330 20,240 January 24, 2008 $ 42.44 33,440 33,440 January 26, 2009 $ 49.29 36,730 36,730 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. Performance shares granted April 25, 2006 and shown as outstanding as of March 31, 2009 in the above table are expected to be paid out in May 2009. Those recipients electing not to defer this compensation under the CH Energy Group Directors and Executives Deferred Compensation Plan will receive shares issued from CH Energy Group’s treasury stock. Additionally, due to the retirement of
one of Central Hudson’s executive officers on January 1, 2009, a pro-rated number of shares under the January 25, 2007 and January 4, 2008 grants are expected to be paid to this individual in July 2009. CH Energy Group - 36 - treasury stock will be utilized for the satisfaction of this award as well. The total compensation cost and total recognized tax benefits related thereto were immaterial for the three months ended March 31, 2009 and 2008. The following table summarizes compensation expense for performance shares for the three months ended March 31, 2009 and 2008 (In Thousands): Three Months Ended 2009 2008 Performance shares - compensation expense $ 213 $ 228 The following table summarizes information concerning stock options granted through March 31, 2009: Date of Grant Exercise Number of Number of Weighted Number of January 1, 2000 $ 31.94 30,300 320 0.75 320 January 1, 2001 $ 44.06 59,900 21,560 1.75 21,560 January 1, 2003 $ 48.62 36,900 18,420 3.75 18,420 127,100 40,300 2.66 40,300 A summary of the status of stock options awarded to executives and non-employee Directors of CH Energy Group and its subsidiaries under the 2000 Plan is as follows: Stock Option Weighted Weighted Outstanding at 12/31/08 40,300 $ 46.05 3.91 Granted — — Exercised — — Expired / Forfeited — — Outstanding at 3/31/09 40,300 $ 46.05 2.66 Total CH Energy Group Shares Outstanding 15,785,199 Potential Dilution 0.3 % There was no compensation expense related to stock options for the three months ended March 31, 2009 and 2008. The balance accrued for and the intrinsic value of outstanding options was not material as of March 31, 2009 and 2008. No non-qualified stock options were exercised during the three months ended March 31, 2009. - 37 - The following table summarizes information concerning restricted shares granted through March 31, 2009 (Dollars In Thousands): Grant Date Number of Fair Value on Vesting Terms Unvested Shares January 2, 2008 10,000 $ 443 End of 3 years 9,500 (1) January 2, 2008 2,100 $ 93 Ratably over 3 years 1,400 January 26, 2009 2,930 $ 144 End of 3 years 2,930 (1) 500 shares were forfeited upon resignation of the employee holding the shares. The above shares granted were issued from CH Energy Group’s treasury stock and are presented in the Consolidated Balance Sheet as an increase in common shares outstanding and as a reduction in treasury stock. In accordance with SFAS 123(R), unvested restricted shares do not impact the number of common shares outstanding used in the basic EPS calculation and as
such the number of unvested outstanding shares noted above have only been included in the diluted EPS calculation as of March 31, 2009. The total compensation cost and total recognized tax benefits related to these restricted stock awards was immaterial for the three months ended March 31, 2009 and 2008. 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. On an annual basis, the electricity purchased through the Entergy contracts represents approximately 21% of Central
Hudson’s full-service customer requirements and costs approximately $57.5 million. For the three months ended March 31, 2009 and 2008, the energy supplied under this agreement cost approximately $13.0 million and $14.6 million, respectively. Purchases under these contracts are supplemented by shorter-term contracts, such as the Dynegy contract discussed below, contracts for differences, and by purchases from the NYISO, which oversees the bulk electricity transmission system, and the capacity market in New York State, and other parties. On January 30, 2008, Central Hudson entered into an 11-month agreement
with Dynegy Power Marketing, Inc. to purchase 589,200 MWh of electricity on a unit-contingent basis at defined prices from February 1, 2008 to December 31, 2008. The electricity purchased through the Dynegy contracts represented approximately 10% of Central Hudson’s full-service customer requirements for the three months ended March 31, 2008 and cost approximately $8.9 million. In the event the above noted counterparties are unable to fulfill their commitments to deliver under the terms of the agreements, Central Hudson would - 38 - obtain the supply from the NYISO market and 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 its own generating capacity, contracts with capacity providers, and purchases from the NYISO capacity market. Contingencies City of Poughkeepsie On January 1, 2001, a fire destroyed a multi-family residence on Taylor Avenue in the City of Poughkeepsie, New York resulting in several deaths and damage to nearby residences. Eight separate lawsuits arising out of this incident have been commenced against Central Hudson and other defendants. The basis for the claimed liability of Central Hudson in these actions is
that it was allegedly negligent in the supply of natural gas. The suits seek an aggregate of $528 million in compensatory damages. Central Hudson has notified its insurance carrier, denied liability, and defended the lawsuits. On December 10, 2008, Central Hudson entered into a settlement agreement with the plaintiffs and one remaining defendant. Under the settlement agreement, Central Hudson has agreed to make payments to the plaintiffs that will not be material in the aggregate.
The settlement agreement is subject to final approval by the Court. Environmental Matters Central Hudson Ø Air In October 1999, Central Hudson was informed by the New York State Attorney General (“Attorney General”) that the Danskammer Point Steam Electric Generating Station (“Danskammer Plant”) was included in an investigation by the Attorney General’s Office into the compliance of eight older New York State coal-fired power plants with federal and
state air emissions rules. Specifically, the Attorney General alleged that Central Hudson “may have constructed, and continues to operate, major modifications to the Danskammer Plant without obtaining certain requisite preconstruction permits.” In March 2000, the Environmental Protection Agency (“EPA”) assumed responsibility for the investigation. Central Hudson has completed its production of documents requested by the Attorney General, the New York State
Department of Environmental Conservation (“DEC”), and the EPA, and believes any permits required for these projects were obtained in a timely manner. Notwithstanding Central Hudson’s sale of the Danskammer Plant on January 30, 2001, Central Hudson could retain liability, depending on the type of remedy, if any, imposed in connection with this matter. 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 - 39 - 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. Central Hudson presently has insufficient information with which to predict the outcome of this matter. Ø Former Manufactured Gas Plant Facilities Like most late 19th and early 20th century utilities in the northeastern United States, Central Hudson and its predecessors owned and operated manufactured gas plants (“MGPs”) to serve their customers’ heating and lighting needs. MGPs manufactured gas from coal and oil. This process produced certain by-products that may pose risks to human health and the environment.
The DEC, which regulates the timing and extent of remediation of MGP sites 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 eight sites in Central Hudson’s franchise territory. The DEC has further requested that Central Hudson investigate and, if necessary, remediate these sites under a Consent Order,
Voluntary Cleanup Agreement, or Brownfield Cleanup Agreement. The DEC has placed five of these sites on the New York State Environmental Site Remediation Database. A number of the eight sites are now owned by third parties and have been redeveloped for other uses. The current status of the eight sites is as follows: - 40 - Site Status #1 Beacon, NY Remediation complete. Final Report Approved by the DEC. Preparing post-remediation Site Management Plan. #2 Newburgh, NY Remediation complete in one area under the terms of the DEC-approved plan. The final Construction Completion Report on this area has been filed with the DEC. For the remaining areas, a Draft – Final Remedial Design Report has been filed. The Final Remedial Design for these areas is scheduled to be filed on 6/1/09. #3 Laurel Street Remediation work is complete. Preparing Final Report and post-remediation Site Management Plan. #4 North Water Street Supplemental site investigations completed in June 2008 and the report of these investigations has been submitted to the DEC. #5 Kingston, NY Brownfield Cleanup Agreement was executed and the Citizen Participation Plan (“CPP”) was submitted to the DEC. Central Hudson has submitted to the DEC past site investigation data and information on past remediation activities. The DEC provided comments indicating that additional investigation will be required in order to further delineate the nature and extent of the on-site and off-site contamination. #6 Catskill, NY Site investigation completed under the DEC-approved Brownfield Cleanup Agreement. The report summarizing the additional investigation work conducted in October 2008 and additional proposed investigation work has been submitted to the DEC. #7 Saugerties, NY Central Hudson does not believe it has any liability for this site and is working with the DEC to confirm this. #8 Bayeaux Street Central Hudson does not believe it has any further liability for this site. In the second quarter of 2008, Central Hudson updated the estimate of potential remediation and future operating, maintenance and monitoring costs for sites # 2, 3, 4, 5 and 6 indicating that the total cost for the five sites could exceed $165 million over the next 30 years. The updated estimate for sites # 2 and 3 was based on completed remedial investigations and feasibility studies. As such, the
estimate is subject to change based on the current investigations, final remedial design (and associated engineering estimates), DEC and New York State Department of Health (“NYSDOH”) comments and requests, remedial design changes/negotiations and changed or - 41 - unforeseen conditions during remediation. The updated estimate for sites # 4, 5 and 6 was based on partially completed remedial investigations and current DEC and NYSDOH preferences related to site remediation and is considered conceptual and preliminary. The updated estimate reflects updated cost information along with the latest information from the investigation and remediation work being done on MGP sites # 2, 3 and 4 and to include site # 6. The cost estimate
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. This cost
estimate also assumes that proposed or anticipated remediation techniques are technically feasible and that proposed remediation plans receive DEC and NYSDOH approval. Further, the updated estimate could change materially based on changes to technology relating to remedial alternatives and changes to current laws and regulations. Prior to 2009, Central Hudson recorded a $24.7 million estimated liability for sites # 2 and 3 based on estimates of remediation costs for the proposed clean-up plans. As of March 31, 2009, $24.0 million of this recorded estimated liability has not been spent; $4.4 million of this recorded estimated liability is expected to be spent over the next twelve months. No amounts have been recorded in connection with the physical remediation of sites # 4, 5 and 6, for which Central Hudson has developed estimated future costs based on conceptual and preliminary plans. Absent DEC-approved remediation plans, management cannot reasonably estimate what cost, if any, will actually be incurred. The portion of the $165 million referenced above that is related to these three
sites is approximately $121 million. Prior to 2009, Central Hudson had recorded a $1.4 million estimated liability in connection with estimated costs for preliminary investigations, site testing and development of remediation plans for sites # 4, 5 and 6 through 2010. Based on the latest forecast of activities at these sites, this estimated liability has been increased in 2009 to $3.9 million. As of March 31, 2009, $2.7 million of this recorded estimated liability has not been
spent; $1.2 million of this recorded estimated liability is expected to be spent over the next twelve months. This estimated amount may change in the future as additional information is obtained regarding the results of site-testing, the scope of site investigation plans approved by the DEC and NYSDOH, and the evolving development of new technologies. Central Hudson cannot predict the results of site testing, the nature, timing or extent of comments from the DEC and NYSDOH, or
changes in technology. The impact of these uncertainties on the estimate cannot be determined. With regard to sites # 7 and 8, Central Hudson does not have sufficient information to estimate its potential remediation cost if any; as previously stated, Central Hudson believes that it has no liability for these sites. - 42 - Central Hudson spent $1.3 million in the three months ended March 31, 2009 related to site investigation and remediation for sites #2, 3, 4, 5 and 6. Based on the 2006 Rate Order, on July 1, 2007, Central Hudson started the recovery of a rate allowance for MGP Site Investigation & Remediation Costs. This recovery totaled $2.9 million as of March 31, 2009 with $0.4 million recovered in 2009. 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. Pursuant to the 2006 Rate Order, Central Hudson is 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. 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. Ø Little Britain Road In December 1977, Central Hudson purchased property at 610 Little Britain Road, New Windsor, New York. In 1992, the DEC informed Central Hudson that the DEC was preparing to conduct a Preliminary Site Assessment (“PSA”) of the site and in 1995, the DEC issued an Order of Consent in which Central Hudson agreed to conduct the PSA. In 2000, following completion of the PSA, Central Hudson and the DEC
entered into a Voluntary Cleanup Agreement (“VCA”) whereby Central Hudson removed approximately 3,100 tons of soil and has conducted a routine groundwater sampling program since that time. Groundwater sampling results show the presence of certain contaminants at levels exceeding DEC criteria. Deep groundwater wells were installed in 2005 and 2006, which also show contaminants exceeding DEC criteria. The DEC responded with a request for a plan to address the
contamination. Central Hudson has submitted a proposal to the DEC for limited additional site work, including an assessment of vapor intrusion into a building on the site, and closure of the VCA. Negotiations between DEC and Central Hudson regarding additional site work and closure of the VCA are ongoing. Central Hudson completed a soil vapor intrusion study and results indicated that indoor air met Occupational Safety and Health Administration (“OSHA”) and NYSDOH
standards, however, concentrations beneath the building’s concrete slab warranted installation of a mitigation system. This mitigation system was installed in 2008. At this time Central Hudson does not have sufficient information to estimate potential ground water 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. - 43 - Ø Newburgh Consolidated Iron Works By letter from the EPA dated November 28, 2001, Central Hudson, among others, was served with a Request For Information pursuant to the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) regarding any shipments of scrap or waste materials that Central Hudson may have made to Consolidated Iron and Metal Co., Inc. (“Consolidated Iron”), a Superfund site
located in Newburgh, New York. Sampling by the EPA indicated that lead and polychlorinated biphenyls (or “PCBs”) are present at the site, and the EPA subsequently commenced a remedial investigation and feasibility study at the site. No records were found which indicate that the materials shipped by Central Hudson to Consolidated Iron contained or was a hazardous substance. In April 2008, Central Hudson received a letter from the Consolidated Iron Joint Defense Group
(“JDG”), a group of potentially responsible parties asserting a contribution claim against Central Hudson. The JDG had reached an agreement in principle with the EPA to resolve claims at the Consolidated Iron site under a consent decree to be filed with the court. In December 2008, Central Hudson entered into a settlement agreement with the JDG pursuant to which Central Hudson expects to be added to the consent decree and anticipates no further liability for the site, in
which case Management does not expect a material impact on earnings. However, the consent decree provides the EPA with the right to reopen the matter under certain circumstances and Central Hudson cannot predict the outcome of this matter at the present time. Ø Asbestos Litigation As of March 31, 2009, of the 3,313 asbestos cases brought against Central Hudson, 1,184 remain pending. Of the cases no longer pending against Central Hudson, 1,978 have been dismissed or discontinued without payment by Central Hudson, and Central Hudson has settled 151 cases. Central Hudson is presently unable to assess the validity of the remaining asbestos lawsuits; accordingly, it cannot determine the
ultimate liability relating to these cases. Based on information known to Central Hudson at this time, including Central Hudson’s experience in settling asbestos cases and in obtaining dismissals of asbestos cases, Central Hudson believes that the costs which may be incurred in connection with the remaining lawsuits will not have a material adverse effect on either of CH Energy Group’s or Central Hudson’s financial position, results of operations, or cash
flows. CHEC During the three months ended March 31, 2009, Griffith spent approximately $30,000 on remediation efforts in Maryland, Virginia, West Virginia and Connecticut. Griffith is to be reimbursed $0.3 million from the State of Connecticut under an environmental agreement and has recorded this amount as a receivable. - 44 - Griffith has a reserve for environmental remediation which is $1.3 million as of March 31, 2009, of which $0.2 million is expected to be spent in the next twelve months. 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, 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. 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 the investments and business development activities of CH Energy Group and the renewable energy and
investment activities of CHEC, including its ownership interests in ethanol, wind, and biomass energy projects 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, Central Hudson property common to both electric and natural gas segments, and the depreciation of Central Hudson’s common property have been allocated in accordance with practices established for regulatory purposes. Central Hudson’s and Griffith’s operations are seasonal in nature and weather-sensitive and, as a result, financial results for interim periods are not necessarily indicative of trends for a twelve-month period. Demand for electricity typically peaks during the summer, while demand for natural gas and heating oil typically peaks during the winter. - 45 - CH Energy Group Segment Disclosure Three Months Ended March 31, 2009 Other Central Hudson Electric Natural Griffith Eliminations Total Revenues from external customers $ 156,753 $ 90,123 $ 129,385 $ 2,212 $ — $ 378,473 Intersegment revenues 6 219 — — (225 ) — Total revenues 156,759 90,342 129,385 2,212 (225 ) 378,473 Interest and investment income 351 395 5 1,417 (1,052 ) (1) 1,116 Interest expense 4,880 1,338 993 128 (1,052 ) (1) 6,287 Income before income taxes 10,829 10,328 16,994 (497 ) — 37,654 Net income attributable to CH Energy Group 6,295 6,056 10,026 744 — 23,121 Segment assets at March 31, 2009 $ 1,123,341 $ 391,559 $ 193,173 $ 38,920 $ (75 ) (2) $ 1,746,918 (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 non-controlling interest of $1,417 related to Lyonsdale. CH Energy Group Segment Disclosure Three Months Ended March 31, 2008 Other Central Hudson Electric Natural Griffith Eliminations Total Revenues from external customers $ 143,814 $ 76,219 $ 186,577 $ 3,182 $ — $ 409,792 Intersegment revenues 5 150 — — (155 ) — Total revenues 143,819 76,369 186,577 3,182 (155 ) 409,792 Interest and investment income 479 413 35 1,581 (1,235 ) (1) 1,273 Interest expense 4,857 1,332 1,297 126 (1,235 ) (1) 6,377 Income before income taxes 10,542 9,225 9,845 1,626 — 31,238 Net income attributable to CH Energy Group 6,163 5,342 5,907 1,889 — 19,301 Segment assets at March 31, 2008 $ 917,496 $ 323,395 $ 225,510 $ 40,540 $ (722 ) (2) $ 1,506,219 (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 non-controlling interest of $1,429 related to Lyonsdale. - 46 - Central Hudson Segment Disclosure Three Months Ended March 31, 2009 Electric Natural Gas Eliminations Total Revenues from external customers $ 156,753 $ 90,123 $ — $ 246,876 Intersegment revenues 6 219 (225 ) — Total revenues 156,759 90,342 (225 ) 246,876 Interest and investment income 351 395 — 746 Interest expense 4,880 1,338 — 6,218 Income before income taxes 10,952 10,447 — 21,399 Income available for common stock 6,295 6,056 — 12,351 Segment assets at March 31, 2009 $ 1,123,341 $ 391,559 $ — $ 1,514,900 Central Hudson Segment Disclosure (In Thousands) Three Months Ended March 31, 2008 Electric Natural Gas Eliminations Total Revenues from external customers $ 143,814 $ 76,219 $ — $ 220,033 Intersegment revenues 5 150 (155 ) — Total revenues 143,819 76,369 (155 ) 220,033 Interest and investment income 479 413 — 892 Interest expense 4,857 1,332 — 6,189 Income before income taxes 10,673 9,336 — 20,009 Income available for common stock 6,163 5,342 — 11,505 Segment assets at March 31, 2008 $ 917,496 $ 323,395 $ — $ 1,240,891 NOTE 14 - ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), as amended, established accounting and reporting requirements for derivative instruments and hedging activities. SFAS 133 requires that an entity recognize the fair value of all derivative instruments as either assets or liabilities on the balance sheet with the corresponding unrealized gains or
losses recognized in earnings. SFAS 133 permits the deferral of the effective portion of unrealized gains and losses on derivatives that are properly designated as hedges under SFAS 133. CH Energy Group and its subsidiaries enter into derivative instruments for hedging purposes in conjunction with the Company’s energy risk management program, not for speculative purposes. Central Hudson uses derivative contracts to hedge exposure to variability in the prices of natural gas and electricity and to hedge exposure to variability in interest rates for its variable rate long-term debt. The
types of derivative instruments typically used by Central Hudson are natural gas futures and swaps to hedge natural gas purchases, contracts for differences (electricity swaps) to hedge electricity purchases, and interest rate caps to hedge interest payments on variable rate debt. Although the use of these instruments is intended to hedge cash flows, they are not designated as hedges under the provisions of SFAS 133, and the related gains and - 47 - losses are included as part of Central Hudson’s commodity cost and/or price-reconciled in its natural gas and electricity cost adjustment charge clauses. Griffith uses derivative instruments to hedge variability in the price of heating oil purchased for delivery to its customers. In 2009 and 2008, Griffith purchased call option contracts to establish ceiling prices to hedge forecasted heating oil supply requirements for capped price programs not hedged by
firm purchase commitments. The options hedge purchase cash flows related to commodity price changes. These derivatives are designated as cash flow hedges under the provisions of SFAS 133 and are accounted for under the deferral method with actual gains and losses from the hedging activity included in the cost of sales as the hedged transaction occurs. At March 31, 2009, Central Hudson had open derivative contracts to hedge natural gas prices during May - September 2009, and November 2009 - March 2010, covering approximately 31.0% of Central Hudson’s projected total natural gas supply requirements during the upcoming winter heating season. In its electric operations, Central Hudson had open derivative contracts at March 31, 2009 to economically
hedge the price of approximately 23.5% of its projected electricity requirements for April-December 2009, and 5.7% of its projected requirements in each of the years 2010, 2011, and 2012. At March 31, 2009, Griffith had open OTC call option positions covering approximately 5.7% and 0.2% of its anticipated fuel oil supply requirements for the periods April-June 2009 and January 2010, respectively. Central Hudson and Griffith both hold contracts for derivative instruments under master netting agreements. Of the thirteen total agreements held by both companies, seven contain credit-risk related contingent features. The circumstances that could trigger these features, the aggregate fair value of the derivative instruments that contain contingent features and the amount that would be required to settle
these instruments on March 31, 2009 if the contingent features were triggered are described below. - 48 - Contingent Contracts As of March 31, 2009 Triggering Event # of Contracts Gross Fair Value Cost to Settle if Contingent Central Hudson: Change in Ownership 1 $ (950 ) $ (950 ) Credit Rating Downgrade 4 (96 ) (96 ) Adequate Assurance(1) 1 (320 ) (320 ) Total Central Hudson 6 (1,366 ) (1,366 ) Griffith: Change in Ownership 1 2 10 Total CH Energy Group 7 $ (1,364 ) $ (1,356 ) (1) If the counterparty has reasonable grounds to believe CHG&E’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 uses master netting agreements to mitigate the credit risk of financial derivatives, and in accordance with FSP No. FIN 39-1, Amendment of FASB Interpretation No. 39, has elected net presentation for its derivative contracts under master netting agreements. On March 31, 2009, neither Central Hudson nor Griffith had collateral posted against the fair value amount of derivatives under
any of these agreements. If collateral were posted, CH Energy Group’s policy is to also report the collateral positions on a net basis. The fair value of CH Energy Group’s and Central Hudson’s derivative instruments and their location in the respective Balance Sheets are described below, followed by a description 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.” - 49 - Gross Fair Value of Derivative Instruments March 31, December 31, March 31, Derivatives in an Asset Position:(1) Not Designated as Hedging Instruments:(2) Central Hudson electricity swap contracts $ — $ — $ 612 Central Hudson interest rate swap contract — — — Total Central Hudson Derivatives in an Asset Position — — 612 Designated as Hedging Instruments under SFAS 133: Griffith heating oil call option contracts 2 — 509 Total CH Energy Group Derivatives in Asset Position $ 2 $ — $ 1,121 Derivatives in a Liability Position:(1) Not Designated as Hedging Instruments:(2) Central Hudson electricity swap contracts $ (17,506 ) $ (5,538 ) $ (21 ) Central Hudson natural gas swap contracts (3,010 ) (10,221 ) — Total Central Hudson Derivatives in a Liability Position (20,516 ) (15,759 ) (21 ) Designated as Hedging Instruments under SFAS 133: Griffith heating oil call option contracts — — — Total CH Energy Group Derivatives in Liability Position $ (20,516 ) $ (15,759 ) $ (21 ) Total Central Hudson Derivatives - Net $ (20,516 ) $ (15,759 ) $ 591 Total CH Energy Group Derivatives - Net $ (20,514 ) $ (15,759 ) $ 1,100 (1) Asset and Liability Derivatives are shown net on the balance sheet under the caption Fair Value of Derivative Instruments. (2) See discussion following tables for additional information regarding regulatory treatment of gains and losses on Central Hudson’s derivative contracts. - 50 - The Effect of Derivative Instruments on the Statements of Income (In Thousands) CH Energy Group Designated as Hedging Instruments: Derivatives in SFAS 133 Amount of Gain/(Loss) Amount of (Gain)/Loss Location of Gain/(Loss) Three Months Ended Three Months Ended 2009 2008 2009 2008 Griffith heating oil call option contracts(1) $ 1 $ 273 $ — $ (699 ) Purchased petroleum Total $ 1 $ 273 $ — $ (699 ) Not Designated as Hedging Instruments: Amount of Gain/(Loss) Recognized as Location of Gain/(Loss) Three Months Ended March 31, 2009 2008 Central Hudson electricity swap contracts $ (3,464 ) $ — Regulatory asset(2) Central Hudson natural gas swap contracts (11,021 ) (1,026 ) Regulatory asset(2) Central Hudson interest rate swap contract — — Regulatory asset(2) Total $ (14,485 ) $ (1,026 ) Central Hudson Designated as Hedging Instruments: None Not Designated as Hedging Instruments: Amount of Gain/(Loss) Recognized as Location of Gain/(Loss) Three Months Ended March 31, 2009 2008 Electricity swap contracts $ (3,464 ) $ — Regulatory asset(2) Natural gas swap contracts (11,021 ) (1,026 ) Regulatory asset(2) Interest rate swap contract — — Regulatory asset(2) Total $ (14,485 ) $ (1,026 ) (1) For the three months ended March 31, 2009 and 2008, the amount of gain/(loss) recognized in income for Griffith heating oil call option contracts designated as hedging instruments was not material. (2) 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. - 51 - Central Hudson recorded actual net losses of $14.5 million on such hedging activities for the three months ended March 31, 2009, as compared to a net loss of $1.0 million for the same period in 2008. For more information regarding the fair value of the Company’s outstanding derivative contracts, see Note 1 – “Summary of Significant Accounting Policies”. In the three months ended March 31, 2009 and 2008, Griffith’s call options were effective with no gains or losses from ineffectiveness recorded. The assessment of hedge effectiveness for these hedges excludes the change in the fair value of the premium paid for these derivative instruments. The total fair value of open derivative instruments at March 31, 2009 was immaterial. The total fair value at
December 31, 2008 and March 31, 2008 was zero and a net unrealized gain of $0.5 million, respectively. These amounts were recorded in each period as part of the cost or price of the related commodity transactions. The fair values of call options are determined based on the market value of the underlying commodity. The total net loss including premium expense was not material in the three months ended March 31, 2009. Unrealized losses expected to be reclassified into earnings over
the next twelve months are not material. A total net gain including premium expense of $1.0 million was recorded in the three months ended March 31, 2008. In addition to the above, Central Hudson and Griffith use weather derivative contracts to hedge the effect on earnings of significant variances in weather conditions from normal patterns if such contracts can be obtained on reasonable terms. Weather derivative contracts are not subject to the provisions of SFAS 133 and are accounted for in accordance with EITF Issue No. 99-2, Accounting for Weather
Derivatives. In the three months ended March 31, 2009, Central Hudson made no payment to and received no payment from counterparties. In the three months ended March 31, 2008, no payments were made to or received from counterparties. In the three months ended March 31, 2009, Griffith made a settlement payment of $0.2 million to counterparties and for the three months ended March 31, 2008 did not make or receive settlement payments to or from counterparties. NOTE 15 – SUBSEQUENT EVENTS On April 17, 2009, CH Energy Group entered into a Note Purchase Agreement to issue and sell, in a private placement exempt from registration under the Securities Act of 1933, $50 million of senior unsecured notes. The notes bear interest at the rate of 6.58% per annum and mature on April 17, 2014. CH Energy Group completed the sale of $35 million in principal amount of the notes on April 17, 2009, and the
remaining $15 million in principal amount of the notes will be issued and sold on June 15, 2009. CH Energy Group will use the proceeds from the sale of the notes to refinance short-term debt and for general corporate purposes. The Note Purchase Agreement includes certain financial and other covenants, including a requirement that CH Energy Group’s consolidated total debt-to-total capitalization not exceed 0.65 to 1.00 and that its priority debt (as defined in the agreement)
not exceed 10% of total consolidated assets. - 52 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EXECUTIVE SUMMARY 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; and Other Businesses and Investments (4) CHEC’s investments in renewable energy supply, ethanol production, energy efficiency, an energy sector venture capital fund, and the holding company’s earnings, which consist primarily of inter-company interest income. A breakdown by business unit of CH Energy Group’s operating revenues of $378.5 million and $409.8 million for the three months ended March 31, 2009 and March 31, 2008, respectively, is illustrated below. CH Energy Group Revenue by Business Unit Note: 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 1st Quarter 2009: 24% cost recovery revenues + 17% other revenues = 41% Electric 1st Quarter 2008: 20% cost recovery revenues + 15% other revenues = 35% Natural gas 1st Quarter 2009: 17% cost recovery revenues + 7% other revenues = 24% Natural gas 1st Quarter 2008: 13% cost recovery revenues + 6% other revenues = 19% Griffith 1st Quarter 2009: 23% commodity costs + 11% other revenues = 34% Griffith 1st Quarter 2008: 37% commodity costs + 8% other revenues = 45% - 53 - A breakdown by business unit of CH Energy Group’s net income of $23.1 million and $19.3 million for the three months ended March 31, 2009 and March 31, 2008, respectively, is illustrated below. CH Energy Group Net Income by Business Unit
A breakdown by segment of CH Energy Group’s total assets of $1,747 million as of March 31, 2009 is illustrated below. CH Energy Group Assets at March 31, 2009 by Business Unit
As the graphs above indicate, as of March 31, 2009, 87% of CH Energy Group’s assets are employed in the electric and natural gas businesses, which are subject to regulation by the PSC (as discussed in more detail below), and the remaining 13% of its assets are employed in non-regulated businesses. Additionally, CH Energy Group derived 70% of its net income from the regulated electric and natural gas
business and 30% of its net income from the non-regulated businesses for the twelve months ended March 31, 2009. Due to the seasonality of the fuel distribution business, this percentage can vary from quarter to quarter, but has been relatively consistent on an - 54 - annual basis in recent years. The large relative proportion of the regulated utility business is supportive of stability of earnings. CH Energy Group believes that this business profile appeals to the risk appetite and return expectations of its shareholder base. CH Energy Group’s objective is to deliver value to its shareholders through current income, in the form of quarterly dividend payments, and share price appreciation over time, which should result from earnings growth over the long-term. CH Energy Group seeks to employ its resources in a manner that supports this objective. The Company regularly considers a range of strategies that include:
acquisitions, alternative financial structures, operating efficiency improvements, allocation of capital between business units, entry into new lines of business, and divesting existing lines of business. The mix of strategies or relative emphasis on each strategy evolves over time, based on current circumstances and the expected contribution of each strategy to shareholder value. During the first quarter of 2009, the Company continued its business focus on investing in the regulated electric and natural gas businesses of Central Hudson. Acquisitions by Griffith have remained suspended through the first quarter of 2009, pending completion of Management’s strategic review of this business. Central Hudson continued to pursue additional opportunities for investment in its
infrastructure, as well as expanded opportunities in electric and gas transmission, renewable energy production and energy efficiency services. Additional investments by CHEC in unregulated businesses are also being pursued, with a heightened focus on investments with stable and predictable income streams and cash flow. Based on current market conditions, the Company does not expect to invest in new ethanol projects. CH Energy Group believes managing risk is another important component of its strategy to deliver value to shareholders, and emphasizes earnings and cash flow stability, creditworthiness, and access to liquidity as fundamentals of long-term success. On April 17, 2009, CH Energy Group entered into a Note Purchase Agreement to issue and sell $50 million of senior unsecured notes, at an interest rate of 6.58%,
due April 17, 2014. CH Energy Group completed the sale of $35 million in principal amount of the notes on April 17, 2009, and the remaining $15 million in principal amount of the notes will be issued and sold on June 15, 2009. The proceeds will be used to refinance short-term debt and for general corporate purposes. With the continued growth of Central Hudson and with success in developing new opportunities at CHEC, the Company believes that it may also be appropriate at some point
in the next few years to issue additional shares of common equity as part of the Company’s financing program. CH Energy Group also expects to consider selling assets in its portfolio to raise cash and avoid, reduce, or postpone an issuance of additional shares of common stock. CENTRAL HUDSON Central Hudson delivers electricity and natural gas to approximately 300,000 electric customers and 74,000 natural gas customers in a defined service territory in the - 55 - Mid-Hudson Valley region of New York State. The rates Central Hudson charges its customers are set by the PSC. These rates are designed to recover the cost of providing safe and reliable service to Central Hudson’s customers and to provide a fair and reasonable return on the capital invested by shareholders. Central Hudson’s earnings are derived primarily from the revenue it generates from delivering energy to its customers. Central Hudson also procures
supplies of electricity and natural gas for customers who have not chosen to utilize an independent third party supplier. The PSC has authorized Central Hudson to recover the costs of the electric and gas commodities from customers, without earning a profit on the commodity costs. Central Hudson’s Management seeks to increase shareholder value through obtaining current recovery of its costs of doing business, increasing its rate base, and obtaining an allowed Return on Equity (“ROE”) that provides a fair and reasonable return for providers of equity capital. Management is committed to providing safe and reliable service, to customer satisfaction, and to promoting
positive customer and regulatory relations. Management believes these commitments are important in its efforts to obtain full cost recovery and reasonable returns for shareholders. Management’s strategies include effectively managing costs, requesting rate increases to align the revenues from customers with the cost of providing service, and investing in its energy delivery infrastructure. Central Hudson filed a rate increase request with the PSC in July 2008. Evidentiary hearings were held and initial and reply briefs were filed during the first quarter of 2009. A Recommended Decision (“RD”) by the Administrative Law Judges (“ALJ”) assigned to the proceeding was issued April 10, 2009. Significant aspects of the RD include a $33.6 million and $12.5 million increase in
electric and gas delivery rates, respectively, and a 10.05% allowed return on equity and a common equity ratio of 47%. Additionally, the RD adopts the Company’s proposed electric and gas Revenue Decoupling Mechanisms (“RDM”). A final Order from the PSC is expected in June 2009 with the new rates taking effect July 1, 2009. No prediction can be made as to the final outcome of the rate increase request. The capital intensive nature of Central Hudson’s business and its obligation to serve all customers in its franchise area require continuous access to capital on reasonable terms. Central Hudson has historically maintained a strong capital structure and access to capital through committed and uncommitted lines of credit. GRIFFITH Griffith provides petroleum products and services to approximately 112,000 customers in a market area comprised primarily of parts of Connecticut, Delaware, Washington, D.C., Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Rhode Island, Virginia, and West Virginia. Griffith’s revenues, cash flows, and earnings are derived from the sale and delivery of heating oil, gasoline, diesel fuel,
kerosene, and propane and from the installation and maintenance of heating, ventilating, and air conditioning equipment. - 56 - Below is a breakdown of Griffith’s gross profit of $40.2 million and $33.1 million by petroleum product and by service and installations for the three months ended March 31, 2009 and 2008, respectively. Griffith Gross Profit by Product & Service Line Griffith’s Management seeks to increase shareholder value primarily through increased earnings as a result of continued improvements in operations and by providing its free cash flow to CH Energy Group. Management’s strategies to achieve these goals include effectively managing costs and expanding margins. Management believes that Griffith’s strong brand name, effective cost management practices, and reputation for high quality, dependable service, position it well for future contributions to CH Energy Group’s earnings and cash flows. Management is conducting a strategic review of Griffith in light of recent energy price volatility and changes in customer behavior and evaluating each of its products and markets to determine the best strategy to deliver long-term value to CH Energy Group shareholders. OTHER BUSINESSES AND INVESTMENTS In addition to Griffith, CHEC derives earnings through investments in renewable energy supply, ethanol production, energy efficiency, and an energy sector venture capital fund. This business unit also includes the holding company’s earnings, which consist primarily of inter-company interest income. CHEC’s investment objectives are to increase earnings and cash flow with a heightened focus on investments with stable and predictable income streams and cash flows. From a portfolio perspective, Management seeks to limit earnings and cash flow - 57 - volatility through diversification of its investments. The Company believes that renewable energy markets provide opportunities that fit well with objectives. CHEC is investing in a project under which it will develop, construct, own and operate a landfill gas to electric project in Auburn, NY. The project will utilize methane gas generated by the City of Auburn landfill to produce and sell electricity to the City. CHEC has also entered into an agreement in April 2009 to develop, construct and own a molecular gate system to be leased to Beacon Landfill Gas Holdings (“Beacon”) and installed and operated at Beacon’s landfill gas processing plant at the Greentree landfill facility in Fox Township, Elk County, Pennsylvania. The equipment will be used to remove excess
nitrogen from landfill gas produced by the Greentree facility thereby increasing the amount of gas available for sale by Beacon. OVERVIEW OF FIRST QUARTER RESULTS Earnings for CH Energy Group totaled $1.47 per share in 2009, versus $1.23 per share in the first quarter of 2008. First quarter 2009 earnings by business were as follows: Central Hudson Central Hudson’s contribution to earnings per share was $0.78, $0.05 per share higher than the first quarter of 2008. The impact of weather added $0.09 per share to earnings, with lower restoration costs from fewer storms adding $0.03 per share and increased sales volumes due to colder temperatures adding $0.06 per share. Additionally, rate increases added $0.05
per share to the increase, which were more than offset by higher operating costs and higher uncollectible accounts. Griffith Griffith contributed $0.64 to earnings per share in the first quarter of 2009, $0.27 per share higher than in the first quarter of 2008. Griffith’s earnings contribution was also due in part to colder weather in 2009. However the increased earnings are also attributable to margin growth, reduced expenses, and acquisitions made in 2008. Although customer
conservation dampened earnings by $0.13 per share, colder weather added $0.13 per share, improved margins added $0.22 per share, operating efficiencies added $0.02 per share, and contributions of acquisitions made in 2008 added $0.02 per share to the increase. Other Businesses and Investments CH Energy Group (the holding company) and CHEC’s partnerships and other investments contributed $0.05 toward corporate earnings per share in the first quarter of 2009, a decrease of $0.08 per share from the same period in 2008. A reserve recorded during the first quarter of 2009 related to a development project of CHEC lowered - 58 - earnings by $0.05 per share. The reserve represents the full amount of the note receivable investment for development expenditures and this project represents CHEC’s only current early-stage development project. This reserve reflects the impact that the continued credit crisis and compressed crush margins had on the probability of obtaining financing prior to the due date of the loan. Additionally, unplanned outages at
Lyonsdale lowered earnings by $0.02 per share. PSC PROCEEDINGS ELECTRIC AND NATURAL GAS RATE INCREASE (Cases 08-E-0887 and 08-G-0888 - Proceeding on Motion of the PSC as to the Rates, Charges, Rules and Regulations of Central Hudson Gas & Electric Corporation for Electric and Gas Service) Background: On July 31, 2008, Central Hudson filed an electric and natural gas rate case with the PSC to increase, effective July 1, 2009, electric and natural gas delivery rates which have been in effect since July 1, 2008, the final term of a three-year rate plan that took effect on July 1, 2006. A summary of the most significant components of the filing include: • Increases of $35.4 million and $14.7 million of electric and natural gas delivery rates, respectively • Common equity ratio of 48% (the current Rate Order permits a common equity ratio of 45% - 47%) • Base return on equity (“ROE”) of 10.25% (the current Rate Order permits an allowed base ROE of 9.6%) • As required by the PSC, the filing included electric and natural gas RDM proposals. The filing was made in order to align electric and natural gas delivery rates with the projected costs of providing electric and gas service to customers. Factors contributing to the need for an increase in rates include the following: • Gas and electric sales that are lower than the levels on which current rates are based • Inflationary pressures • Regulatory mandates • The on-going need for electric and natural gas system infrastructure improvements The filing also seeks to recover projected expenditures associated with the following: • Distribution line tree trimming and enhanced electric transmission right of way management practices • MGP site remediation • Stray voltage testing of Central Hudson owned and municipally owned electric facilities • Gas infrastructure improvements - 59 - These cost increases are partially offset by productivity gains and significant reductions in the expected future increase in benefit costs as a result of Central Hudson’s successful efforts to restructure compensation and benefits (including modifications to the pension and OPEB plans) to align with the market. In the filing, Central Hudson proposed to pass back
to electric customers a net regulatory liability estimated at about $21.2 million during the rate year as an electric bill credit. Schedule: 2008 – In addition to the filing, notable procedural milestones include the following: • Staff’s and Intervenor’s Direct Testimony was filed November 25th • Central Hudson’s Rebuttal Testimony was filed December 23rd 2009 • Evidentiary hearings were held January 12th-15th • Initial Briefs were filed February 17th • Reply Briefs were filed March 11th • A Recommended Decision (“RD”) by the Administrative Law Judges (“ALJ”) assigned to the proceeding was issued April 10, 2009 • The RD includes a $33.6 million and a $12.5 million increase in electric and gas delivery rates, respectively. These increases include a $12.0 million tax on utility operating revenues due to the recent bill enacted by the NYS legislature increasing the tax on utility operating revenues to 2%, which was not part of the Company’s request initially. The RD adopts a 10.05% base return on equity and a common equity
ratio of 47%. The RD adopts the Company’s proposed electric and gas Revenue Decoupling Mechanisms. The RD adopted the Company’s proposed electric, gas and common capital expenditures and provided support for operating expense increases. The RD proposes continuation, with minor modifications of the Company’s Electric Reliability, Gas Safety and Customer Service Performance Mechanisms. The RD also proposes to pass back to electric customers a net
regulatory liability estimated at $16.6 million during the rate year as an electric bill credit. • Briefs on Exceptions were filed on April 30, 2009 and Briefs Opposing Exceptions are due May 15, 2009. • A final Order from the PSC is expected in June, with new rates taking effect July 1, 2009. Potential Impacts: If approved, Central Hudson expects the rate increases to increase its revenue, cash flow and earnings. No prediction can be made as to the final outcome of the rate filing. - 60 - OTHER PSC PROCEEDINGS AND ADMINISTRATION INITIATIVES CH Energy Group and Central Hudson continue to monitor a number of generic and specific regulatory proceedings. Neither CH Energy Group nor Central Hudson can predict the final outcome of New York State’s energy policies, or the following PSC proceedings. ENERGY EFFICIENCY PORTFOLIO STANDARD AND STATE ENERGY PLANNING Background: Governor Paterson affirmed his support for the previous administration’s goal of substantially reducing electricity usage. 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: 2008 Ø State Energy Plan • Governor Paterson issued an Executive Order establishing a State Energy Planning Board and authorizing the creation and implementation of a State Energy Plan (“SEP”). • Central Hudson submitted its own comments on the draft scope of the State Energy Plan and joined those submitted by the Energy Association of New York State Member Companies’ comments. Central Hudson also provided briefing papers to the SEP working group on pressing issues facing Central Hudson for consideration in developing the SEP. Ø PSC • Central Hudson has filed comments with the PSC supporting the opportunity to establish energy efficiency businesses, with corresponding opportunities to contribute to the state energy goal of reducing electricity consumption by 15% by 2015 and provide meaningful earnings for investors from energy efficiency services. • The PSC established energy efficiency targets to be achieved by individual utilities through 2011 that included three utility administered fast track programs and five fast track programs to be administered by the New York State Energy Research and Development Authority (“NYSERDA”). Central Hudson has filed its plans to implement its programs with the PSC. • Effective October 1, 2008, the PSC ordered the creation of a gas System Benefit Charge and increased electric System Benefit Charges to invest in funding these energy efficiency programs. • The ALJ denied Central Hudson’s request to have its energy efficiency programs addressed in conjunction with its rate case. - 61 - 2009 • On January 7, 2009, Governor Paterson outlined various strategies and policy goals in his State of the State address, including one of the most aggressive clean energy goals in the country, with a goal for New York to meet 45% of its electricity needs by 2015 (“45 x 15”) through improved energy efficiency and clean renewable energy production. This would be accomplished by expanding the Renewable
Portfolio Standard from 25% by 2013 to 30% by 2015 and decreasing electric usage by 15% by 2015. • A SEP Interim Report was issued for comment on March 31, 2009. Central Hudson is preparing comments on this Interim Report, which are due May 15, 2009. The SEP schedule has been modified to provide for the issuance of a 2009 Draft SEP on July 15, with a Final 2009 SEP to be issued October 15, 2009. • The PSC will continue to work on additional issues of the energy efficiency program design with participation by interested parties in various working groups that include utility performance incentives, on-bill financing, demand response and peak reduction and impacts on low-income and rental customers. Potential Impacts: This PSC proceeding could result in opportunities for increased earnings from incentives associated with achieving energy efficiency targets or negative rate adjustments if the 70% performance criterion is not met. No prediction can be made regarding the final outcome of this matter. REQUESTS FOR DEFERRAL OF INCREMENTAL COSTS Background: In December 2008, Central Hudson filed a petition with the PSC seeking approval to defer certain incremental and material storm restoration expenses resulting from a severe ice storm in December 2008 that disrupted service to approximately 72,000 of Central Hudson’s customers. The initial petition sought PSC authorization to defer $3.1 million
of incremental expenses at December 31, 2008. An updated schedule showing total costs incurred at $3.4 million has been provided to the PSC as of March 31, 2009. (Case 09-M-0140 – Petition of Central Hudson Gas & Electric Corporation for Authority to Defer Bad Debt Net Write-Off Expense for the Year Ended December 31, 2008) Background: In February 2009, Central Hudson filed a petition with the PSC seeking approval to defer incremental electric and gas net bad debt write-off expense incurred during the twelve months ended December 31, 2008 over the amounts currently provided for in rates. - 62 - (Case 09-G-0139 – Petition of Central Hudson Gas & Electric Corporation for Authority to Defer Gas Leak Repairs Expense for the Year Ended December 31, 2008) Background: In February 2009, Central Hudson filed a petition with the PSC seeking approval to defer incremental gas non-labor expense related to leak repairs incurred during the twelve months ended December 31, 2008 over the amounts currently provided for in rates. Notable Activity: 2008 Ø Storm Restoration Costs: • Central Hudson filed its petition on December 31, 2008. 2009 Ø Bad Debt Net Write-off Expense: • Central Hudson filed its petition on February 11, 2009. Ø Gas Leak Repairs Expense: • Central Hudson filed its petition on February 11, 2009. Potential Impacts: The $3.1 million of incremental storm restoration expenses were not reflected in Central Hudson’s earnings in 2008. If the PSC denies recovery of some or all of Central Hudson’s incremental expenses, such expenses would be reflected in its earnings in 2009. The types of incremental costs included in Central Hudson’s petition
were consistent with previously approved petitions; however, Central Hudson cannot predict the outcome of this matter. The $1.8 million of incremental net bad debt write-off expenses was reflected in Central Hudson’s earnings and cash flows in 2008. This proceeding could result in deferral of these incremental uncollectible expenses which would result in an increase in earnings and upon future recovery, an increase in cash flows. Central Hudson cannot predict the outcome of this
matter. The $479,000 of incremental non-labor gas leak repairs expense was reflected in Central Hudson’s earnings and cash flows in 2008. This proceeding could result in deferral of these incremental expenses which would result in an increase in earnings and upon future recovery, an increase in cash flows. The types of incremental costs included in Central Hudson’s
petition were consistent with costs in petitions previously denied by the PSC; however, Central Hudson cannot predict the outcome of this matter. - 63 - ADVANCED METERING INFRASTRUCTURE Background: On February 13, 2009, the PSC issued an Order establishing minimum functional requirements for Advanced Metering Infrastructure (“AMI”) in New York State and creating a process for the development of a generic approach to the benefit/cost analysis of AMI. The February 13th Order directs Central Hudson to file an AMI pilot
program within 60 days. The filing requirements set forth by the PSC in the Order were designed to put utilities on track to potentially receive federal financial assistance that may become available under the American Recovery and Reinvestment Act of 2009’s Department of Energy (“DOE”) administered program for Electricity Delivery and Energy Reliability (“EDER”). The DOE may provide grants to successful applicants under the EDER program in an amount
equal to not more than 50% of the costs of qualifying investments. Notable Activity: 2009 • On April 14, 2009 Central Hudson filed its AMI and Smart Grid Proposal with the PSC. • On April 14, 2009, the PSC issued its “Proposed Framework for the Benefit-Cost Analysis of Advanced Metering Infrastructure”. A Notice Seeking Comment on the proposal was also issued directing parties to file comments on the generic benefit-cost framework by June 15, 2009. Potential Impacts: No prediction can be made regarding the outcome of this proceeding at this time. THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 (“ARRA”) PROJECT FUNDING Background: ARRA includes a DOE administered program for EDER. The sum of $4.5 billion is appropriated by ARRA for the EDER program to be dispersed by DOE through a competitive grant process. Additional funds may also be available through programs such as Transportation Electrification. Notable Activity: 2009 • The PSC on April 2, 2009 sent a letter to the state’s regulated utilities requesting a submittal of project lists from the utilities that are being considered for application for ARRA funding. • Regulated utilities, New York Power Authority (“NYPA”), Long Island Power Authority (“LIPA”), NYSERDA and NYISO have been discussing potential collaborative project filings, some of which are in development. - 64 - • The ARRA funding in some cases only covers a portion of the project costs and therefore will require other funding sources which may include rate payer funds for which PSC approval is required. • Central Hudson submitted its current project list to PSC on April 17, 2009. Potential Impacts: No prediction can be made regarding the outcome of this proceeding at this time. CENTRAL HUDSON GAS & ELECTRIC FINANCING PETITION Background: On March 26, 2009, Central Hudson filed a petition with the PSC seeking approval to (a) enter into multi-year committed credit agreements to provide committed funding to meet expected liquidity needs, in amounts not to exceed $175 million in the aggregate and maturities not to exceed five years, and (b) approval to issue and sell long-term debt,
commencing immediately upon issuance of an order regarding the petition, and from time to time through December 31, 2012, in an amount not to exceed $250 million in the aggregate. Notable Activity: 2009 • Central Hudson filed its petition on March 26, 2009. Potential Impacts: If approved, Central Hudson’s ability to seek a higher level of committed credit would enable greater liquidity to support construction forecasts, known seasonality, volatile energy markets, adverse borrowing environments, and other unforeseen events. In addition, the approval to issue and sell $250 million of long-term debt would support
Central Hudson’s ability to finance its construction expenditures and contributions to the company’s pension and OPEB plans, as well as allow Central Hudson to refund maturing long-term debt, and potentially refinance $116 million of multi-modal long-term NYSERDA bonds, which are currently in auction rate mode. No prediction can be made as to the final outcome of the filing. CAPITAL RESOURCES AND LIQUIDITY The growth of CH Energy Group’s retained earnings in the three months ended March 31, 2009, contributed to the increase in the book value per share of its Common Stock from $33.17 at December 31, 2008, to $34.09 at March 31, 2009. Book value per share at March 31, 2008 was $33.81 and the common equity ratio was 52.7%. Common equity comprised 52.8% of total capital
(including short-term debt) at March 31, 2009, an increase from 51.6% at December 31, 2008. Both CH Energy Group’s and Central Hudson’s liquidity reflect cash flows from operating, investing, and financing activities, as shown on their respective Statements of Cash Flows, and as discussed below. - 65 - The principal factors affecting CH Energy Group’s liquidity are the net cash flows resulting from the operations of its subsidiaries, subsidiary capital expenditures and investments, the external financing of its subsidiaries, and the dividends CH Energy Group pays to its shareholders. Central Hudson’s cash flows from operating activities reflect principally its energy deliveries and costs of operations. Variations in the volume of energy deliveries are primarily driven by factors external to Central Hudson, such as weather and economic conditions, including the price of energy and the resulting changes in customer usage. Prices at which Central
Hudson delivers energy to its customers are determined in accordance with rate plans approved by the PSC. In general, changes in the cost of purchased electricity and natural gas may affect the timing of cash flows but do not directly impact net income, as these costs are fully recoverable through Central Hudson’s electric and natural gas cost adjustment mechanisms. Higher energy prices also increase accounts receivable, which along with generally unfavorable economic
conditions, can have an impact on customers’ ability to pay their bills on time, potentially resulting in a higher number of uncollectible accounts and an unfavorable impact on cash flows and results of operations. Also, higher energy prices may cause customers to use less energy than projected in the current rate plan, which has the effect of reducing net income below the rate of return authorized in the rate plan. Central Hudson’s cash flows are also affected by capital expenditures, long-term financing for its growing asset base, fluctuations in working capital primarily caused by weather, energy prices, the level of customer accounts receivable, and other regulatory deferral mechanisms that may result in cash being expended in one period and recovered from customers in a
subsequent period. CH ENERGY GROUP - CASH FLOW SUMMARY Changes in CH Energy Group’s cash and cash equivalents resulting from operating, investing, and financing activities are summarized in the following chart (In Millions): Three Months Ended March 31, 2009 2008 Net Cash Provided By/(Used In): Operating Activities $ 51.1 $ 23.3 Investing Activities (23.2 ) (23.3 ) Financing Activities (19.4 ) 1.8 Net change for the period 8.5 1.8 Balance at beginning of period 19.8 11.3 Balance at end of period $ 28.3 $ 13.1 CH Energy Group’s cash and cash equivalents increased by $8.5 million and $1.8 million for the three months ended March 31, 2009 and 2008, respectively. For each of these periods, CH Energy Group’s working capital needs were provided by cash - 66 - from operations and supplemented with short-term financing as needed. Capital expenditures and dividends in both years, as well as acquisitions in 2008, were funded with cash from operations above working capital needs, and supplemented in 2008 with proceeds from the sale of short-term investments. Lower working capital requirements as a result of decreasing energy prices at the end of 2008 allowed Central Hudson to absorb the
redemption of the long-term debt at its maturity in January 2009 without refinancing. Net cash provided by operations was $51.1 million and $23.3 million for the three months ended March 31, 2009 and 2008, respectively. Cash provided by sales exceeded the period’s expenses and working capital needs for each year, particularly in 2009. Contributions to Central Hudson’s pension and OPEB plans of $2.6 million and $1.6 million during the first
quarter of 2009 and 2008, respectively, also impacted cash from operations. Net cash used in investing activities was $23.2 million and $23.3 million in the three months ended March 31, 2009 and 2008, respectively. Cash was used primarily to fund investments in electric and natural gas systems of Central Hudson. In 2008, cash used in investing activities also included acquisitions made by Griffith and was partially offset by proceeds from the
liquidation of short-term investments held by the holding company. Net cash (used in)/provided by financing activities was $(19.4) million and $1.8 million for the three months ended March 31, 2009 and 2008, respectively. Financing activities have consistently included dividends paid each quarter of $8.5 million. The proceeds of short-term debt were used to supplement the Company’s working capital needs in the first quarter of
both years and to pay dividends in 2008. In January 2009, $20.0 million of Central Hudson’s long-term debt was redeemed at maturity. Central Hudson’s cash flow benefited from lower energy prices in the first quarter of 2009, and an issuance of additional long-term debt by Central Hudson is not expected until later in the year. CENTRAL HUDSON - CASH FLOW SUMMARY Changes in Central Hudson’s cash and cash equivalents resulting from operating, investing, and financing activities are summarized in the following chart (In Millions): Three Months Ended March 31, 2009 2008 Net Cash Provided By/(Used In): Operating Activities $ 42.2 $ 37.7 Investing Activities (22.8 ) (17.1 ) Financing Activities (5.9 ) (20.7 ) Net change for the period 13.5 (0.1 ) Balance at beginning of period 2.5 3.6 Balance at end of period $ 16.0 $ 3.5 - 67 - Central Hudson’s cash and cash equivalents increased (decreased) by $13.5 million and $(0.1) million for the three months ended March 31, 2009 and 2008, respectively. For each of these periods, Central Hudson’s working capital needs were provided by cash from operations and supplemented seasonally with short-term financing as needed. Cash from operations in
excess of expenses and working capital needs provided funding for capital expenditures in both periods, the repayment of short-term debt in 2008, and the redemption of long-term debt at its maturity in 2009. Net cash provided by operations was $42.2 million and $37.7 million for the three months ended March 31, 2009 and 2008, respectively. Cash provided by sales exceeded the period’s expenses and working capital needs in both periods. Contributions to the pension and OPEB plans of $2.6 million and $1.6 million during the first quarter of 2009 and 2008, respectively,
also impacted cash from operations. Net cash used in investing activities of $22.8 million and $17.1 million in the three months ended March 31, 2009 and 2008, respectively, was primarily for investments in its electric and natural gas systems. Net cash used in financing activities was $5.9 million and $20.7 million in the three months ended March 31, 2009 and 2008, respectively. During these periods, Central Hudson retained its net income to invest in its transmission and distribution systems. Cash from operations in excess of expenses and working capital needs was used to repay short-term borrowings in 2008.
Short-term debt borrowings of $14.5 million in 2009 were used primarily to supplement working capital needs. In January 2009, $20.0 million of Central Hudson’s long-term debt was redeemed at maturity. Central Hudson’s cash flow benefited from lower energy prices in the first quarter of 2009, and an issuance of long-term debt by Central Hudson is not expected until later in the year. CAPITALIZATION – COMMON STOCK REPURCHASE PROGRAM On July 27, 2007, the Board of Directors of CH Energy Group extended and amended the Common Stock Repurchase Program of the Company, which was originally authorized on July 25, 2002 and further disclosed in the caption “Repurchase Program” of Note 8 – “Capitalization – Common and Preferred Stock” to the Financial Statements of the
Corporations’ 10-K Annual Report. No common stock was repurchased during the three months ended March 31, 2009. CAPITALIZATION – ISSUANCE OF TREASURY STOCK Effective January 26, 2009, CH Energy Group granted 2,930 restricted shares to certain officers and key employees of Griffith. These restricted shares granted were issued from CH Energy Group’s treasury stock. - 68 - Performance shares granted April 25, 2006 are expected to be paid out in May 2009. Those recipients electing not to defer this compensation under the CH Energy Group Directors and Executives Deferred Compensation Plan will receive shares issued from CH Energy Group’s treasury stock. Additionally, due to the retirement of one of Central Hudson’s executive
officers on January 1, 2009, a pro-rated number of shares under the January 25, 2007 and January 4, 2008 grants are expected to be paid to this individual in July 2009. CH Energy Group expects to utilize treasury stock in satisfaction of this award. For further information regarding the above equity compensation, see Note 11 – “Equity Based Compensation” of this Quarterly Report on Form 10-Q. The Company intends to continue to utilize shares issued from CH Energy Group’s treasury stock for the payout of future performance awards. CONTRACTUAL OBLIGATIONS Other contractual obligations and commitments of CH Energy Group are disclosed in Note 12 – “Commitments and Contingencies” to the Financial Statements of the Corporations’ 10-K Annual Report and 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, legislative requirements, regulatory considerations, and available corporate resources. The amount of the Retirement Plan’s liabilities are affected by the
discount rate used to determine benefit obligations and the accrual of additional benefits. Central Hudson considers the provisions of the Pension Protection Act of 2006 in determining its funding for the Retirement Plan for the near-term and future periods. Funding for the Retirement Plan totaled $2.5 million for the three months ended March 31, 2009. On April 15, 2009, Central Hudson made an additional contribution of $4.1 million to the Retirement Plan. Central Hudson anticipates
making additional contributions of $16.0 million to the Retirement Plan in 2009. Employer contributions for OPEB plans were zero during the three months ended March 31, 2009 and $1.2 million during the three months ended March 31, 2008. 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 and corporate resources. Funding for
the remainder of 2009 is expected to approximate $3.5 million. The recent fall in the financial markets has reduced the values of the assets held in the Retirement Plan and the OPEB Plans, which had a negative impact on the funded status of the plans. If future market conditions do not improve sufficiently to offset these changes, additional contributions will likely be required in future years. Management - 69 - expects that such contributions will be incorporated in Central Hudson’s rate making process over time. Central Hudson has investment policies for these plans which include asset allocation ranges designed to achieve a reasonable return over the long-term, recognizing the impact of market volatility. Management cannot currently predict what impact the recent fall in the financial markets may have on the expected rate of
return on plan assets or on future funding decisions. FINANCING PROGRAM CH Energy Group remains well-positioned with a strong balance sheet and strong liquidity. Significant capacity remains on CH Energy Group’s and Central Hudson’s committed credit facilities. Despite credit spreads that are significantly higher than they were a year ago, Central Hudson’s strong credit ratings help facilitate access to long-term debt.
However, Management can make no assurance in regards to the availability or resulting terms and costs. With the exception of the use of treasury shares for several restricted share grants and performance share awards earned, no equity issuance is expected in 2009. CH Energy Group Common Stock has maintained a market premium to its book value, which is a preferred position should equity financing be sought. At March 31, 2009, 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. If these lenders are unable to fulfill their commitment under these facilities, funding may not be available as needed. At March 31, 2009, CH Energy Group, on a consolidated basis, had $45.0 million of short-term debt outstanding and cash and cash equivalents of $28.3 million. CH Energy Group has a $150 million revolving credit facility with several commercial banks. As of March 31, 2009 and December 31, 2008, there were no borrowings under this CH Energy Group revolving credit facility. As of March 31, 2008, under this facility $6.0 million was outstanding. Central Hudson maintains a revolving credit facility with several commercial banks, pursuant to PSC authorization, in the amount of $125 million, for a five-year term ending January 2, 2012. As of March 31, 2009, under this facility $40 million was outstanding. As of December 31, 2008 and March 31, 2008, there were no borrowings under Central Hudson’s revolving
credit agreement. Central Hudson also maintains certain uncommitted lines of credit that diversify its sources and provide competitive options to minimize its cost of short-term debt. As of March 31, 2009, there was no balance outstanding under these lines of credit. As of December 31, 2008 and March 31, 2008, Central Hudson’s outstanding balance on these lines of credit, in
aggregate, was $25.5 million and $22.0 million, respectively. - 70 - 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 A2/negative by Moody’s Investors Service (“Moody’s”).1 In January 2008, Griffith established an uncommitted line of credit of up to $25 million with a commercial bank for the purpose of funding seasonal working capital. As of March 31, 2009, December 31, 2008 and March 31, 2008, there were borrowings under this facility of $5.0 million, $10.0 million and $25.0 million, respectively. CH Energy Group and Central Hudson believe they will be able to meet their reasonably likely 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. On March 27, 2009, Central Hudson filed with the Public Service Commission of the State of New York a Financing Petition seeking authorization to increase its multi-year committed credit to $175 million and to issue up to $250 million of long-term debt through December 31, 2012. Central Hudson has five debt series that were issued in conjunction with the sale of tax-exempt pollution control revenue bonds by NYSERDA. These NYSERDA bonds, totaling $166 million, are insured by Ambac. The current underlying rating and outlook on these bonds and Central Hudson’s other senior unsecured debt is A/stable by Standard & Poor’s and Fitch
Ratings and A2/negative by Moody’s.1 Central Hudson’s 1998 NYSERDA Series A Bonds, totaling $16.7 million, were re-marketed on December 1, 2008. Under the terms of the applicable indenture, the bonds were converted to a fixed rate of 6.5%, which will continue until their maturity in December 2028. Central Hudson’s 1999 NYSERDA Series A Bonds, totaling $33.4 million, have an interest rate that is fixed to maturity in 2027 at 5.45%. Central Hudson’s 1999 NYSERDA Bonds, Series B, C, and D, totaling $115.9 million, are multi-modal bonds that are currently in auction rate mode. Beginning in 1999 when the bonds were issued, the bonds’ interest rate has been reset every 35 days in a dutch auction. Auctions in the market for municipal auction rate securities have experienced widespread
failures since early in 2008. Generally, an auction failure occurs because there is an insufficient level of demand to purchase the bonds and the bondholders who want to sell must hold the bonds for the next interest rate period. Since February 2008, all auctions for Central Hudson’s three series of auction rate bonds have failed. As a consequence, the interest rate paid to the bondholders has been set to the then prevailing maximum rate defined in the trust indenture. Central
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. - 71 - Hudson’s maximum rate results in interest rates that are generally higher than expected results from the auction process. For the foreseeable future, Central Hudson expects the interest rate to be set at the maximum rate, determined on the date of each auction, to be 175% of the yield on an index of tax-exempt short-term debt, or its approximate equivalent. In the first quarter of 2009, the average maximum rate applicable
on the bonds was 1.08%. In its Orders, the PSC has authorized deferral accounting treatment for the interest costs from Central Hudson’s three series of variable rate 1999 NYSERDA Bonds. As a result, variations in interest rates on these bonds are deferred for future recovery from or refund to customers and Central Hudson does not expect the auction failures to have any adverse impact on earnings. To mitigate the potential impact of unexpected increases in short-term interest
rates, Central Hudson purchases interest rate caps based on an index for short-term tax-exempt debt. Effective April 1, 2009, Central Hudson entered into a one-year rate cap with Key Bank National Association to protect against unexpected short-term interest rate increases. The cap is based on the monthly weighted average of an index of tax-exempt variable rate debt, multiplied by 175% to align the maximum rate formula of the three series of variable rate 1999 NYSERDA Bonds. Central
Hudson would receive a payout at rates above 4.375%. Central Hudson is currently evaluating what actions, if any, it may take in the future in connection with its 1999 NYSERDA Bonds, Series B, C and D. Potential actions may include converting the debt from auction rate to another interest rate mode or refinancing with taxable bonds. On April 17, 2009, CH Energy Group entered into a Note Purchase Agreement to issue and sell, in a private placement exempt from registration under the Securities Act of 1933, $50 million of senior unsecured notes. The notes bear interest at the rate of 6.58% per annum and mature on April 17, 2014. CH Energy Group completed the sale of $35 million in principal amount of
the notes on April 17, 2009, and the remaining $15 million in principal amount of the notes will be issued and sold on June 15, 2009. Energy Group will use the proceeds from the sale of the notes to refinance short-term debt and for general corporate purposes. 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. - 72 - EARNINGS PER SHARE The following discussion and analyses include explanations of significant changes in revenues and expenses between the quarters ended March 31, 2009, and March 31, 2008, for Central Hudson’s regulated electric and natural gas businesses, Griffith, and the Other Businesses and Investments. The tables below present the change in earnings of CH Energy Group’s business units in terms of earnings for each share of CH Energy Group’s Common Stock. Management believes this presentation is useful because these business units are each wholly-owned by CH Energy Group. CH ENERGY GROUP CONSOLIDATED Earnings per Share (Basic) Three Months Ended March 31, 2009 2008 Change Central Hudson - Electric $ 0.40 $ 0.39 $ 0.01 Central Hudson - Natural Gas 0.38 0.34 0.04 Griffith 0.64 0.37 0.27 Other Businesses and Investments 0.05 0.13 (0.08 ) $ 1.47 $ 1.23 $ 0.24 Note: The information above is considered a non-GAAP financial measure. This information is not an alternative to earnings per share determined on a consolidated basis, which is the most directly comparable GAAP measure. 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
above. Earnings for CH Energy Group totaled $1.47 per share for the first quarter of 2009, versus $1.23 per share in the first quarter of 2008. The results for the first quarter were primarily driven by the continued improvement in the earnings contribution of Griffith. Higher margins and lower operating costs, as well as additional earnings from its 2008 acquisitions, all contributed to Griffith’s favorable results. For Central Hudson, the favorable effects of weather offset higher costs, producing
slightly better results than those in the same period of 2008. However, management believes that the delivery rate increases sought in Central Hudson’s current rate request are critically necessary in order for the electric and natural gas utility to cover the cost of its customer service obligations in the future. First quarter 2009 earnings by business were as follows: - 73 - CENTRAL HUDSON Earnings per Share (Basic) Three Months Ended March 31, 2009 2008 Change Electric $ 0.40 $ 0.39 $ 0.01 Natural Gas 0.38 0.34 0.04 $ 0.78 $ 0.73 $ 0.05 Earnings from Central Hudson’s electric and natural gas operations increased $0.05 per share in the three months ended March 31, 2009 compared to the same period in 2008 due to the following: Weather impact on sales (including hedging) $ 0.06 Lower storm restoration expense 0.03 Rate increases 0.05 Weather normalized sales (0.01 ) Higher depreciation (0.04 ) Higher tree trimming expense (0.01 ) Higher uncollectible accounts (0.05 ) Other 0.02 $ 0.05 Note: The information in the above charts is considered a non-GAAP financial measure. This information is not an alternative to earnings per share determined on a consolidated basis, which is the most directly comparable GAAP measure. 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 CH Energy Group
Consolidated Earnings per Share (Basic) table. Central Hudson’s contribution to earnings per share was $0.78, $0.05 per share higher than the first quarter of 2008. The impact of weather added $0.09 per share to earnings, with lower restoration costs from fewer storms adding $0.03 per share and increased sales volumes due to colder temperatures adding $0.06 per share. Additionally, rate increases added $0.05
per share to the increase, which were more than offset by higher operating costs and higher uncollectible accounts. - 74 - GRIFFITH Earnings per Share (Basic) Three Months Ended March 31, 2009 2008 Change $ 0.64 $ 0.37 $ 0.27 Griffith’s earnings increased $0.27 per share in the three months ended March 31, 2009 compared to the same period in 2008 due to the following: Margin on petroleum sales and services $ 0.22 Weather normalized sales (including conservation) (0.13 ) Weather impact on sales (including hedging) 0.13 Lower operating expenses 0.02 Acquisitions(1) 0.02 Higher uncollectible accounts (0.01 ) Other 0.02 $ 0.27 (1) For the purposes of the above charts, “Acquisitions” reflects the incremental effect of acquisitions made by Griffith in 2008. Note: The information in the above charts is considered a non-GAAP financial measure. This information is not an alternative to earnings per share determined on a consolidated basis, which is the most directly comparable GAAP measure. 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 CH Energy Group
Consolidated Earnings per Share (Basic) table. Griffith contributed $0.64 to earnings per share in the first quarter of 2009, $0.27 per share higher than in the first quarter of 2008. Griffith’s earnings contribution was also due in part to colder weather in 2009. However, the increased earnings are also attributable to margin growth, reduced expenses, and acquisitions made in 2008. Although customer
conservation dampened earnings by $0.13 per share, colder weather added $0.13 per share, improved margins added $0.22 per share, operating efficiencies added $0.02 per share, and contributions of acquisitions made in 2008 added $0.02 per share to the increase. - 75 - OTHER BUSINESSES AND INVESTMENTS Earnings per Share (Basic) Three Months Ended March 31, 2009 2008 Change $ 0.05 $ 0.13 $ (0.08 ) The variation in earnings per share from CH Energy Group (the holding company) and CHEC’s partnership and other investment interests in the three months ended March 31, 2009 compared to the same period in 2008 is due to the following: Unusual or infrequent events: Buckeye reserve $ (0.05 ) Lyonsdale investment (0.02 ) Lower interest and investment income (0.01 ) $ (0.08 ) Note: The information in the above charts is considered a non-GAAP financial measure. This information is not an alternative to earnings per share determined on a consolidated basis, which is the most directly comparable GAAP measure. 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 CH Energy Group
Consolidated Earnings per Share (Basic) table. CH Energy Group (the holding company) and CHEC’s partnerships and other investments contributed $0.05 toward corporate earnings per share in the first quarter of 2009, a decrease of $0.08 per share from the same period in 2008. A reserve recorded during the first quarter of 2009 related to a development project of CHEC lowered earnings by $0.05 per share. The
reserve represents the full amount of the note receivable investment for development expenditures and this project represents CHEC’s only current early-stage development project. Additionally, unplanned outages at Lyonsdale lowered earnings by $0.02 per share. - 76 - RESULTS OF OPERATIONS CENTRAL HUDSON The following discussions and analyses include explanations of significant changes in revenues and expenses between the three months ended March 31, 2009 and the three months ended March 31, 2008 for Central Hudson’s regulated electric and natural gas businesses. Income Statement Variances Three Months Ended Amount Percent Operating Revenues $ 26,843 12 % Operating Expenses: Purchased electricity, fuel and natural gas 19,604 14 % Depreciation and amortization 645 9 % Other operating expenses 4,073 8 % Total Operating Expenses 24,322 12 % Operating Income 2,521 10 % Other Income, net (1,102 ) (74 )% Interest Charges 29 — % Income Before Income Taxes 1,390 7 % Income Taxes 544 7 % Net Income $ 846 7 % The following discusses variations and the primary drivers of the changes in operating revenues, operating expenses, volumes delivered, other income, interest charges, and income taxes for Central Hudson’s regulated electric and natural gas businesses. 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 months ended March 31, 2009, compared to the same period in 2008. Deliveries of electricity and natural gas to residential and - 77 - commercial customers contribute the most to Central Hudson’s earnings. Industrial sales and interruptible sales have a negligible impact on earnings. Actual Deliveries Three Months Ended Electric Natural Gas Residential 3 % 7 % Commercial (3 )% 7 % Industrial and other(1) (9 )% (3 )% Total Deliveries (2 )% 5 % (1) Includes interruptible natural gas deliveries. Weather Normalized Deliveries Three Months Ended Electric Natural Gas Residential — % 3 % Commercial (3 )% 3 % Industrial and other (2) (9 )% (4 )% Total Deliveries (3 )% 3 % (2) Excludes interruptible natural gas deliveries. Note: Due to a warming trend in actual weather over the past 30 years, Central Hudson has developed linear trend normal weather values for its electric and natural gas businesses. This trend analysis results in approximately 330 and 300 less heating degree days compared to a rolling 30-year average for electric and natural gas, respectively. The above chart of weather normalized deliveries was determined using Central
Hudson’s linear trend normal weather value. Electric deliveries to residential customers during the three months ended March 31, 2009 were primarily impacted by weather. Electric deliveries to commercial and industrial customers during the three months ended March 31, 2009 were primarily impacted by a decrease in use per customer, which outweighed any favorable impacts of weather for these classes of customers.
Colder than normal weather in the first three months of 2009 as compared to 2008 favorably impacted deliveries of natural gas to residential and commercial customers. Residential natural gas heating degree days were 7% higher than last year and 8% higher than normal. Commercial natural gas heating degree days were 6% higher than last year and 7% higher than normal.
Natural gas deliveries in the first three months of 2009 were also favorably impacted by a slight increase in use per customer as compared to the same period in 2008. - 78 - 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. Three Months Ended March 31, 2009 Electric Natural Gas Total Revenues with Matching Expense Offsets:(1) Energy cost adjustment $ 7,568 $ 6,634 $ 14,202 Sales to others for resale 349 5,184 5,533 Other revenues with matching offsets 3,152 792 3,944 Subtotal 11,069 12,610 23,679 Revenues Impacting Earnings: Customer sales 1,714 1,060 2,774 Other regulatory mechanisms (308 ) 208 (100 ) Finance charges 206 122 328 Other revenues 258 (96 ) 162 Subtotal 1,870 1,294 3,164 Total Increase in Revenues $ 12,939 $ 13,904 $ 26,843 (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 and natural gas costs. Other related costs are pensions, OPEB, and the cost of special programs authorized by the PSC, which are 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. For natural gas sales to other entities for resale, 85% of such profits are returned to customers. Electric and natural gas revenues increased in the three months ended March 31, 2009, as compared to the same period in 2008, due to higher revenues with matching expense offsets, primarily energy cost adjustment revenues. The recovery of previously deferred energy costs was only partially offset by the impact of lower prices and delivery volumes for electric. For
natural gas, this increase also reflects the impact of higher net gas costs and an increase in delivery volumes resulting from colder winter weather in 2009 as compared to 2008. In addition to the above, electric revenues were also impacted by an increase in revenues from customer sales resulting from rate changes implemented in accordance with the 2006 Rate Order. Natural gas revenues were also impacted by an increase in revenues from customer sales as a result of higher delivery volumes in 2009 and an increase in sales to other entities for
resale. Both electric and natural gas revenues were also impacted by an increase in other revenues with matching offsets resulting - 79 - from an increase in rates related to New York State (“NYS”) energy efficiency programs. See the related offsets and further discussion of these programs under operating expenses. 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 NYS energy efficiency programs, pensions and OPEBs. Three Months Ended Expenses Currently Matched to Revenues:(1) Purchased electricity $ 7,917 Purchased natural gas 11,818 NYS energy programs 3,311 Other matched expenses 633 Subtotal 23,679 Other Expense Variations: Tree trimming 359 Uncollectible reserve 1,064 Storm restoration expenses (696 ) Other expenses (84 ) Subtotal 643 Total Increase in Operating Expenses $ 24,322 (1) Includes expenses that, in accordance with the 2006 Order, are adjusted in the current period to equal the revenues earned for the applicable expenses. In addition to the required adjustment to match revenues collected from customers, the variation in purchased electricity expense in the first three months of 2009 reflects the effects of both lower volumes delivered and lower wholesale prices. The increase in natural gas costs reflects higher volumes delivered as a result of colder weather and higher net costs. The
increase in NYS energy program expenses relates to the costs of energy efficiency programs under the Energy Efficiency Portfolio Standard which began in October 2008. - 80 - Higher revenues resulting from the 2006 Order were not sufficient to cover the higher uncollectible expense for uncollectible accounts (resulting from unfavorable economic conditions) and lower than expected sales. The increase in other revenue-matched expenses in 2009 resulted primarily from higher spending levels associated with certain expenditures as authorized by
the 2006 Rate Order. The decrease in storm restoration costs in 2009 was the result of lower and less severe storm activity this year. Other Income Other income and deductions for Central Hudson for the three months ended March 31, 2009, decreased $1.1 million compared to the same period in 2008, primarily due to the recording of regulatory adjustments for the change in interest costs on Central Hudson’s variable rate debt. This variation is offset by changes in the related interest charges. Interest Charges Central Hudson’s interest charges for the three months ended March 31, 2009, as compared to the same period in 2008, were essentially unchanged. Increases resulting from higher outstanding debt balances and increased carrying charges due to customers were offset primarily by a decrease in interest rates on variable rate notes. The issuance of $30 million
medium-term notes in November 2008 to finance capital improvements, and the redemption of $20 million medium-term notes in January 2009 resulted in a net increase in debt outstanding during the first three months of 2009 as compared to 2008. The increase in carrying charges due to customers was primarily related to an increase in the underlying reserve balance for other post-retirement benefits. Income Taxes Income taxes for Central Hudson increased $0.5 million for the three months ended March 31, 2009 when compared to the same period in 2008 primarily due to an increase in pre-tax book income. - 81 - CH ENERGY GROUP In addition to the impacts of 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. Three Months Ended Amount Percent Operating Revenues $ (31,319 ) (8 )% Operating Expenses: Purchased electricity, fuel, natural gas and petroleum (45,483 ) (16 )% Depreciation and amortization 702 7 % Other operating expenses 4,607 6 % Total Operating Expenses (40,174 ) (11 )% Operating Income 8,855 25 % Other Income, net (2,645 ) (133 )% Interest Charges (90 ) (1 )% Income before income taxes, non-controlling interest and preferred dividends of subsidiaries 6,300 20 % Income Taxes 2,596 22 % Net Income 3,704 19 % Net loss attributable to non-controlling interest (116 ) (36 )% Net income attributable to CH Energy Group $ 3,820 20 % - 82 - GRIFFITH Sales Volumes Delivery and sales volumes for Griffith vary in response to weather conditions 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 Deliveries Three Months Ended % Change 2009 Heating Oil Base company volume(1) 5 % 68 % Acquisitions volume(2) 2 % 4 % Total Heating Oil 7 % 72 % Motor Fuels Base company volume (17 )% 26 % Acquisitions volume — % — % Total Motor Fuels (17 )% 26 % Propane and Other Base company volume 15 % 2 % Acquisitions volume — % — % Total Propane and Other 15 % 2 % Total Base company volume (2 )% 96 % Acquisitions volume 2 % 4 % Total — % 100 % (1) For the purposes of this chart, “Base company” means Griffith as constituted at January 1, 2008 (i.e., without any impact from acquisitions made by Griffith in 2008). (2) For the purposes of this chart, “Acquisitions” represent the incremental effect of acquisitions made by Griffith in 2008. - 83 - Weather Normalized Deliveries Three Months Ended % Change 2009 Heating Oil Base company volume(1) (9 )% 67 % Acquisitions volume(2) 1 % 4 % Total Heating Oil (8 )% 71 % Motor Fuels Base company volume (17 )% 27 % Acquisitions volume — % — % Total Motor Fuels (17 )% 27 % Propane and Other Base company volume (1 )% 2 % Acquisitions volume — % — % Total Propane and Other (1 )% 2 % Total Base company volume (12 )% 96 % Acquisitions volume 1 % 4 % Total (11 )% 100 % (1) For the purposes of this chart, “Base company” means Griffith as constituted at January 1, 2008 (i.e. without any impact from acquisitions made by Griffith in 2008). (2) For the purposes of this chart, “Acquisitions” represent the incremental effect of acquisitions made by Griffith in 2008. Note: Due to a warming trend in actual weather over the past 30 years, Griffith has developed a trend normal weather value. This trend analysis has resulted in approximately 670 and 150 less heating degree days as compared to a standard 30-year average for Griffith’s customers in the Northeast and Mid-Atlantic regions, respectively. The above chart of weather normalized deliveries was determined using
Griffith’s trend normal weather value. Sales of petroleum products decreased less than 1% in the three months ended March 31, 2009 compared to the same period in 2008. The decrease was due primarily to a significant decrease in the sale of motor fuels related to the downturn in the economy and continued reduced consumption per residential heating oil customer. This decrease was almost fully offset by an
increase in the sale of heating oil due to colder weather in 2009 compared to 2008. There was a 16% increase in heating degree-days in 2009 as compared to 2008. Degree-day variation is adjusted for the delay between the time the actual weather occurs, and the time of product delivery. - 84 - Revenues Change in Griffith Revenues Three Months Ended Heating Oil Base company(1) $ (30,654 ) Acquisitions(2) 313 Total Heating Oil $ (30,341 ) Motor Fuels Base company $ (27,670 ) Acquisitions 5 Total Motor Fuels $ (27,665 ) Service Revenues Base company $ 273 Acquisitions 524 Total Service Revenues $ 797 Other Propane $ (24 ) Weather-hedging contracts (230 ) Other 271 Total Other $ 17 Total Revenues $ (57,192 ) (1) For the purposes of this chart, “Base company” means Griffith as constituted at January 1, 2008 (i.e., without any impact from acquisitions made by Griffith in 2008). (2) For the purposes of this chart, “Acquisitions” represents the incremental effect of acquisitions made by Griffith in 2008. Revenues, net of the effect of weather hedging contracts, decreased in the three months ended March 31, 2009 compared to the same period in 2008, due primarily to a decrease in the selling price of fuel. As discussed in further detail below, operating expenses decreased primarily as a result of lower commodity costs. This decrease more than offset the lower revenue,
thus resulting in a net increase to earnings. Operating Expenses For the three months ended March 31, 2009, operating expenses decreased $64.0 million, or 36%, from $175.5 million in 2008 to $111.5 million in 2009. The cost of petroleum products decreased $64.6 million, or 43%, due to lower wholesale market prices. Other operating expenses increased $0.6 million for the three months ended March 31, 2009 due primarily to an increase in the cost of service parts and bad debt expense. - 85 - OTHER BUSINESSES AND INVESTMENTS Revenues and Operating Expenses The operating results of Lyonsdale are consolidated in the Consolidated Financial Statements of CH Energy Group. Results for the three months ended March 31, 2009 compared to the same period in 2008 reflect a decrease in operating revenues of $1.0 million and decreased total operating expenses of $0.5 million with a net decrease in CH Energy Group’s net income of $0.3 million. These results reflect a
decrease in Lyonsdale’s 2009 capacity factor as a result of unplanned outages in the first quarter of 2009. Other Income Other income and deductions for the balance of CH Energy Group, primarily the holding company and CHEC’s investments in partnerships and other investments (other than Griffith), decreased $0.9 million for the three months ended March 31, 2009, when compared to the same period in 2008. This decrease is primarily attributable to a reserve in the amount of $1.3 million recorded in the first quarter of
2009 for the full amount of an outstanding loan to Buckeye Biopower, LLC. This decrease was partially offset by tax benefits of CHEC’s other investments in partnerships. Income Taxes Income taxes for CH Energy Group increased $2.6 million for the three months ended March 31, 2009 when compared to the same period in 2008 due to an increase in pre-tax book income. COMMON STOCK DIVIDENDS CH Energy Group’s ability to pay dividends may be affected by the ability of its subsidiaries to pay dividends. The Federal Power Act limits the payment of dividends by Central Hudson to its retained earnings. More restrictive is the PSC’s limit on the dividends Central Hudson may pay to CH Energy Group which is 100% of the average annual income available for common stock, calculated on a
two-year rolling average basis. Central Hudson’s dividend would be reduced 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 CH Energy Group or any of Central Hudson’s affiliates. Further restrictions are imposed for any downgrades below this level. Central Hudson’s senior debt is currently rated “A” or the
equivalent.1 As of March 31, 2009, the amount of Central Hudson’s retained earnings that were free of restrictions was $29.0 million. CH Energy Group’s other subsidiaries do not have express restrictions on their ability to pay dividends. 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. - 86 - Reference is made to the caption “Common Stock Dividends and Price Ranges” of Part II, Item 7 of the Corporations’ 10-K Annual Report for a discussion of CH Energy Group’s dividend payments. On March 27, 2009, the Board of Directors of CH Energy Group declared a quarterly dividend of $0.54 per share, payable May 1, 2009, to shareholders of record as of April 9, 2009. OTHER MATTERS CHANGES IN ACCOUNTING STANDARDS See Note 1 – “Summary of Significant Accounting Policies” and Note 3 – “New Accounting Standards and Other FASB Projects” for discussion of relevant changes, which discussion is incorporated by reference herein. CLIMATE While there is growing consensus that some form of global climate change program will be adopted at the federal level, it is too early to determine what impact such program will have on CH Energy Group. It should be noted, however, that the Company’s calculated CO2 emission levels are relatively small, primarily because the Company does not generate electricity in significant quantities.
Therefore, federally mandated greenhouse gas reductions or limits on CO2 emissions are not expected to have a material impact on the Company’s financial position or results of operations. However, the Company can make no prediction as to the outcome of this matter. 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, 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; plant capacity factors; energy supply and demand; potential future acquisitions; legislative, regulatory, and competitive developments; interest
rates; access to capital; market risks; corn and ethanol prices; 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 - 87 - 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. 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. 2009 has continued to be a challenging time in the financial markets with extraordinary volatility of commodity prices and interest rates. The practices employed by CH Energy Group and Central Hudson to mitigate these risks 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
7A – “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. 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. - 88 - 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. CENTRAL HUDSON: Former Manufactured Gas Plant Facilities 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. The Profitability of CHEC’s Investments in Ethanol Projects May Be Adversely Impacted by Commodity Price Changes or the Lack of Capital Available to Project Developers to Complete New Projects Description and Sources of Risk: CHEC’s management believes that increases in wholesale corn prices and/or natural gas prices and/or decreases in ethanol prices and/or distillers grains are caused by a variety of factors, including, but not limited to the following: • Actions by the federal government that reduce the demand for, or increase the supply of, ethanol. Such actions could include, but are not limited to, a reduction in the required level of ethanol blending, decreases in tax credits to refiners and/or reductions in tariffs on imported ethanol. • Imbalances in the supply of and demand for corn. This could be caused by, among other things (1) drought or other acts of nature, (2) increased construction of new ethanol production facilities, (3) governmental actions that discourage raising corn for use in ethanol production (such as providing tax credits for corn grown for human consumption) or (4) changes in agricultural markets, technology or regulations. • Volatility in domestic and/or foreign markets. Potential Impacts: Prolonged periods of high corn and/or natural gas prices and/or depressed ethanol and/or distillers grain prices could result in reduced net margins - 89 - and have a material adverse impact on the earnings of Cornhusker Holdings that could, in turn, lead to an impairment of CHEC’s investment in the company. Additionally, the adverse conditions described above could reduce cash flows of Cornhusker Holdings which, in turn, could lead to loan defaults. CHEC holds subordinated notes totaling $9.8 million, including interest, and has an equity investment of $2.5 million in Cornhusker as of March 31, 2009. During the three months ended March 31, 2009,
CHEC accrued $0.3 million of interest income associated with these notes. CHEC held subordinated notes totaling $9.5 million, including interest, and had an equity investment of $3.0 million in Cornhusker as of December 31, 2008. CHEC also has an outstanding loan to Buckeye Biopower, LLC in the amount of $1.2 million for the development of a 110 million gallon per year corn ethanol plant. During the first quarter of 2009, a reserve was established for the full outstanding loan balance. If the circumstances do not change sufficiently to allow for repayment, this could
adversely impact CHEC’s level of investments and its ability to ultimately collect the $1.2 million of cash that is due under the terms of the loan agreement. Incorporated herein by reference to the Exhibit Index for this Quarterly Report on Form 10-Q, which is located immediately after the signature pages to this report. - 90 - Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. CH ENERGY GROUP, INC. (Registrant) By: /s/ Kimberly J. Wright Kimberly J. Wright Vice President - Accounting and Controller CENTRAL HUDSON GAS & ELECTRIC By: /s/ Kimberly J. Wright Kimberly J. Wright Dated: May 4, 2009 - 91 - EXHIBIT INDEX Following is the list of Exhibits, as required by Item 601 of Regulation S-K, filed as part of this Quarterly Report on Form 10-Q: Exhibit No. Exhibit Description 10(i)(1) Note Purchase Agreement, dated as of April 17, 2009, between CH Energy Group and the purchasers of its 6.58% Senior Notes, Series A, due April 17, 2014 (Incorporated herein by reference to CH Energy Group’s Current report on Form 8-K, filed April 20, 2009; Exhibit 10.1) 10(i)(2) Guaranty Agreement by Central Hudson Enterprises Corporation dated as of April 17, 2009 (Incorporated herein by reference to CH Energy Group’s Current Report on Form 8-K, filed April 20, 2009; Exhibit 10.2) Form of CH Energy Group, Inc. Indemnification Agreement. (for officers of CH Energy Group, Inc.) 10(iii)(4) Agreement, dated as of April 27, 2009, by and between CH Energy Group, Inc. and GAMCO Asset Management Inc. (Incorporated herein by reference to CH Energy Group’s current report on Form 8-K, filed April 29, 2009; Exhibit 10.1) - 92 - <38>C1TS&N&LG2 _7$/^G5D%VT9`T9`0$!`0$#1`T;Y$#1D!`T9`T0$!`0$!!AYG]SWOV>
M7\QT$%VK_EIQ;ZJI_J!06E`0$!`0$!`0$!!&
File Number
Address and Telephone Number
Identification No.
(In Thousands, except per share amounts)
March 31,
March 31,
March 31,
2009
2008
2008
(In Thousands)
2009
2008
2008
(In Thousands, except share and per share amounts)
$0.10 par value;
30,000,000 shares
authorized
Issued
Repurchased
Capital
Stock
Expense
Earnings
Comprehensive
Income / (Loss)
controlling
Interest
Stock of
Subsidiary
Equity
(In Thousands)
March 31,
(In Thousands)
March 31,
(In Thousands)
March 31,
(In Thousands)
2009
2008
2008
(In Thousands)
2009
2008
2008
(In Thousands, except share and per share amounts)
$5.00 par value;
30,000,000 shares
authorized
Other
Comprehensive
Income / (Loss)
Stock
Expense
Preferred
Stock
Issued
Repurchased
Capital
Earnings
Equity
2009
2008
2008
2009
2008
2008
Active Markets
for Identical
Assets (Level 1)
Other
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
2009
2008
2008
Date
Date
28-1
(R)-1
45-4
Carrying
Amount
Amortization
Carrying
Amount
Amortization
Carrying
Amount
Amortization
March 31,
March 31,
2009
2008
2008
Granted
Outstanding at
March 31, 2009
March 31,
Price
Options
Granted
Options
Outstanding
Average
Remaining
Life in Years
Options
Exercisable
Shares
Average
Exercise Price
Average
Remaining Life
in Years
Shares Granted
Date of Grant
Outstanding at
March 31, 2009
Poughkeepsie, NY
Poughkeepsie, NY
Poughkeepsie, NY
(In Thousands)
Businesses
and
Investments
Gas
(In Thousands)
Businesses
and
Investments
Gas
(In Thousands)
(In Thousands)
Containing the
Triggering Feature
of Contract
Feature is Triggered
(net of collateral)
(CHEG ownership of CHG&E falls below 51%)
(to below BBB-)
(CHEG ownership of CHEC falls below 51%)
(In Thousands)
2009
2008
2008
Cash Flow Hedging
Relationships
Recognized in OCI on
Derivative
Reclassified from
Accumulated OCI into
Income
Reclassified from
Accumulated OCI into
Income
March 31,
March 31,
(Increase)/Decrease in Purchased Electric and
Purchased Natural Gas
(Increase)/Decrease in Purchased Electric and
Purchased Natural Gas
(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)
(Case 09-M-0009 – Petition of Central Hudson Gas & Electric Corporation for Authority to Defer Incremental Costs Related to the December 11, 2008 Ice Storm)
(Case 09-M-0074 - Proceeding on Matter of Advanced Metering Infrastructure)
(Case 09-E-0310 – In the Matter of American Recovery and Reinvestment Act of 2009 – Utility Filings for New York Economic Stimulus)
(Case 09-M-0308 – Petition of Central Hudson Gas & Electric Corporation for Authority to enter into multi-year committed credit agreements and issue and sell long-term debt)
(Dollars In Thousands)
March 31, 2009
Over/(Under) same period
in 2008
March 31, 2009
Increase/(Decrease) from
same period in 2008
March 31, 2009
Increase/(Decrease) from
same period in 2008
Increase/(Decrease) from same period in 2008
Total utility operating expenses increased 12% for the three months ended March 31, 2009, compared to the same period in 2008. The following summarizes the change in operating expenses:
March 31, 2009
Increase/(Decrease) from
same period in 2008
March 31, 2009
Over/(Under) same period
in 2008
March 31, 2009
from same
period in 2008
Volumes as %
of Total Volume
March 31, 2009
from same
period in 2008
Volumes as %
of Total Volume
(In Thousands)
March 31, 2009
Increase / (Decrease)
from same period in 2008
Little Britain Road
Newburgh Consolidated Iron Works
Asbestos Litigation
CORPORATION
(Co-Registrant)
Controller
Regulation S-K
Item 601
Designation
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Exhibit 10(iii)(1)
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made this ___ day of ____________, 2009 between CH ENERGY GROUP, INC., a New York corporation (the Company), and ________________ (the Officer).
WHEREAS, it is essential for the Company to be able to attract and retain highly capable persons as Officers of the Company;
WHEREAS, the Company and the Officer each recognize the risk of litigation and other claims being asserted against officers of public companies in the current business environment;
WHEREAS, the Company recognizes the Officers need for substantial protection against personal liability, and the Company desires to provide in this Agreement for the indemnification of, and the advancement of expenses to, the Officer to the fullest extent permitted by the New York Business Corporation Law; and
WHEREAS, the Officer is relying on the contractual assurances provided by this Agreement in determining whether to begin serving, or to continue serving, as an Officer of the Company;
NOW, THEREFORE, in consideration of the premises and as an inducement to the Officer to serve or continue to serve the Company as an Officer, and intending to be legally bound hereby, the Company and the Officer agree as follows:
Section 1. Certain Definitions. Capitalized terms used in this Agreement have the meanings set forth in the text of this Agreement or in the Definitions contained in Appendix A to this Agreement.
Section 2. Indemnification. The Company shall indemnify the Officer as follows:
(a) Indemnification to the Fullest Extent Permitted by Law. The Company shall indemnify the Officer and hold the Officer harmless, to the fullest extent permitted by the
NYBCL, from and against all Judgments and all Expenses incurred by the Officer in connection with any Proceeding by reason of or relating to his Corporate Status.
(b) Indemnification General Provisions. The rights to indemnification provided by Section 2(a) to the Officer shall include, but shall not be limited to, the rights provided to the Officer by this Section 2(b) and the other Sections of this Agreement. Without diminishing in any way the scope of indemnification rights provided to the Officer by Section 2(a), the Company agrees that it shall indemnify the Officer and hold the Officer harmless from and against all Judgments and all Expenses incurred by the Officer in connection with any Proceeding by reason of or relating to his Corporate Status, provided the Officer has met the standard of conduct (the Applicable Standard of Conduct) set forth in the following sentence. The Applicable Standard of Conduct shall mean that there is not a Judgment or other final adjudication adverse to the Officer which has established that: (i) his acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated; or (ii) he personally gained in fact a financial profit or other advantage to which he was not legally entitled.
(c) Indemnification for Expenses When Wholly or Partly Successful. Notwithstanding any other provision of this Agreement, to the extent that the Officer is, by reason of or relating to his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If the Officer is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify the Officer against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Agreement, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
(d) Indemnification of Expenses as a Witness. The Company shall indemnify the Officer and hold the Officer harmless from and against all Expenses actually and reasonably
-2-
incurred by him in connection with serving as a witness, by reason of or relating to his Corporate Status, in any Proceeding to which he is not a party.
Section 3. Indemnification Procedures. (a) To obtain indemnification under this Agreement, the Officer shall submit to the Company a written request with such documentation and information as is reasonably available to him for the determination of whether he is entitled to indemnification under this Agreement.
(b) Within twenty (20) days from the Companys receipt of a written request from the Officer for indemnification pursuant to Section 2(c), 2(d) and/or the last sentence of Section 3(c), the Company shall make all required indemnification payments to the Officer. Within sixty (60) days from the Companys receipt of a written request from the Officer for indemnification pursuant to Section 2(a) and/or Section 2(b), a determination of whether or not the Officer has met the Applicable Standard of Conduct shall be made as follows:
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(i) if a Change in Control has occurred, the determination shall be made by, and be set forth in a written opinion of, an Independent Counsel selected in accordance with Section 3(d) of this Agreement (a copy of the written opinion shall be delivered to the Officer); or |
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(ii) if a Change in Control has not occurred, the determination shall be made as follows: |
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by the Board, acting by a quorum of Disinterested Directors; or |
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if a quorum of Disinterested Directors so directs: |
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(x) by an Independent Counsel selected in accordance with Section 3(d); this determination shall be set forth in a written opinion of the Independent Counsel and a copy of it shall be delivered to the Officer; or |
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(y) by the shareholders of the Company; or |
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if a quorum of Disinterested Directors is not obtainable: |
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(v) by an Independent Counsel selected in accordance with Section 3(d); this determination shall be set forth in a written opinion of the Independent Counsel and a copy of it shall be delivered to the Officer; or |
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(w) if a judicial proceeding or arbitration is commenced pursuant to Section 6(a), and if the Court or arbitrator so directs: by the shareholders of the Company. |
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(c) If it is determined that the Officer has met the Applicable Standard of Conduct, the Company shall make all required indemnification payments to the Officer within ten (10) days after receiving written notice of the determination. The Officer shall cooperate with the person(s) making the determination, including providing, upon reasonable advance request, any documentation or information relevant to the determination that is not privileged or otherwise protected from disclosure and that is reasonably available to the Officer. Any Expenses incurred by the Officer in so cooperating with the person(s) making the determination shall be borne by the Company (irrespective of the determination as to the Officers entitlement to indemnification).
(d) If an Independent Counsel is required or directed under Section 3(b) to determine whether the Officer has met the Applicable Standard of Conduct, the Independent Counsel shall meet the qualification requirements for Independent Counsel set forth in Appendix A and shall be selected, within fifteen (15) days from the Companys receipt of the Officers written request for indemnification, as follows:
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(i) if a Change in Control has not occurred, the Independent Counsel shall be selected by the Board, and the Company shall promptly notify the Officer in writing of the Independent Counsel so selected; or |
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(ii) if a Change in Control has occurred, the Independent Counsel shall be selected by the Officer and the Officer shall promptly notify the Company in writing of the Independent Counsel so selected pursuant to this Section 3(d)(ii); provided, however, that the Officer may in his or her discretion request that the Board select the Independent Counsel, in which case the Independent Counsel shall be selected in the manner provided in clause (i) of this Section 3(d). |
Within ten (10) days after the Company or the Officer, as the case may be, gives the other written notice of the selection of the Independent Counsel, the party receiving such notice may give the party giving such notice a written objection to the Independent Counsel that has been selected. Any such objection can be based only on the ground that the selected Independent Counsel does not meet the qualification requirements for Independent Counsel as set forth in Appendix A, and the objection must set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the selected law firm or lawyer shall act as Independent Counsel with respect to the request for indemnification. If a timely written objection is made setting forth with particularity the factual basis for the assertion, the selected Independent Counsel may not serve as Independent Counsel unless and until the objection is withdrawn or a court has determined that the objection is without merit. If, within thirty (30) days after the submission by the Officer of the written request for indemnification pursuant to Section 3(a), an Independent Counsel has not been selected or all objections to a selected Independent Counsel have not been resolved, either the Company or the Officer may petition the Supreme Court of the State of New York in New York County or in Dutchess County for (i) an expedited judicial resolution of any objection that has been made by the Company or by the Officer to the others selection of Independent Counsel, and/or for (ii) an expedited judicial appointment as Independent Counsel of a person designated by the Court (or by such other person as the Court shall designate); and the law firm or lawyer with respect to whom all objections are so resolved by the Court or the law firm or lawyer so appointed by the Court or its designee shall be the Independent Counsel for purposes of making the determination of whether the Officer is entitled to indemnification under this Section 3 with respect to the Officers request for indemnification. If an expedited judicial decision is not received within sixty (60) days from
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the Companys receipt of the Officers written request for indemnification, the Officer shall have the option of waiting for a judicial decision with respect to the choice of an Independent Counsel or pursuing his remedies under Section 6. If the Officer chooses to pursue his remedies under Section 6, the Officer and the Company shall promptly file a stipulation with the Court withdrawing any and all petitions filed pursuant to this Section 3(d).
(e) Upon the commencement of any judicial proceeding or arbitration pursuant to Section 6(a), the selected Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing). The Company shall pay the reasonable fees and expenses of the selected law firm or lawyer incurred in connection with acting or preparing to act as Independent Counsel.
(f) In determining whether the Officer is entitled to indemnification under this Agreement, the person(s) making such determination shall presume that the Officer has met the Applicable Standard of Conduct, and the Company shall have the burden of proof to overcome that presumption in making any determination contrary to that presumption. In this connection, the person(s) making the determination shall be bound by an explicit judicial finding in the relevant Proceeding that (A) the Officers acts were committed in bad faith or were the result of active or deliberate dishonesty and were material to the cause of action so adjudicated or (B) the Officer personally gained, in fact, a financial profit or other advantage to which he was not legally entitled. In the absence of such an explicit and specific judicial finding described in the prior sentence, the person(s) making the determination shall decide, on the basis of reasonably available information, whether the final adjudication in the proceeding establishes that the Officer has met the Applicable Standard of Conduct. The termination of any Proceeding by judgment, settlement, conviction or upon a plea of nolo contendere (or its equivalent) shall not by itself create a presumption that the Officers acts (i) were committed in bad faith, (ii) were the result of active and deliberate dishonesty, (iii) were material to the cause of action against the Officer, or (iv) that the Officer personally gained in fact a financial profit or other advantage to which he was not legally entitled.
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(g) No determination as to whether the Officer has met the Applicable Standard of Conduct shall be required prior to the final disposition of the Proceeding.
(h) For purposes of determining whether the Officer acted in bad faith, the Officer shall be deemed to have acted in good faith if the Officer acted in reliance (without knowledge of any materially false or misleading statement or omission therein) on (i) the records or books of account of the Enterprise, including financial statements, (ii) information supplied to the Officer by the officers of the Enterprise in the course of their duties, (iii) the advice of legal counsel for the Enterprise, or (iv) information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. The provisions of this Section shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Officer may be deemed to be entitled to indemnification.
(i) An Officer who acted in good faith and in a manner he reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed not to have acted in bad faith as referred to in this Agreement.
(j) The knowledge or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to the Officer for purposes of determining whether the Officer has met the Applicable Standard of Conduct.
Section 4. Advance of Expenses. The Company shall advance to the Officer full payment for Expenses incurred by the Officer (or reasonably expected to be incurred by the Officer during the three (3) months following a request for payment) by reason of or relating to his Corporate Status, in connection with any Proceeding, and such advances shall be made within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to the Officers ability to repay the amounts advanced and without regard to the Officers ultimate entitlement to indemnification under the other provisions of this Agreement. Advances shall
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include payment for any and all Expenses reasonably incurred by the Officer in pursuing an action to enforce this right to receive advances of Expenses, including Expenses incurred in preparing and forwarding statements to the Company to support the advances sought. The Officer hereby agrees and undertakes to repay all such advances to the extent that it is ultimately determined that he is not entitled to be indemnified by the Company for the Proceeding (or for particular claims, issues, or matters in such Proceeding) with respect to which the advance is made.
Section 5. Certain Exclusions. Notwithstanding any other provision of this Agreement, the Company shall not be obligated by this Agreement to indemnify the Officer, or to advance Expenses, with respect to:
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(a) any matter for which payment has actually been made to or for the account of the Officer under any insurance policy, other indemnity provision, contract or agreement, except with respect to any amount of Judgment or Expenses in excess of the amounts paid to the Officer under any such insurance policy, other indemnity provision, contract or agreement; |
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(b) an accounting by the Officer for profits made from the purchase and sale (or sale and purchase) by the Officer of securities of the Company in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law; |
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(c) any Proceeding (or any part of a Proceeding) initiated by the Officer, including any Proceeding (or any part of a Proceeding) initiated by the Officer against the Company or its directors, officers, employees or other indemnitees, unless the Board authorized the Proceeding (or relevant parts of the Proceeding) prior to its initiation by the Officer; or |
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(d) any matter for which the Company is advised, in a written opinion of its regular outside legal counsel, that the Companys indemnification of the Officer or advancement of Expenses to the Officer would violate the Sarbanes-Oxley Act of 2002 |
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(in which case the parties shall revise this Agreement in a manner that will result in a new provision that does not violate the Sarbanes-Oxley Act of 2002 and the legal effect of which comes as close as possible to what the parties had intended to achieve under this Agreement as it was originally drafted and executed). |
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Section 6. Remedies of the Officer. (a) If: |
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(i) a determination is made pursuant to Section 3 that the Officer has not met the Applicable Standard of Conduct; |
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(ii) advancement of Expenses is not timely-made pursuant to Section 4; |
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(iii) no determination of whether or not the Officer has met the Applicable Standard of Conduct is made pursuant to Section 3(a) within the period specified in such Section; |
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(iv) payment of indemnification is not made pursuant to the first sentence of Section 3(b) within twenty (20) days from the Companys receipt of a written request from the Officer for indemnification pursuant to Section 2(c), Section 2(d), or the last sentence of Section 3(c); or |
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(v) payment of indemnification pursuant to this Agreement is not made within ten (10) days after the Company has received notice that a determination has been made pursuant to Section 3 that the Officer met the Applicable Standard of Conduct; |
then the Officer shall be entitled to seek an adjudication by the Supreme Court of the State of New York in New York County or in Dutchess County of his right to such indemnification or advance of Expenses. Alternatively, the Officer, at his option, may seek an award in arbitration to be conducted by a single arbitrator in New York, New York or in Dutchess County, New York pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The Officer shall commence such proceeding seeking an adjudication or an award in arbitration within one hundred eighty (180) days following the date on which the Officer first has the right
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to commence such proceeding pursuant to this Section 6(a). The Company shall not oppose the Officers right to seek any such adjudication or award in arbitration.
(b) If a determination is made pursuant to Section 3(b) that the Officer has not met the Applicable Standard of Conduct, any judicial proceeding or arbitration commenced pursuant to this Section 6 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and the Officer shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 6, the Company shall have the burden of proving that the Officer is not entitled to indemnification or advancement of Expenses, as the case may be.
(c) If a determination is made pursuant to Section 3(b) that the Officer has met the Applicable Standard of Conduct, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 6 or otherwise, unless the Court or arbitrator finds (i) that there was a misstatement by the Officer of a material fact, or an omission of a material fact necessary to make the Officers statement not materially misleading, in connection with his request for indemnification, or (ii) that there is a prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 6 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such Court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. The Company shall indemnify and hold the Officer harmless from and against any and all Expenses (and, if requested by the Officer, shall advance, within thirty (30) days after receipt by the Company of a written request therefor, to the extent not prohibited by law, such Expenses to the Officer) which are incurred by the Officer in connection with any judicial proceeding or arbitration brought by the Officer for indemnification or advance of Expenses from the Company under this Agreement or under any directors and officers liability insurance policies maintained by the Company, regardless of whether the Officer ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be.
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Section 7. Non-exclusivity; Survival of Rights; Insurance; Subrogation. (a) The Officers right to be indemnified and to receive advances of Expenses as provided in this Agreement shall not be deemed exclusive of any other rights to which the Officer at any time may be entitled under applicable law, the Companys Certificate of Incorporation, the Companys By-laws, any agreement, a vote of shareholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of any provision of this Agreement shall limit or restrict any right of the Officer under this Agreement in respect of any action taken or omitted by the Officer with respect to his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in New York law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be permitted currently under the Companys By-laws and this Agreement, it is the intent and agreement of the parties hereto that the Officer shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents of the Company or of any other Enterprise, the Officer shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies. If the Company has director and officer liability insurance in effect at the time of the receipt of a request for indemnification or other notice of a Proceeding involving the Officer by reason of or relating to his Corporate Status, the Company shall give prompt notice of the commencement of such Proceeding to the insurer(s) in accordance with the procedures set forth in the respective policy or policies.
(c) If the Company makes any payment to the Officer under this Agreement, the Company shall be subrogated to the extent of such payment to all the rights of recovery of the Officer, who shall execute all papers required and take all action necessary to secure such rights,
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including execution of such documents as are necessary to enable the Company to commence and prosecute legal proceedings to enforce such rights.
Section 8. Contribution. To the fullest extent permitted under applicable law, if the indemnification provided for in this Agreement is unavailable to the Officer for any reason whatsoever, the Company, in lieu of indemnifying the Officer, shall contribute to the amount incurred by the Officer by reason of or relating to his Corporate Status, whether for Judgments or Expenses, in connection with any Proceeding, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect: (a) the relative benefits received by the Company and the Officer as a result of the event(s) and/or transaction(s) giving rise to such Proceeding; or (b) the relative fault of the Company (and its directors, officers, employees and agents) and the Officer in connection with such event(s) and/or transaction(s).
Section 9. Retroactive Effect; Binding Agreement. (a) The provisions of this Agreement are intended to be retroactive, and the full benefits hereof shall be available with respect to any alleged or actual occurrences, acts or failures to act that have occurred prior to the date hereof.
(b) This Agreement shall be binding upon the Company and its successors and assigns. The Company shall require any successor to the Company or to all or substantially all of the business or assets of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.
(c) This Agreement shall inure to the benefit of and be enforceable by the Officers personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. Without limiting the generality of the preceding sentence, if the Officer should die while any amounts would be payable to him hereunder if he had continued to live, all
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such amounts shall be paid in accordance with the terms of this Agreement to the Officers devisee, legatee, or other designee, or if there be no such designee, to his estate.
Section 10. Severability; Invalidity. If any provision of this Agreement is held to be invalid, illegal or unenforceable for any reason whatsoever: (i) the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (ii) such provision shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (iii) to the fullest extent possible, the provisions of this Agreement shall be construed so as to give effect to the intent manifested hereby.
Section 11. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided, however, that this Agreement is a supplement to and in furtherance of the Companys Certificate of Incorporation and the By-laws and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of the Officer thereunder.
Section 12. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties thereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.
Section 13. Notice by the Officer. The Officer promptly shall notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding concerning or arising from his Corporate Status, and he shall also promptly notify the Company of any other matter which may be subject to the indemnification or advancement of Expenses covered hereunder. The failure of
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the Officer to so notify the Company shall not relieve the Company of any obligation which it may have to the Officer under this Agreement or otherwise.
Section 14. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if: (a) delivered by hand and receipted for by the party to whom the notice or other communication has been directed; (b) mailed by certified or registered mail with postage prepaid, which shall be deemed given on the third business day after the date on which it is so mailed; (c) mailed by reputable overnight courier; or (d) sent by facsimile transmission, with receipt of confirmation that such transmission has been received:
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(i) if to the Officer, at the address or fax number indicated on the signature page of this Agreement, or such other address as the Officer shall provide to the Company; and |
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(ii) if to the Company, at the address or fax number indicated on the signature page of this Agreement, or at such other address or fax number as may have been furnished to the Officer by the Company. |
Section 15. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations between the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of New York, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by the Officer pursuant to Section 6, the Company and the Officer hereby irrevocably and unconditionally: (a) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Supreme Court of the State of New York, in either New York County or Dutchess County, New York (the New York Court), and not in any other state or federal court in the United States of America or any court in any other country; (b) consent to submit to the exclusive jurisdiction of the New York Court for purposes of any action or proceeding arising out of or in connection with this Agreement; (c) waive any objection to the laying of venue of any such action or proceeding in the New York Court; and (d) waive, and agree not to plead or to make, any claim that any such action or
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proceeding brought in the New York Court has been brought in an improper or inconvenient forum.
Section 16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
Section 17. Headings. The headings set forth in this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.
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CH ENERGY GROUP, INC. |
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By: |
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Name: |
Steven V. Lant |
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Title: |
Chairman of
the Board, President and |
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Address: |
284 South Avenue, |
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Poughkeepsie, NY 12601 |
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Tel.: 845-486-5254 |
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Fax: 845-486-5465 |
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OFFICER |
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Name: |
[INSERT NAME] |
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[INSERT ADDRESS] |
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[INSERT ADDRESS] |
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Tel.: [INSERT NUMBER] |
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Fax: [INSERT NUMBER] |
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APPENDIX A
DEFINITIONS
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Board means the Board of Directors of the Company. |
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Change in Control means: |
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(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) (a Person) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of either (x) the then outstanding shares of common stock of the Company (the Outstanding Energy Group Common Stock) or (y) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the Outstanding Energy Group Voting Securities); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company; (ii) any acquisition by the Company; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or its affiliated companies; or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this definition; or |
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(b) Individuals who, as of the date of this Agreement, constitute the Board (the Incumbent Board) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Companys shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or |
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(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a Business Combination), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Energy Group Common Stock and Outstanding Energy Group Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than sixty percent (60%) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company |
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or all or substantially all of the Companys assets either directly or through one or more of its affiliated companies) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Common Stock and Outstanding Energy Group Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business combination; or |
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(d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. |
Corporate Status means the status of a person as a director, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving at the request of the Company.
Disinterested Director means a director of the Company who is not and has not been a party to the Proceeding in respect of which indemnification is sought by the Officer.
Enterprise means the Company and any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise of which the Officer is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary.
Expenses means and includes all reasonable costs, attorneys fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding and in any appeal resulting from any Proceeding, including the premium, security for, and other costs relating to any cost bond, supersedes bond, or other appeal bond or its equivalent. Expenses shall not include Judgments.
Independent Counsel means a law firm, or a member of a law firm, that is experienced in matters of corporate law and that neither presently is, nor in the past five years has been, retained to represent any of the following: (i) the Company or the Officer in any matter material to either such party (other than with respect to matters concerning the Officer under this Agreement, or of other indemnitees under similar indemnification agreements); or (ii) any other party to the Proceeding giving rise to a claim for indemnification or expense advancement under this Agreement. Notwithstanding the foregoing, the term Independent Counsel shall not
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include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or the Officer in an action to determine the Officers rights under this Agreement.
Judgments means and includes all judgments, fines, penalties and amounts paid in settlement that are paid or payable in connection with any Proceeding by reason of or relating to the Officers Corporate Status (including all interest, assessments, excise taxes and other charges paid or payable in connection with, or in respect of, any of the foregoing).
NYBCL means the New York Business Corporation Law, including any amendments or replacements, amended after the date of this Agreement, that in either case authorize or contemplate additional or expanded indemnification.
Proceeding means any threatened, pending or concluded action, suit, claim, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other threatened, pending or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, regulatory or investigative nature, in which the Officer was, is or will be involved as a party or otherwise by reason of or relating to the fact that the Officer is or was an officer of the Company, by reason of or relating to any action taken by him or of any inaction on his part while acting as an officer of the Company, or by reason of or relating to the fact that he is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another Enterprise; in each case whether or not he is serving in such capacity at the time any liability or expense is incurred for which indemnification or advancement of Expenses can be provided under this Agreement.
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Exhibit 10(iii)(2)
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made this ___ day of ____________, 2009 between CENTRAL HUDSON GAS & ELECTRIC CORPORATION, a New York corporation (the Company), and ________________ (the Officer).
WHEREAS, it is essential for the Company to be able to attract and retain highly capable persons as Officers of the Company;
WHEREAS, the Company and the Officer each recognize the risk of litigation and other claims being asserted against officers of public companies in the current business environment;
WHEREAS, the Company recognizes the Officers need for substantial protection against personal liability, and the Company desires to provide in this Agreement for the indemnification of, and the advancement of expenses to, the Officer to the fullest extent permitted by the New York Business Corporation Law; and
WHEREAS, the Officer is relying on the contractual assurances provided by this Agreement in determining whether to begin serving, or to continue serving, as an Officer of the Company;
NOW, THEREFORE, in consideration of the premises and as an inducement to the Officer to serve or continue to serve the Company as an Officer, and intending to be legally bound hereby, the Company and the Officer agree as follows:
Section 1. Certain Definitions. Capitalized terms used in this Agreement have the meanings set forth in the text of this Agreement or in the Definitions contained in Appendix A to this Agreement.
Section 2. Indemnification. The Company shall indemnify the Officer as follows:
(a) Indemnification to the Fullest Extent Permitted by Law. The Company shall indemnify the Officer and hold the Officer harmless, to the fullest extent permitted by the
NYBCL, from and against all Judgments and all Expenses incurred by the Officer in connection with any Proceeding by reason of or relating to his Corporate Status.
(b) Indemnification General Provisions. The rights to indemnification provided by Section 2(a) to the Officer shall include, but shall not be limited to, the rights provided to the Officer by this Section 2(b) and the other Sections of this Agreement. Without diminishing in any way the scope of indemnification rights provided to the Officer by Section 2(a), the Company agrees that it shall indemnify the Officer and hold the Officer harmless from and against all Judgments and all Expenses incurred by the Officer in connection with any Proceeding by reason of or relating to his Corporate Status, provided the Officer has met the standard of conduct (the Applicable Standard of Conduct) set forth in the following sentence. The Applicable Standard of Conduct shall mean that there is not a Judgment or other final adjudication adverse to the Officer which has established that: (i) his acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated; or (ii) he personally gained in fact a financial profit or other advantage to which he was not legally entitled.
(c) Indemnification for Expenses When Wholly or Partly Successful. Notwithstanding any other provision of this Agreement, to the extent that the Officer is, by reason of or relating to his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If the Officer is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify the Officer against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Agreement, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
(d) Indemnification of Expenses as a Witness. The Company shall indemnify the Officer and hold the Officer harmless from and against all Expenses actually and reasonably
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incurred by him in connection with serving as a witness, by reason of or relating to his Corporate Status, in any Proceeding to which he is not a party.
Section 3. Indemnification Procedures. (a) To obtain indemnification under this Agreement, the Officer shall submit to the Company a written request with such documentation and information as is reasonably available to him for the determination of whether he is entitled to indemnification under this Agreement.
(b) Within twenty (20) days from the Companys receipt of a written request from the Officer for indemnification pursuant to Section 2(c), 2(d) and/or the last sentence of Section 3(c), the Company shall make all required indemnification payments to the Officer. Within sixty (60) days from the Companys receipt of a written request from the Officer for indemnification pursuant to Section 2(a) and/or Section 2(b), a determination of whether or not the Officer has met the Applicable Standard of Conduct shall be made as follows:
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(i) if a Change in Control has occurred, the determination shall be made by, and be set forth in a written opinion of, an Independent Counsel selected in accordance with Section 3(d) of this Agreement (a copy of the written opinion shall be delivered to the Officer); or |
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(ii) if a Change in Control has not occurred, the determination shall be made as follows: |
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(A) by the Board, acting by a quorum of Disinterested Directors; or |
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(B) if a quorum of Disinterested Directors so directs: |
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(x) by an Independent Counsel selected in accordance with Section 3(d); this determination shall be set forth in a written opinion of the Independent Counsel and a copy of it shall be delivered to the Officer; or |
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(y) by the shareholders of the Company; or |
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(C) if a quorum of Disinterested Directors is not obtainable: |
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(v) by an Independent Counsel selected in accordance with Section 3(d); this determination shall be set forth in a written opinion of the Independent Counsel and a copy of it shall be delivered to the Officer; or |
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(w) if a judicial proceeding or arbitration is commenced pursuant to Section 6(a), and if the Court or arbitrator so directs: by the shareholders of the Company. |
(c) If it is determined that the Officer has met the Applicable Standard of Conduct, the Company shall make all required indemnification payments to the Officer within ten (10) days after receiving written notice of the determination. The Officer shall cooperate with the person(s) making the determination, including providing, upon reasonable advance request, any documentation or information relevant to the determination that is not privileged or otherwise protected from disclosure and that is reasonably available to the Officer. Any Expenses incurred by the Officer in so cooperating with the person(s) making the determination shall be borne by the Company (irrespective of the determination as to the Officers entitlement to indemnification).
(d) If an Independent Counsel is required or directed under Section 3(b) to determine whether the Officer has met the Applicable Standard of Conduct, the Independent Counsel shall meet the qualification requirements for Independent Counsel set forth in Appendix A and shall be selected, within fifteen (15) days from the Companys receipt of the Officers written request for indemnification, as follows:
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(i) if a Change in Control has not occurred, the Independent Counsel shall be selected by the Board, and the Company shall promptly notify the Officer in writing of the Independent Counsel so selected; or |
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(ii) if a Change in Control has occurred, the Independent Counsel shall be selected by the Officer and the Officer shall promptly notify the Company in writing of the Independent Counsel so selected pursuant to this Section 3(d)(ii); provided, however, that the Officer may in his or her discretion request that the Board select the Independent Counsel, in which case the Independent Counsel shall be selected in the manner provided in clause (i) of this Section 3(d). |
Within ten (10) days after the Company or the Officer, as the case may be, gives the other written notice of the selection of the Independent Counsel, the party receiving such notice may give the party giving such notice a written objection to the Independent Counsel that has been selected. Any such objection can be based only on the ground that the selected Independent Counsel does not meet the qualification requirements for Independent Counsel as set forth in Appendix A, and the objection must set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the selected law firm or lawyer shall act as Independent Counsel with respect to the request for indemnification. If a timely written objection is made setting forth with particularity the factual basis for the assertion, the selected Independent Counsel may not serve as Independent Counsel unless and until the objection is withdrawn or a court has determined that the objection is without merit. If, within thirty (30) days after the submission by the Officer of the written request for indemnification pursuant to Section 3(a), an Independent Counsel has not been selected or all objections to a selected Independent Counsel have not been resolved, either the Company or the Officer may petition the Supreme Court of the State of New York in New York County or in Dutchess County for (i) an expedited judicial resolution of any objection that has been made by the Company or by the Officer to the others selection of Independent Counsel, and/or for (ii) an expedited judicial appointment as Independent Counsel of a person designated by the Court (or by such other person as the Court shall designate); and the law firm or lawyer with respect to whom all objections are so resolved by the Court or the law firm or lawyer so appointed by the Court or its designee shall be the Independent Counsel for purposes of making the determination of whether the Officer is entitled to indemnification under this Section 3 with respect to the Officers request for indemnification. If an expedited judicial decision is not received within sixty (60) days from
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the Companys receipt of the Officers written request for indemnification, the Officer shall have the option of waiting for a judicial decision with respect to the choice of an Independent Counsel or pursuing his remedies under Section 6. If the Officer chooses to pursue his remedies under Section 6, the Officer and the Company shall promptly file a stipulation with the Court withdrawing any and all petitions filed pursuant to this Section 3(d).
(e) Upon the commencement of any judicial proceeding or arbitration pursuant to Section 6(a), the selected Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing). The Company shall pay the reasonable fees and expenses of the selected law firm or lawyer incurred in connection with acting or preparing to act as Independent Counsel.
(f) In determining whether the Officer is entitled to indemnification under this Agreement, the person(s) making such determination shall presume that the Officer has met the Applicable Standard of Conduct, and the Company shall have the burden of proof to overcome that presumption in making any determination contrary to that presumption. In this connection, the person(s) making the determination shall be bound by an explicit judicial finding in the relevant Proceeding that (A) the Officers acts were committed in bad faith or were the result of active or deliberate dishonesty and were material to the cause of action so adjudicated or (B) the Officer personally gained, in fact, a financial profit or other advantage to which he was not legally entitled. In the absence of such an explicit and specific judicial finding described in the prior sentence, the person(s) making the determination shall decide, on the basis of reasonably available information, whether the final adjudication in the proceeding establishes that the Officer has met the Applicable Standard of Conduct. The termination of any Proceeding by judgment, settlement, conviction or upon a plea of nolo contendere (or its equivalent) shall not by itself create a presumption that the Officers acts (i) were committed in bad faith, (ii) were the result of active and deliberate dishonesty, (iii) were material to the cause of action against the Officer, or (iv) that the Officer personally gained in fact a financial profit or other advantage to which he was not legally entitled.
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(g) No determination as to whether the Officer has met the Applicable Standard of Conduct shall be required prior to the final disposition of the Proceeding.
(h) For purposes of determining whether the Officer acted in bad faith, the Officer shall be deemed to have acted in good faith if the Officer acted in reliance (without knowledge of any materially false or misleading statement or omission therein) on (i) the records or books of account of the Enterprise, including financial statements, (ii) information supplied to the Officer by the officers of the Enterprise in the course of their duties, (iii) the advice of legal counsel for the Enterprise, or (iv) information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. The provisions of this Section shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Officer may be deemed to be entitled to indemnification.
(i) An Officer who acted in good faith and in a manner he reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed not to have acted in bad faith as referred to in this Agreement.
(j) The knowledge or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to the Officer for purposes of determining whether the Officer has met the Applicable Standard of Conduct.
Section 4. Advance of Expenses. The Company shall advance to the Officer full payment for Expenses incurred by the Officer (or reasonably expected to be incurred by the Officer during the three (3) months following a request for payment) by reason of or relating to his Corporate Status, in connection with any Proceeding, and such advances shall be made within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to the Officers ability to repay the amounts advanced and without regard to the Officers ultimate entitlement to indemnification under the other provisions of this Agreement. Advances shall
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include payment for any and all Expenses reasonably incurred by the Officer in pursuing an action to enforce this right to receive advances of Expenses, including Expenses incurred in preparing and forwarding statements to the Company to support the advances sought. The Officer hereby agrees and undertakes to repay all such advances to the extent that it is ultimately determined that he is not entitled to be indemnified by the Company for the Proceeding (or for particular claims, issues, or matters in such Proceeding) with respect to which the advance is made.
Section 5. Certain Exclusions. Notwithstanding any other provision of this Agreement, the Company shall not be obligated by this Agreement to indemnify the Officer, or to advance Expenses, with respect to:
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(a) any matter for which payment has actually been made to or for the account of the Officer under any insurance policy, other indemnity provision, contract or agreement, except with respect to any amount of Judgment or Expenses in excess of the amounts paid to the Officer under any such insurance policy, other indemnity provision, contract or agreement; |
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(b) an accounting by the Officer for profits made from the purchase and sale (or sale and purchase) by the Officer of securities of the Company in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law; |
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(c) any Proceeding (or any part of a Proceeding) initiated by the Officer, including any Proceeding (or any part of a Proceeding) initiated by the Officer against the Company or its directors, officers, employees or other indemnitees, unless the Board authorized the Proceeding (or relevant parts of the Proceeding) prior to its initiation by the Officer; or |
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(d) any matter for which the Company is advised, in a written opinion of its regular outside legal counsel, that the Companys indemnification of the Officer or advancement of Expenses to the Officer would violate the Sarbanes-Oxley Act of 2002 |
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(in which case the parties shall revise this Agreement in a manner that will result in a new provision that does not violate the Sarbanes-Oxley Act of 2002 and the legal effect of which comes as close as possible to what the parties had intended to achieve under this Agreement as it was originally drafted and executed). |
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Section 6. Remedies of the Officer. (a) If: |
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(i) a determination is made pursuant to Section 3 that the Officer has not met the Applicable Standard of Conduct; |
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(ii) advancement of Expenses is not timely-made pursuant to Section 4; |
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(iii) no determination of whether or not the Officer has met the Applicable Standard of Conduct is made pursuant to Section 3(a) within the period specified in such Section; |
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(iv) payment of indemnification is not made pursuant to the first sentence of Section 3(b) within twenty (20) days from the Companys receipt of a written request from the Officer for indemnification pursuant to Section 2(c), Section 2(d), or the last sentence of Section 3(c); or |
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(v) payment of indemnification pursuant to this Agreement is not made within ten (10) days after the Company has received notice that a determination has been made pursuant to Section 3 that the Officer met the Applicable Standard of Conduct; |
then the Officer shall be entitled to seek an adjudication by the Supreme Court of the State of New York in New York County or in Dutchess County of his right to such indemnification or advance of Expenses. Alternatively, the Officer, at his option, may seek an award in arbitration to be conducted by a single arbitrator in New York, New York or in Dutchess County, New York pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The Officer shall commence such proceeding seeking an adjudication or an award in arbitration within one hundred eighty (180) days following the date on which the Officer first has the right
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to commence such proceeding pursuant to this Section 6(a). The Company shall not oppose the Officers right to seek any such adjudication or award in arbitration.
(b) If a determination is made pursuant to Section 3(b) that the Officer has not met the Applicable Standard of Conduct, any judicial proceeding or arbitration commenced pursuant to this Section 6 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and the Officer shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 6, the Company shall have the burden of proving that the Officer is not entitled to indemnification or advancement of Expenses, as the case may be.
(c) If a determination is made pursuant to Section 3(b) that the Officer has met the Applicable Standard of Conduct, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 6 or otherwise, unless the Court or arbitrator finds (i) that there was a misstatement by the Officer of a material fact, or an omission of a material fact necessary to make the Officers statement not materially misleading, in connection with his request for indemnification, or (ii) that there is a prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 6 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such Court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. The Company shall indemnify and hold the Officer harmless from and against any and all Expenses (and, if requested by the Officer, shall advance, within thirty (30) days after receipt by the Company of a written request therefor, to the extent not prohibited by law, such Expenses to the Officer) which are incurred by the Officer in connection with any judicial proceeding or arbitration brought by the Officer for indemnification or advance of Expenses from the Company under this Agreement or under any directors and officers liability insurance policies maintained by the Company, regardless of whether the Officer ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be.
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Section 7. Non-exclusivity; Survival of Rights; Insurance; Subrogation. (a) The Officers right to be indemnified and to receive advances of Expenses as provided in this Agreement shall not be deemed exclusive of any other rights to which the Officer at any time may be entitled under applicable law, the Companys Certificate of Incorporation, the Companys By-laws, any agreement, a vote of shareholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of any provision of this Agreement shall limit or restrict any right of the Officer under this Agreement in respect of any action taken or omitted by the Officer with respect to his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in New York law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be permitted currently under the Companys By-laws and this Agreement, it is the intent and agreement of the parties hereto that the Officer shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents of the Company or of any other Enterprise, the Officer shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies. If the Company has director and officer liability insurance in effect at the time of the receipt of a request for indemnification or other notice of a Proceeding involving the Officer by reason of or relating to his Corporate Status, the Company shall give prompt notice of the commencement of such Proceeding to the insurer(s) in accordance with the procedures set forth in the respective policy or policies.
(c) If the Company makes any payment to the Officer under this Agreement, the Company shall be subrogated to the extent of such payment to all the rights of recovery of the Officer, who shall execute all papers required and take all action necessary to secure such rights,
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including execution of such documents as are necessary to enable the Company to commence and prosecute legal proceedings to enforce such rights.
Section 8. Contribution. To the fullest extent permitted under applicable law, if the indemnification provided for in this Agreement is unavailable to the Officer for any reason whatsoever, the Company, in lieu of indemnifying the Officer, shall contribute to the amount incurred by the Officer by reason of or relating to his Corporate Status, whether for Judgments or Expenses, in connection with any Proceeding, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect: (a) the relative benefits received by the Company and the Officer as a result of the event(s) and/or transaction(s) giving rise to such Proceeding; or (b) the relative fault of the Company (and its directors, officers, employees and agents) and the Officer in connection with such event(s) and/or transaction(s).
Section 9. Retroactive Effect; Binding Agreement. (a) The provisions of this Agreement are intended to be retroactive, and the full benefits hereof shall be available with respect to any alleged or actual occurrences, acts or failures to act that have occurred prior to the date hereof.
(b) This Agreement shall be binding upon the Company and its successors and assigns. The Company shall require any successor to the Company or to all or substantially all of the business or assets of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.
(c) This Agreement shall inure to the benefit of and be enforceable by the Officers personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. Without limiting the generality of the preceding sentence, if the Officer should die while any amounts would be payable to him hereunder if he had continued to live, all
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such amounts shall be paid in accordance with the terms of this Agreement to the Officers devisee, legatee, or other designee, or if there be no such designee, to his estate.
Section 10. Severability; Invalidity. If any provision of this Agreement is held to be invalid, illegal or unenforceable for any reason whatsoever: (i) the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (ii) such provision shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (iii) to the fullest extent possible, the provisions of this Agreement shall be construed so as to give effect to the intent manifested hereby.
Section 11. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided, however, that this Agreement is a supplement to and in furtherance of the Companys Certificate of Incorporation and the By-laws and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of the Officer thereunder.
Section 12. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties thereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.
Section 13. Notice by the Officer. The Officer promptly shall notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding concerning or arising from his Corporate Status, and he shall also promptly notify the Company of any other matter which may be subject to the indemnification or advancement of Expenses covered hereunder. The failure of
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the Officer to so notify the Company shall not relieve the Company of any obligation which it may have to the Officer under this Agreement or otherwise.
Section 14. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if: (a) delivered by hand and receipted for by the party to whom the notice or other communication has been directed; (b) mailed by certified or registered mail with postage prepaid, which shall be deemed given on the third business day after the date on which it is so mailed; (c) mailed by reputable overnight courier; or (d) sent by facsimile transmission, with receipt of confirmation that such transmission has been received:
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(i) if to the Officer, at the address or fax number indicated on the signature page of this Agreement, or such other address as the Officer shall provide to the Company; and |
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(ii) if to the Company, at the address or fax number indicated on the signature page of this Agreement, or at such other address or fax number as may have been furnished to the Officer by the Company. |
Section 15. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations between the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of New York, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by the Officer pursuant to Section 6, the Company and the Officer hereby irrevocably and unconditionally: (a) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Supreme Court of the State of New York, in either New York County or Dutchess County, New York (the New York Court), and not in any other state or federal court in the United States of America or any court in any other country; (b) consent to submit to the exclusive jurisdiction of the New York Court for purposes of any action or proceeding arising out of or in connection with this Agreement; (c) waive any objection to the laying of venue of any such action or proceeding in the New York Court; and (d) waive, and agree not to plead or to make, any claim that any such action or
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proceeding brought in the New York Court has been brought in an improper or inconvenient forum.
Section 16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
Section 17. Headings. The headings set forth in this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.
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CENTRAL HUDSON GAS & ELECTRIC CORPORATION |
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By: ____________________________________________ |
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Name: |
Steven V. Lant |
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Title: |
Chairman of the Board and Chief |
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Executive Officer |
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Address: |
284 South Avenue, |
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Poughkeepsie, NY 12601 |
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Tel.: 845-486-5254 |
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Fax: 845-486-5465 |
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OFFICER |
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____________________________________________ |
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Name: |
[INSERT NAME] |
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Address: |
[INSERT ADDRESS] |
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[INSERT ADDRESS] |
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Tel.: [INSERT NUMBER] |
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Fax: [INSERT NUMBER] |
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APPENDIX A
DEFINITIONS
Board means the Board of Directors of the Company.
Change in Control means:
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(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) (a Person) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of either (x) the then outstanding shares of common stock of the Company (the Outstanding Company Common Stock) or (y) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the Outstanding Company Voting Securities); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company; (ii) any acquisition by the Company; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or its affiliated companies; or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this definition; or |
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(b) Individuals who, as of the date of this Agreement, constitute the Board (the Incumbent Board) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Companys shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or |
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(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a Business Combination), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than sixty percent (60%) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or |
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substantially all of the Companys assets either directly or through one or more of its affiliated companies) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business combination; or |
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(d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. |
Corporate Status means the status of a person as a director, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving at the request of the Company.
Disinterested Director means a director of the Company who is not and has not been a party to the Proceeding in respect of which indemnification is sought by the Officer.
Enterprise means the Company and any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise of which the Officer is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary.
Expenses means and includes all reasonable costs, attorneys fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding and in any appeal resulting from any Proceeding, including the premium, security for, and other costs relating to any cost bond, supersedes bond, or other appeal bond or its equivalent. Expenses shall not include Judgments.
Independent Counsel means a law firm, or a member of a law firm, that is experienced in matters of corporate law and that neither presently is, nor in the past five years has been, retained to represent any of the following: (i) the Company or the Officer in any matter material to either such party (other than with respect to matters concerning the Officer under this Agreement, or of other indemnitees under similar indemnification agreements); or (ii) any other party to the Proceeding giving rise to a claim for indemnification or expense advancement under this Agreement. Notwithstanding the foregoing, the term Independent Counsel shall not
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include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or the Officer in an action to determine the Officers rights under this Agreement.
Judgments means and includes all judgments, fines, penalties and amounts paid in settlement that are paid or payable in connection with any Proceeding by reason of or relating to the Officers Corporate Status (including all interest, assessments, excise taxes and other charges paid or payable in connection with, or in respect of, any of the foregoing).
NYBCL means the New York Business Corporation Law, including any amendments or replacements, amended after the date of this Agreement, that in either case authorize or contemplate additional or expanded indemnification.
Proceeding means any threatened, pending or concluded action, suit, claim, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other threatened, pending or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, regulatory or investigative nature, in which the Officer was, is or will be involved as a party or otherwise by reason of or relating to the fact that the Officer is or was an officer of the Company, by reason of or relating to any action taken by him or of any inaction on his part while acting as an officer of the Company, or by reason of or relating to the fact that he is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another Enterprise; in each case whether or not he is serving in such capacity at the time any liability or expense is incurred for which indemnification or advancement of Expenses can be provided under this Agreement.
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Exhibit 10(iii)(3)
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made this ___ day of ____________, 2009 between CENTRAL HUDSON ENTERPRISES CORPORATION, a New York corporation (the Company), and ________________ (the Officer).
WHEREAS, it is essential for the Company to be able to attract and retain highly capable persons as Officers of the Company;
WHEREAS, the Company and the Officer each recognize the risk of litigation and other claims being asserted against officers of public companies in the current business environment;
WHEREAS, the Company recognizes the Officers need for substantial protection against personal liability, and the Company desires to provide in this Agreement for the indemnification of, and the advancement of expenses to, the Officer to the fullest extent permitted by the New York Business Corporation Law; and
WHEREAS, the Officer is relying on the contractual assurances provided by this Agreement in determining whether to begin serving, or to continue serving, as an Officer of the Company;
NOW, THEREFORE, in consideration of the premises and as an inducement to the Officer to serve or continue to serve the Company as an Officer, and intending to be legally bound hereby, the Company and the Officer agree as follows:
Section 1. Certain Definitions. Capitalized terms used in this Agreement have the meanings set forth in the text of this Agreement or in the Definitions contained in Appendix A to this Agreement.
Section 2. Indemnification. The Company shall indemnify the Officer as follows:
(a) Indemnification to the Fullest Extent Permitted by Law. The Company shall indemnify the Officer and hold the Officer harmless, to the fullest extent permitted by the
NYBCL, from and against all Judgments and all Expenses incurred by the Officer in connection with any Proceeding by reason of or relating to his Corporate Status.
(b) Indemnification General Provisions. The rights to indemnification provided by Section 2(a) to the Officer shall include, but shall not be limited to, the rights provided to the Officer by this Section 2(b) and the other Sections of this Agreement. Without diminishing in any way the scope of indemnification rights provided to the Officer by Section 2(a), the Company agrees that it shall indemnify the Officer and hold the Officer harmless from and against all Judgments and all Expenses incurred by the Officer in connection with any Proceeding by reason of or relating to his Corporate Status, provided the Officer has met the standard of conduct (the Applicable Standard of Conduct) set forth in the following sentence. The Applicable Standard of Conduct shall mean that there is not a Judgment or other final adjudication adverse to the Officer which has established that: (i) his acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated; or (ii) he personally gained in fact a financial profit or other advantage to which he was not legally entitled.
(c) Indemnification for Expenses When Wholly or Partly Successful. Notwithstanding any other provision of this Agreement, to the extent that the Officer is, by reason of or relating to his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If the Officer is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify the Officer against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Agreement, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
(d) Indemnification of Expenses as a Witness. The Company shall indemnify the Officer and hold the Officer harmless from and against all Expenses actually and reasonably
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incurred by him in connection with serving as a witness, by reason of or relating to his Corporate Status, in any Proceeding to which he is not a party.
Section 3. Indemnification Procedures. (a) To obtain indemnification under this Agreement, the Officer shall submit to the Company a written request with such documentation and information as is reasonably available to him for the determination of whether he is entitled to indemnification under this Agreement.
(b) Within twenty (20) days from the Companys receipt of a written request from the Officer for indemnification pursuant to Section 2(c), 2(d) and/or the last sentence of Section 3(c), the Company shall make all required indemnification payments to the Officer. Within sixty (60) days from the Companys receipt of a written request from the Officer for indemnification pursuant to Section 2(a) and/or Section 2(b), a determination of whether or not the Officer has met the Applicable Standard of Conduct shall be made as follows:
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(i) if a Change in Control has occurred, the determination shall be made by, and be set forth in a written opinion of, an Independent Counsel selected in accordance with Section 3(d) of this Agreement (a copy of the written opinion shall be delivered to the Officer); or |
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(ii) if a Change in Control has not occurred, the determination shall be made as follows: |
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(A) by the Board, acting by a quorum of Disinterested Directors; or |
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(B) if a quorum of Disinterested Directors so directs: |
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(x) by an Independent Counsel selected in accordance with Section 3(d); this determination shall be set forth in a written opinion of the Independent Counsel and a copy of it shall be delivered to the Officer; or |
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(y) by the shareholders of the Company; or |
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(C) if a quorum of Disinterested Directors is not obtainable: |
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(v) by an Independent Counsel selected in accordance with Section 3(d); this determination shall be set forth in a written opinion of the Independent Counsel and a copy of it shall be delivered to the Officer; or |
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(w) if a judicial proceeding or arbitration is commenced pursuant to Section 6(a), and if the Court or arbitrator so directs: by the shareholders of the Company. |
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(c) If it is determined that the Officer has met the Applicable Standard of Conduct, the Company shall make all required indemnification payments to the Officer within ten (10) days after receiving written notice of the determination. The Officer shall cooperate with the person(s) making the determination, including providing, upon reasonable advance request, any documentation or information relevant to the determination that is not privileged or otherwise protected from disclosure and that is reasonably available to the Officer. Any Expenses incurred by the Officer in so cooperating with the person(s) making the determination shall be borne by the Company (irrespective of the determination as to the Officers entitlement to indemnification).
(d) If an Independent Counsel is required or directed under Section 3(b) to determine whether the Officer has met the Applicable Standard of Conduct, the Independent Counsel shall meet the qualification requirements for Independent Counsel set forth in Appendix A and shall be selected, within fifteen (15) days from the Companys receipt of the Officers written request for indemnification, as follows:
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(i) if a Change in Control has not occurred, the Independent Counsel shall be selected by the Board, and the Company shall promptly notify the Officer in writing of the Independent Counsel so selected; or |
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(ii) if a Change in Control has occurred, the Independent Counsel shall be selected by the Officer and the Officer shall promptly notify the Company in writing of the Independent Counsel so selected pursuant to this Section 3(d)(ii); provided, however, that the Officer may in his or her discretion request that the Board select the Independent Counsel, in which case the Independent Counsel shall be selected in the manner provided in clause (i) of this Section 3(d). |
Within ten (10) days after the Company or the Officer, as the case may be, gives the other written notice of the selection of the Independent Counsel, the party receiving such notice may give the party giving such notice a written objection to the Independent Counsel that has been selected. Any such objection can be based only on the ground that the selected Independent Counsel does not meet the qualification requirements for Independent Counsel as set forth in Appendix A, and the objection must set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the selected law firm or lawyer shall act as Independent Counsel with respect to the request for indemnification. If a timely written objection is made setting forth with particularity the factual basis for the assertion, the selected Independent Counsel may not serve as Independent Counsel unless and until the objection is withdrawn or a court has determined that the objection is without merit. If, within thirty (30) days after the submission by the Officer of the written request for indemnification pursuant to Section 3(a), an Independent Counsel has not been selected or all objections to a selected Independent Counsel have not been resolved, either the Company or the Officer may petition the Supreme Court of the State of New York in New York County or in Dutchess County for (i) an expedited judicial resolution of any objection that has been made by the Company or by the Officer to the others selection of Independent Counsel, and/or for (ii) an expedited judicial appointment as Independent Counsel of a person designated by the Court (or by such other person as the Court shall designate); and the law firm or lawyer with respect to whom all objections are so resolved by the Court or the law firm or lawyer so appointed by the Court or its designee shall be the Independent Counsel for purposes of making the determination of whether the Officer is entitled to indemnification under this Section 3 with respect to the Officers request for indemnification. If an expedited judicial decision is not received within sixty (60) days from
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the Companys receipt of the Officers written request for indemnification, the Officer shall have the option of waiting for a judicial decision with respect to the choice of an Independent Counsel or pursuing his remedies under Section 6. If the Officer chooses to pursue his remedies under Section 6, the Officer and the Company shall promptly file a stipulation with the Court withdrawing any and all petitions filed pursuant to this Section 3(d).
(e) Upon the commencement of any judicial proceeding or arbitration pursuant to Section 6(a), the selected Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing). The Company shall pay the reasonable fees and expenses of the selected law firm or lawyer incurred in connection with acting or preparing to act as Independent Counsel.
(f) In determining whether the Officer is entitled to indemnification under this Agreement, the person(s) making such determination shall presume that the Officer has met the Applicable Standard of Conduct, and the Company shall have the burden of proof to overcome that presumption in making any determination contrary to that presumption. In this connection, the person(s) making the determination shall be bound by an explicit judicial finding in the relevant Proceeding that (A) the Officers acts were committed in bad faith or were the result of active or deliberate dishonesty and were material to the cause of action so adjudicated or (B) the Officer personally gained, in fact, a financial profit or other advantage to which he was not legally entitled. In the absence of such an explicit and specific judicial finding described in the prior sentence, the person(s) making the determination shall decide, on the basis of reasonably available information, whether the final adjudication in the proceeding establishes that the Officer has met the Applicable Standard of Conduct. The termination of any Proceeding by judgment, settlement, conviction or upon a plea of nolo contendere (or its equivalent) shall not by itself create a presumption that the Officers acts (i) were committed in bad faith, (ii) were the result of active and deliberate dishonesty, (iii) were material to the cause of action against the Officer, or (iv) that the Officer personally gained in fact a financial profit or other advantage to which he was not legally entitled.
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(g) No determination as to whether the Officer has met the Applicable Standard of Conduct shall be required prior to the final disposition of the Proceeding.
(h) For purposes of determining whether the Officer acted in bad faith, the Officer shall be deemed to have acted in good faith if the Officer acted in reliance (without knowledge of any materially false or misleading statement or omission therein) on (i) the records or books of account of the Enterprise, including financial statements, (ii) information supplied to the Officer by the officers of the Enterprise in the course of their duties, (iii) the advice of legal counsel for the Enterprise, or (iv) information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. The provisions of this Section shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Officer may be deemed to be entitled to indemnification.
(i) An Officer who acted in good faith and in a manner he reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed not to have acted in bad faith as referred to in this Agreement.
(j) The knowledge or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to the Officer for purposes of determining whether the Officer has met the Applicable Standard of Conduct.
Section 4. Advance of Expenses. The Company shall advance to the Officer full payment for Expenses incurred by the Officer (or reasonably expected to be incurred by the Officer during the three (3) months following a request for payment) by reason of or relating to his Corporate Status, in connection with any Proceeding, and such advances shall be made within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to the Officers ability to repay the amounts advanced and without regard to the Officers ultimate entitlement to indemnification under the other provisions of this Agreement. Advances shall
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include payment for any and all Expenses reasonably incurred by the Officer in pursuing an action to enforce this right to receive advances of Expenses, including Expenses incurred in preparing and forwarding statements to the Company to support the advances sought. The Officer hereby agrees and undertakes to repay all such advances to the extent that it is ultimately determined that he is not entitled to be indemnified by the Company for the Proceeding (or for particular claims, issues, or matters in such Proceeding) with respect to which the advance is made.
Section 5. Certain Exclusions. Notwithstanding any other provision of this Agreement, the Company shall not be obligated by this Agreement to indemnify the Officer, or to advance Expenses, with respect to:
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(a) any matter for which payment has actually been made to or for the account of the Officer under any insurance policy, other indemnity provision, contract or agreement, except with respect to any amount of Judgment or Expenses in excess of the amounts paid to the Officer under any such insurance policy, other indemnity provision, contract or agreement; |
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(b) an accounting by the Officer for profits made from the purchase and sale (or sale and purchase) by the Officer of securities of the Company in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law; |
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(c) any Proceeding (or any part of a Proceeding) initiated by the Officer, including any Proceeding (or any part of a Proceeding) initiated by the Officer against the Company or its directors, officers, employees or other indemnitees, unless the Board authorized the Proceeding (or relevant parts of the Proceeding) prior to its initiation by the Officer; or |
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(d) any matter for which the Company is advised, in a written opinion of its regular outside legal counsel, that the Companys indemnification of the Officer or advancement of Expenses to the Officer would violate the Sarbanes-Oxley Act of 2002 |
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(in which case the parties shall revise this Agreement in a manner that will result in a new provision that does not violate the Sarbanes-Oxley Act of 2002 and the legal effect of which comes as close as possible to what the parties had intended to achieve under this Agreement as it was originally drafted and executed). |
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Section 6. Remedies of the Officer. (a) If: |
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(i) a determination is made pursuant to Section 3 that the Officer has not met the Applicable Standard of Conduct; |
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(ii) advancement of Expenses is not timely-made pursuant to Section 4; |
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(iii) no determination of whether or not the Officer has met the Applicable Standard of Conduct is made pursuant to Section 3(a) within the period specified in such Section; |
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(iv) payment of indemnification is not made pursuant to the first sentence of Section 3(b) within twenty (20) days from the Companys receipt of a written request from the Officer for indemnification pursuant to Section 2(c), Section 2(d), or the last sentence of Section 3(c); or |
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(v) payment of indemnification pursuant to this Agreement is not made within ten (10) days after the Company has received notice that a determination has been made pursuant to Section 3 that the Officer met the Applicable Standard of Conduct; |
then the Officer shall be entitled to seek an adjudication by the Supreme Court of the State of New York in New York County or in Dutchess County of his right to such indemnification or advance of Expenses. Alternatively, the Officer, at his option, may seek an award in arbitration to be conducted by a single arbitrator in New York, New York or in Dutchess County, New York pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The Officer shall commence such proceeding seeking an adjudication or an award in arbitration within one hundred eighty (180) days following the date on which the Officer first has the right
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to commence such proceeding pursuant to this Section 6(a). The Company shall not oppose the Officers right to seek any such adjudication or award in arbitration.
(b) If a determination is made pursuant to Section 3(b) that the Officer has not met the Applicable Standard of Conduct, any judicial proceeding or arbitration commenced pursuant to this Section 6 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and the Officer shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 6, the Company shall have the burden of proving that the Officer is not entitled to indemnification or advancement of Expenses, as the case may be.
(c) If a determination is made pursuant to Section 3(b) that the Officer has met the Applicable Standard of Conduct, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 6 or otherwise, unless the Court or arbitrator finds (i) that there was a misstatement by the Officer of a material fact, or an omission of a material fact necessary to make the Officers statement not materially misleading, in connection with his request for indemnification, or (ii) that there is a prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 6 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such Court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. The Company shall indemnify and hold the Officer harmless from and against any and all Expenses (and, if requested by the Officer, shall advance, within thirty (30) days after receipt by the Company of a written request therefor, to the extent not prohibited by law, such Expenses to the Officer) which are incurred by the Officer in connection with any judicial proceeding or arbitration brought by the Officer for indemnification or advance of Expenses from the Company under this Agreement or under any directors and officers liability insurance policies maintained by the Company, regardless of whether the Officer ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be.
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Section 7. Non-exclusivity; Survival of Rights; Insurance; Subrogation. (a) The Officers right to be indemnified and to receive advances of Expenses as provided in this Agreement shall not be deemed exclusive of any other rights to which the Officer at any time may be entitled under applicable law, the Companys Certificate of Incorporation, the Companys By-laws, any agreement, a vote of shareholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of any provision of this Agreement shall limit or restrict any right of the Officer under this Agreement in respect of any action taken or omitted by the Officer with respect to his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in New York law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be permitted currently under the Companys By-laws and this Agreement, it is the intent and agreement of the parties hereto that the Officer shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents of the Company or of any other Enterprise, the Officer shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies. If the Company has director and officer liability insurance in effect at the time of the receipt of a request for indemnification or other notice of a Proceeding involving the Officer by reason of or relating to his Corporate Status, the Company shall give prompt notice of the commencement of such Proceeding to the insurer(s) in accordance with the procedures set forth in the respective policy or policies.
(c) If the Company makes any payment to the Officer under this Agreement, the Company shall be subrogated to the extent of such payment to all the rights of recovery of the Officer, who shall execute all papers required and take all action necessary to secure such rights,
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including execution of such documents as are necessary to enable the Company to commence and prosecute legal proceedings to enforce such rights.
Section 8. Contribution. To the fullest extent permitted under applicable law, if the indemnification provided for in this Agreement is unavailable to the Officer for any reason whatsoever, the Company, in lieu of indemnifying the Officer, shall contribute to the amount incurred by the Officer by reason of or relating to his Corporate Status, whether for Judgments or Expenses, in connection with any Proceeding, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect: (a) the relative benefits received by the Company and the Officer as a result of the event(s) and/or transaction(s) giving rise to such Proceeding; or (b) the relative fault of the Company (and its directors, officers, employees and agents) and the Officer in connection with such event(s) and/or transaction(s).
Section 9. Retroactive Effect; Binding Agreement. (a) The provisions of this Agreement are intended to be retroactive, and the full benefits hereof shall be available with respect to any alleged or actual occurrences, acts or failures to act that have occurred prior to the date hereof.
(b) This Agreement shall be binding upon the Company and its successors and assigns. The Company shall require any successor to the Company or to all or substantially all of the business or assets of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.
(c) This Agreement shall inure to the benefit of and be enforceable by the Officers personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. Without limiting the generality of the preceding sentence, if the Officer should die while any amounts would be payable to him hereunder if he had continued to live, all
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such amounts shall be paid in accordance with the terms of this Agreement to the Officers devisee, legatee, or other designee, or if there be no such designee, to his estate.
Section 10. Severability; Invalidity. If any provision of this Agreement is held to be invalid, illegal or unenforceable for any reason whatsoever: (i) the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (ii) such provision shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (iii) to the fullest extent possible, the provisions of this Agreement shall be construed so as to give effect to the intent manifested hereby.
Section 11. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided, however, that this Agreement is a supplement to and in furtherance of the Companys Certificate of Incorporation and the By-laws and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of the Officer thereunder.
Section 12. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties thereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.
Section 13. Notice by the Officer. The Officer promptly shall notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding concerning or arising from his Corporate Status, and he shall also promptly notify the Company of any other matter which may be subject to the indemnification or advancement of Expenses covered hereunder. The failure of
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the Officer to so notify the Company shall not relieve the Company of any obligation which it may have to the Officer under this Agreement or otherwise.
Section 14. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if: (a) delivered by hand and receipted for by the party to whom the notice or other communication has been directed; (b) mailed by certified or registered mail with postage prepaid, which shall be deemed given on the third business day after the date on which it is so mailed; (c) mailed by reputable overnight courier; or (d) sent by facsimile transmission, with receipt of confirmation that such transmission has been received:
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(i) if to the Officer, at the address or fax number indicated on the signature page of this Agreement, or such other address as the Officer shall provide to the Company; and |
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(ii) if to the Company, at the address or fax number indicated on the signature page of this Agreement, or at such other address or fax number as may have been furnished to the Officer by the Company. |
Section 15. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations between the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of New York, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by the Officer pursuant to Section 6, the Company and the Officer hereby irrevocably and unconditionally: (a) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Supreme Court of the State of New York, in either New York County or Dutchess County, New York (the New York Court), and not in any other state or federal court in the United States of America or any court in any other country; (b) consent to submit to the exclusive jurisdiction of the New York Court for purposes of any action or proceeding arising out of or in connection with this Agreement; (c) waive any objection to the laying of venue of any such action or proceeding in the New York Court; and (d) waive, and agree not to plead or to make, any claim that any such action or
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proceeding brought in the New York Court has been brought in an improper or inconvenient forum.
Section 16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
Section 17. Headings. The headings set forth in this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.
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CENTRAL HUDSON ENTERPRISES CORPORATION |
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By: |
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Name: |
Steven V. Lant |
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Title: |
Chairman of the Board, President and |
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Chief Executive Officer |
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Address: |
284 South Avenue, |
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Poughkeepsie, NY 12601 |
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Tel.: 845-486-5254 |
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Fax: 845-486-5465 |
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OFFICER |
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Name: [INSERT NAME] |
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Address: |
[INSERT ADDRESS] |
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[INSERT ADDRESS] |
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Tel.: [INSERT NUMBER] |
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Fax: [INSERT NUMBER] |
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APPENDIX A
DEFINITIONS
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Board means the Board of Directors of the Company. |
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Change in Control means: |
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(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) (a Person) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of either (x) the then outstanding shares of common stock of the Company (the Outstanding Company Common Stock) or (y) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the Outstanding Company Voting Securities); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company; (ii) any acquisition by the Company; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or its affiliated companies; or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this definition; or |
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(b) Individuals who, as of the date of this Agreement, constitute the Board (the Incumbent Board) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Companys shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or |
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(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a Business Combination), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than sixty percent (60%) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or |
|
|
|
substantially all of the Companys assets either directly or through one or more of its affiliated companies) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business combination; or |
|
|
|
(d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. |
|
|
Corporate Status means the status of a person as a director, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving at the request of the Company. |
|
|
|
Disinterested Director means a director of the Company who is not and has not been a party to the Proceeding in respect of which indemnification is sought by the Officer. |
|
|
|
Enterprise means the Company and any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise of which the Officer is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary. |
|
|
|
Expenses means and includes all reasonable costs, attorneys fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding and in any appeal resulting from any Proceeding, including the premium, security for, and other costs relating to any cost bond, supersedes bond, or other appeal bond or its equivalent. Expenses shall not include Judgments. |
|
|
|
Independent Counsel means a law firm, or a member of a law firm, that is experienced in matters of corporate law and that neither presently is, nor in the past five years has been, retained to represent any of the following: (i) the Company or the Officer in any matter material to either such party (other than with respect to matters concerning the Officer under this Agreement, or of other indemnitees under similar indemnification agreements); or (ii) any other party to the Proceeding giving rise to a claim for indemnification or expense advancement under this Agreement. Notwithstanding the foregoing, the term Independent Counsel shall not |
A-2
include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or the Officer in an action to determine the Officers rights under this Agreement.
Judgments means and includes all judgments, fines, penalties and amounts paid in settlement that are paid or payable in connection with any Proceeding by reason of or relating to the Officers Corporate Status (including all interest, assessments, excise taxes and other charges paid or payable in connection with, or in respect of, any of the foregoing).
NYBCL means the New York Business Corporation Law, including any amendments or replacements, amended after the date of this Agreement, that in either case authorize or contemplate additional or expanded indemnification.
Proceeding means any threatened, pending or concluded action, suit, claim, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other threatened, pending or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, regulatory or investigative nature, in which the Officer was, is or will be involved as a party or otherwise by reason of or relating to the fact that the Officer is or was an officer of the Company, by reason of or relating to any action taken by him or of any inaction on his part while acting as an officer of the Company, or by reason of or relating to the fact that he is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another Enterprise; in each case whether or not he is serving in such capacity at the time any liability or expense is incurred for which indemnification or advancement of Expenses can be provided under this Agreement.
A-3
|
|
CH ENERGY GROUP, INC. |
|
Computation of Ratio of Earnings to Fixed Charges |
EXHIBIT 12 (i) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
Year Ended December 31, |
|
||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||
|
|
Earnings: ($000) |
|
3
Months |
|
12
Months |
|
3
Months |
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
A. |
|
Net income from Continuing Operations |
|
$ |
23,121 |
|
$ |
38,901 |
|
$ |
19,301 |
|
$ |
35,081 |
|
$ |
42,636 |
|
$ |
43,084 |
|
$ |
44,291 |
|
$ |
42,423 |
|
B. |
|
Preferred Stock Dividends |
|
|
242 |
|
|
970 |
|
|
242 |
|
|
970 |
|
|
970 |
|
|
970 |
|
|
970 |
|
|
970 |
|
C. |
|
Federal and State Income Tax |
|
|
14,533 |
|
|
24,425 |
|
|
11,937 |
|
|
21,829 |
|
|
21,898 |
|
|
23,769 |
|
|
25,819 |
|
|
31,256 |
|
|
Less |
Income from Equity Investments |
|
|
230 |
|
|
529 |
|
|
269 |
|
|
568 |
|
|
1,895 |
|
|
1,810 |
|
|
1,456 |
|
|
922 |
|
|
Plus |
Cash Distribution from Equity Investments |
|
|
689 |
|
|
2,735 |
|
|
417 |
|
|
2,463 |
|
|
3,427 |
|
|
1,315 |
|
|
1,833 |
|
|
1,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
D. |
|
Earnings before Income Taxes and Equity Inv. |
|
$ |
38,355 |
|
$ |
66,502 |
|
$ |
31,628 |
|
$ |
59,775 |
|
$ |
67,036 |
|
$ |
67,328 |
|
$ |
71,457 |
|
$ |
75,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
E. |
|
Fixed Charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on Other-Long-Term Debt |
|
|
4,780 |
|
|
20,209 |
|
|
5,089 |
|
|
20,518 |
|
|
18,653 |
|
|
16,425 |
|
|
13,826 |
|
|
11,488 |
|
|
|
Other Interest |
|
|
1,289 |
|
|
5,141 |
|
|
1,202 |
|
|
5,054 |
|
|
4,379 |
|
|
3,622 |
|
|
2,577 |
|
|
5,517 |
|
|
|
Interest Portion of Rents(1) |
|
|
315 |
|
|
1,185 |
|
|
350 |
|
|
1,220 |
|
|
1,278 |
|
|
1,112 |
|
|
1,077 |
|
|
1,192 |
|
|
|
Amortization of Premium & Expense on Debt |
|
|
244 |
|
|
982 |
|
|
244 |
|
|
982 |
|
|
963 |
|
|
991 |
|
|
1,043 |
|
|
1,066 |
|
|
|
Preferred Stock Dividends Requirements of Central Hudson |
|
|
377 |
|
|
1,533 |
|
|
372 |
|
|
1,525 |
|
|
1,423 |
|
|
1,415 |
|
|
1,458 |
|
|
1,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
Total Fixed Charges |
|
$ |
7,005 |
|
$ |
29,050 |
|
$ |
7,257 |
|
$ |
29,299 |
|
$ |
26,696 |
|
$ |
23,565 |
|
$ |
19,981 |
|
$ |
20,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Less |
Preferred Stock Dividends Requirements of Central Hudson |
|
|
377 |
|
|
1,533 |
|
|
372 |
|
|
1,525 |
|
|
1,423 |
|
|
1,415 |
|
|
1,458 |
|
|
1,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
F. |
|
Total Earnings |
|
$ |
44,983 |
|
$ |
94,019 |
|
$ |
38,513 |
|
$ |
87,549 |
|
$ |
92,309 |
|
$ |
89,478 |
|
$ |
89,980 |
|
$ |
94,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Dividend Requirements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G. |
|
Allowance for Preferred Stock Dividends Under IRC Sec. 247 |
|
$ |
242 |
|
$ |
970 |
|
$ |
242 |
|
$ |
970 |
|
$ |
970 |
|
$ |
970 |
|
$ |
970 |
|
$ |
970 |
|
H. |
|
Less Allowable Dividend Deduction |
|
|
(32 |
) |
|
(127 |
) |
|
(32 |
) |
|
(127 |
) |
|
(127 |
) |
|
(127 |
) |
|
(127 |
) |
|
(127 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
I. |
|
Net Subject to Gross-Up |
|
|
210 |
|
|
843 |
|
|
210 |
|
|
843 |
|
|
843 |
|
|
843 |
|
|
843 |
|
|
843 |
|
J. |
|
Ratio of Earnings before Income
Taxes and Equity Inv. To Net Income |
|
|
1.642 |
|
|
1.668 |
|
|
1.618 |
|
|
1.658 |
|
|
1.537 |
|
|
1.528 |
|
|
1.579 |
|
|
1.740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
K. |
|
Preferred Dividend (Pre-tax) (I x J) |
|
|
345 |
|
|
1,406 |
|
|
340 |
|
|
1,398 |
|
|
1,296 |
|
|
1,288 |
|
|
1,331 |
|
|
1,467 |
|
L. |
|
Plus Allowable Dividend Deduction |
|
|
32 |
|
|
127 |
|
|
32 |
|
|
127 |
|
|
127 |
|
|
127 |
|
|
127 |
|
|
127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
M. |
|
Preferred Dividend Factor |
|
$ |
377 |
|
|
1,533 |
|
$ |
372 |
|
$ |
1,525 |
|
$ |
1,423 |
|
$ |
1,415 |
|
$ |
1,458 |
|
$ |
1,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N. |
|
Ratio of Earnings to Fixed Charges (F/E) |
|
|
6.4 |
|
|
3.2 |
|
|
5.3 |
|
|
3.0 |
|
|
3.5 |
|
|
3.8 |
|
|
4.5 |
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The percentage of rent included in the fixed charges calculation is a reasonable approximation of the interest factor. |
- 93 -
|
|
CENTRAL HUDSON GAS & ELECTRIC CORPORATION |
|
Computation of Ratio of Earnings to Fixed Charges |
|
and Ratio of Earnings to Fixed Charges and Preferred Dividends |
EXHIBIT 12 (i) (i) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
Year Ended December 31, |
|
||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||
|
Earnings: ($000) |
|
3
Months |
|
12
Months |
|
3
Months |
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
A. |
Net income |
|
$ |
12,593 |
|
$ |
28,084 |
|
$ |
11,747 |
|
$ |
27,238 |
|
$ |
33,436 |
|
$ |
34,871 |
|
$ |
35,635 |
|
$ |
38,648 |
|
B. |
Federal and State Income Tax |
|
|
8,806 |
|
|
19,817 |
|
|
8,262 |
|
|
19,273 |
|
|
20,326 |
|
|
21,528 |
|
|
23,936 |
|
|
28,426 |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
C. |
Earnings before Income Taxes |
|
$ |
21,399 |
|
$ |
47,901 |
|
$ |
20,009 |
|
$ |
46,511 |
|
$ |
53,762 |
|
$ |
56,399 |
|
$ |
59,571 |
|
$ |
67,074 |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
D. |
Fixed Charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on Other-Long-Term Debt |
|
|
4,780 |
|
|
20,209 |
|
|
5,089 |
|
|
20,518 |
|
|
18,653 |
|
|
16,425 |
|
|
13,826 |
|
|
11,488 |
|
|
Other Interest |
|
|
1,220 |
|
|
4,701 |
|
|
1,014 |
|
|
4,495 |
|
|
4,378 |
|
|
3,622 |
|
|
2,577 |
|
|
5,517 |
|
|
Interest Portion of Rents(1) |
|
|
209 |
|
|
752 |
|
|
245 |
|
|
788 |
|
|
898 |
|
|
818 |
|
|
835 |
|
|
954 |
|
|
Amortization of Premium & Expense on Debt |
|
|
244 |
|
|
982 |
|
|
244 |
|
|
982 |
|
|
963 |
|
|
991 |
|
|
1,043 |
|
|
1,066 |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Total Fixed Charges |
|
$ |
6,453 |
|
$ |
26,644 |
|
$ |
6,592 |
|
$ |
26,783 |
|
$ |
24,892 |
|
$ |
21,856 |
|
$ |
18,281 |
|
$ |
19,025 |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E. |
Total Earnings |
|
$ |
27,852 |
|
$ |
74,545 |
|
$ |
26,601 |
|
$ |
73,294 |
|
$ |
78,654 |
|
$ |
78,255 |
|
$ |
77,852 |
|
$ |
86,099 |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Dividend Requirements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F. |
Allowance for Preferred Stock Dividends Under IRC Sec. 247 |
|
$ |
242 |
|
$ |
970 |
|
$ |
242 |
|
$ |
970 |
|
$ |
970 |
|
$ |
970 |
|
$ |
970 |
|
$ |
970 |
|
G. |
Less Allowable Dividend Deduction |
|
|
(32 |
) |
|
(127 |
) |
|
(32 |
) |
|
(127 |
) |
|
(127 |
) |
|
(127 |
) |
|
(127 |
) |
|
(127 |
) |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
H. |
Net Subject to Gross-Up |
|
|
210 |
|
|
843 |
|
|
210 |
|
|
843 |
|
|
843 |
|
|
843 |
|
|
843 |
|
|
843 |
|
I. |
Ratio of Earnings before Income Taxes to Net Income (C/A) |
|
|
1.699 |
|
|
1.706 |
|
|
1.703 |
|
|
1.708 |
|
|
1.608 |
|
|
1.617 |
|
|
1.672 |
|
|
1.736 |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
J. |
Preferred Dividend (Pre-tax) (H x I) |
|
|
357 |
|
|
1,438 |
|
|
358 |
|
|
1,440 |
|
|
1,356 |
|
|
1,363 |
|
|
1,409 |
|
|
1,463 |
|
K. |
Plus Allowable Dividend Deduction |
|
|
32 |
|
|
127 |
|
|
32 |
|
|
127 |
|
|
127 |
|
|
127 |
|
|
127 |
|
|
127 |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
L. |
Preferred Dividend Factor |
|
|
389 |
|
|
1,565 |
|
|
390 |
|
|
1,567 |
|
|
1,483 |
|
|
1,490 |
|
|
1,536 |
|
|
1,590 |
|
M. |
Fixed Charges (D) |
|
|
6,453 |
|
|
26,644 |
|
|
6,592 |
|
|
26,783 |
|
|
24,892 |
|
|
21,856 |
|
|
18,281 |
|
|
19,025 |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
N. |
Total Fixed Charges and Preferred Dividends |
|
$ |
6,842 |
|
$ |
28,209 |
|
$ |
6,982 |
|
$ |
28,350 |
|
$ |
26,375 |
|
$ |
23,346 |
|
$ |
19,817 |
|
$ |
20,615 |
|
|
|
|
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O. |
Ratio of Earnings to Fixed Charges (E/D) |
|
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4.3 |
|
|
2.8 |
|
|
4.0 |
|
|
2.7 |
|
|
3.2 |
|
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3.6 |
|
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4.3 |
|
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4.5 |
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||||||||||||||||
P. |
Ratio of Earnings to Fixed Charges and Preferred Dividends (E/N) |
|
|
4.1 |
|
|
2.6 |
|
|
3.8 |
|
|
2.6 |
|
|
3.0 |
|
|
3.4 |
|
|
3.9 |
|
|
4.2 |
|
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|
|
|
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|
|
|
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|
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|
|
(1) |
The percentage of rent included in the fixed charges calculation is a reasonable approximation of the interest factor. |
- 94 -
CERTIFICATIONS
Exhibit 31.1
I, Steven V. Lant, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of CH Energy Group, Inc. and Central Hudson Gas & Electric Corporation (collectively the Registrants);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrants as of, and for, the periods presented in this report;
4. The Registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrants and have:
|
|
|
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
c) |
Evaluated the effectiveness of the Registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
d) |
Disclosed in this report any change in the Registrants internal control over financial reporting that occurred during the Registrants most |
- 95 -
|
|
|
|
|
recent fiscal quarter (the Registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrants internal control over financial reporting; and |
5. The Registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrants auditors and the audit committee of the Registrants boards of directors (or persons performing the equivalent functions):
|
|
|
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants ability to record, process, summarize and report financial information; and |
|
|
|
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants internal control over financial reporting. |
Date: May 4, 2009
|
|
|
/s/ Steven V. Lant |
|
|
|
Steven V. Lant |
|
Chairman of the Board, President and |
|
Chief Executive Officer |
|
of CH Energy Group, Inc. |
|
|
|
/s/ Steven V. Lant |
|
|
|
Steven V. Lant |
|
Chairman of the Board and Chief Executive Officer |
|
of Central Hudson Gas & Electric Corporation |
- 96 -
CERTIFICATIONS
Exhibit 31.2
I, Christopher M. Capone, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of CH Energy Group, Inc. and Central Hudson Gas & Electric Corporation (collectively the Registrants);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrants as of, and for, the periods presented in this report;
4. The Registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrants and have:
|
|
|
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
c) |
Evaluated the effectiveness of the Registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
d) |
Disclosed in this report any change in the Registrants internal control over financial reporting that occurred during the Registrants most |
- 97 -
|
|
|
|
|
recent fiscal quarter (the Registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrants internal control over financial reporting; and |
5. The Registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrants auditors and the audit committee of the Registrants boards of directors (or persons performing the equivalent functions):
|
|
|
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants ability to record, process, summarize and report financial information; and |
|
|
|
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants internal control over financial reporting. |
Date: May 4, 2009
|
|
|
/s/ Christopher M. Capone |
|
|
|
Christopher M. Capone |
|
Executive Vice President and Chief Financial Officer |
|
of CH Energy Group, Inc. |
|
|
|
/s/ Christopher M. Capone |
|
|
|
Christopher M. Capone |
|
Executive Vice President and Chief Financial Officer |
|
of Central Hudson Gas & Electric Corporation |
- 98 -
CERTIFICATIONS
Exhibit 32.1
I, Steven V. Lant, do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
|
|
1. |
The Quarterly Report on Form 10-Q of CH Energy Group, Inc. and Central Hudson Gas & Electric Corporation (the Companies) for the period ended March 31, 2009 (the Quarterly Report) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and |
|
|
2. |
The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Companies. |
Date: May 4, 2009
|
|
|
/s/ Steven V. Lant |
|
|
|
Steven V. Lant |
|
Chairman of the Board, President and |
|
Chief Executive Officer of CH Energy Group, Inc. |
|
|
|
/s/ Steven V. Lant |
|
|
|
Steven V. Lant |
|
Chairman of the Board and Chief Executive Officer |
|
of Central Hudson Gas & Electric Corporation |
- 99 -
CERTIFICATIONS
Exhibit 32.2
I, Christopher M. Capone, do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
|
|
1. |
The Quarterly Report on Form 10-Q of CH Energy Group, Inc. and Central Hudson Gas & Electric Corporation (the Companies) for the period ended March 31, 2009 (the Quarterly Report) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and |
|
|
2. |
The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Companies. |
Date: May 4, 2009
|
|
|
/s/ Christopher M. Capone |
|
|
|
Christopher M. Capone |
|
Executive Vice President and |
|
Chief Financial Officer |
|
of CH Energy Group, Inc. |
|
|
|
/s/ Christopher M. Capone |
|
|
|
Christopher M. Capone |
|
Executive Vice President and |
|
Chief Financial Officer |
|
of Central Hudson Gas & Electric Corporation |
- 100 -