ITEM 1 - BUSINESS - -----------------
HOLDING COMPANY RESTRUCTURING
After a one-for-one common stock share exchange on December 15, 1999 ("Holding Company Restructuring"), Energy Group became the holding company parent corporation of Central Hudson and its existing subsidiary companies and Central Hudson Energy Services, Inc. ("CH Services"). Central Hudson's preferred stock and debt remain securities of Central Hudson. The Consolidated Financial Statements prior to December 15, 1999 represent the accounts of Central Hudson on a consolidated basis as predecessor of Energy Group.
For further information regarding the Holding Company Restructuring and/or the Amended and Restated Settlement Agreement which permitted the Holding Company
Restructuring, dated January 2, 1998, and thereafter amended ("Agreement"), among Central Hudson, the Staff of the Public Service Commission of the State of New York ("PSC") and certain others entered into in the PSC's Competitive Opportunities Proceeding, see the caption "Competitive Opportunities Proceeding Settlement Agreement" in Note 2 of the Notes to the Financial Statements contained in Item 8 of this 10-K Annual Report (each Note being hereinafter called a "Note"). The Agreement expired on June 30, 2001 and was superseded, in part, by the October 25, 2001 Order of the PSC discussed in Note 2 under the caption "Rate Proceedings - Electric and Gas;" however, surviving provisions of the Agreement discussed herein may affect future operations of Energy Group and its subsidiaries.
Because of its ownership of Central Hudson, Energy Group is a "public utility holding company" under the Public Utility Holding Company Act of 1935 ("PUHCA"). However, Energy Group is exempt from the provisions of PUHCA under the intrastate exemption provisions of ss.3(a)(1) of PUHCA, except that, under ss.9(a)(2) of PUHCA, the approval of the SEC is required for a direct or indirect acquisition by a public utility holding company of five percent (5%) or more of the voting securities of any electric or gas utility company subject to PUHCA.
CH Services is a subsidiary of Energy Group and the holding company parent corporation for each of Energy Group's competitive business subsidiaries: Central Hudson Enterprises Corporation; SCASCO, Inc.; Prime Industrial Energy Services, Inc.; CH Resources, Inc.; CH Syracuse Properties, Inc.; CH Niagara Properties, Inc.; Griffith Energy Services, Inc.; and Greene Point Development Corporation (hereinafter collectively the "competitive business subsidiaries").
Energy Group's other subsidiary company, Central Hudson, wholly owns Phoenix Development Company, Inc.
For a discussion of Energy Group's and its subsidiaries' capital structure, financing program and short-term borrowing arrangements, see Notes 5, 6 and 7, respectively, and Item 7 under the subcaptions "Capital Structure," "Financing Program of Energy Group and Its Subsidiaries" and "Short-Term Debt" under the caption "Capital Resources and Liquidity." For information concerning revenues, certain expenses, earnings per share and information regarding assets for Central Hudson's electric and gas segments, and the CH Services' competitive business subsidiaries' segments, see Note 11.
SUBSIDIARIES OF ENERGY GROUP
CENTRAL HUDSON
GENERALLY: Central Hudson is a New York gas and electric corporation formed on December 31, 1926, as a consolidation of several operating utilities which had been accumulated under one management during the previous 26 years. Central Hudson generates, purchases, sells at wholesale and distributes electricity, and purchases and distributes gas in New York State.
Central Hudson has, with minor exceptions, valid franchises, unlimited in duration, to serve a territory extending about 85 miles along the Hudson River and about 25 to 40 miles east and west from the Hudson River. The southern end of the territory is about 25 miles north of New York City, and the northern end is about 10 miles south of the City of Albany. The
territory, comprising approximately 2,600 square miles, has a population estimated at 657,200. Electric service is available throughout the territory, and natural gas service is provided in and about the cities of Poughkeepsie, Beacon, Newburgh and Kingston, New York and in certain outlying and intervening territories.
The number of Central Hudson employees, at December 31, 2001, was 902.
Central Hudson's territory reflects a diversified economy, including manufacturing industries, research firms, farms, governmental agencies, public and private institutions, resorts and wholesale and retail trade operations.
In 2001, the competitive marketplace continued to develop for electric utilities, and certain Central Hudson electric customers were given the opportunity to purchase energy and related services from other sources. These opportunities also exist for Central Hudson natural gas customers.
SALES OF PRINCIPAL GENERATING FACILITIES
For information with respect to the sales of Central Hudson's interests in its principal generating facilities during 2001, see the caption "Sales of Principal Generating Facilities" in Note 2. For information on the proposed disposition of the proceeds from these sales, see Note 7, under the caption "Use of Proceeds from Sales of Principal Generating Facilities."
REGULATION
Central Hudson is subject to regulation by the PSC regarding, among other things, service rendered (including the rates charged), major transmission facility siting, accounting procedures and issuance of securities. For certain restrictions on Central Hudson's activities imposed by the Agreement, see Note 2 under the caption "Competitive Opportunities Proceeding Settlement Agreement."
Certain activities of (i) Central Hudson and (ii) certain of CH Services' competitive business subsidiaries, including accounting and the acquisition and disposition of property, are subject to regulation by the Federal Energy Regulatory Commission ("FERC"), under the Federal Power Act.
Central Hudson is not subject to the provisions of the Natural Gas Act.
With the exception of the Groveville Hydroelectric Facility in Beacon, New York, Central Hudson's hydroelectric facilities are not required to be licensed under the Federal Power Act.
RATES
GENERALLY: The electric and gas rates of Central Hudson applicable to service supplied to retail customers within New York State are regulated by the PSC. Transmission rates and rates for electricity sold for resale in interstate commerce by Central Hudson are regulated by the FERC.
Central Hudson's present retail rate structure consists of various service classifications covering residential, commercial and industrial customers. During 2001, the average price of electricity to all of these customers was 7.71 cents per kilowatthour ("kWh"), representing a 13.8% decrease from the 2000 average price.
RATE PROCEEDINGS - ELECTRIC AND GAS: For information regarding Central Hudson's most recent electric and gas cases filed with the PSC, see Note 2 under the caption "Rate Proceedings - Electric and Gas."
COST ADJUSTMENT CLAUSES: For information regarding Central Hudson's electric and gas cost adjustment clauses, see Note 1 under the caption "Rates, Revenues and Cost Adjustment Clauses."
CONSTRUCTION PROGRAM AND FINANCING
For estimates of 2002 construction expenditures, internal funds available, mandatory and optional redemption of long-term securities, and working capital requirements of Central Hudson, see the subcaption "Construction Program - Central Hudson" in Item 7 under the caption "Capital Resources and Liquidity."
Central Hudson's Certificate of Incorporation and its various debt instruments do not contain any limitations upon the issuance of authorized, but unissued, preferred stock or unsecured short-term debt.
Central Hudson's $75 million credit facility includes limitations on the amounts of additional funded indebtedness which Central Hudson can issue. Central Hudson believes these limitations will not impair Central Hudson's ability to issue any or all of the debt described under the subcaption "Financing Program of Energy Group and Its Subsidiaries" of Item 7.
FUEL SUPPLY AND COST
In January 2001, Central Hudson's interests in the Danskammer Point Steam Electric Generating Station ("Danskammer Plant") and the Roseton Electric Generating Station ("Roseton Plant") were sold to affiliates of Dynegy Power Corp. (collectively, "Dynegy"). In November 2001, Central Hudson's interest in the Nine Mile Point Nuclear Station ("Nine Mile 2 Plant") was sold to an affiliate of Constellation Nuclear LLC ("Constellation"). For information on these sales, see Note 2 under the caption "Sales of Principal Generating Facilities."
For the 12 months ended December 31, 2001, the sources and related costs of electric generation for Central Hudson were as follows:
Aggregate Sources of Percentage of Costs in 2001 Generation Energy Requirements ($000) ---------- ------------------- -------------
Purchased Power 78.9% $221,360 Coal 4.1 3,668 Gas .1 231 Nuclear 11.9 2,989 Oil 3.2 8,439 Hydroelectric 1.8 172 ----- 100.0% ===== Fuel Handling Costs 228 Deferred Fuel Cost (12,578) -------- $224,509 ========
OTHER CENTRAL HUDSON MATTERS:
LABOR RELATIONS: Central Hudson has agreements with the International Brotherhood of Electrical Workers ("IBEW") for its 604 unionized employees, representing maintenance employees, customer representatives, service workers and clerical employees (excluding persons in managerial, professional or supervisory positions), which agreements were renegotiated, effective July 1, 1998. The agreement with Local 320 of the IBEW Non-Production Plant Workers continues through April 30, 2003 and provides for an average annual general wage increase of 3.0% and certain additional fringe benefits. An agreement with IBEW Local 320 Production Plant Workers, which expires on August 31, 2003, was assumed by Dynegy upon the sale of the Roseton and Danskammer Plants.
SUBSIDIARY OF CENTRAL HUDSON - PHOENIX DEVELOPMENT COMPANY, INC.: Phoenix Development Company, Inc. ("Phoenix"), a New York corporation, is a wholly-owned subsidiary of Central Hudson. Phoenix was established to hold or lease real property for the future use of Central Hudson and to participate in energy-related ventures. Currently, the assets held by Phoenix are not significant.
CH SERVICES
GENERALLY: CH Services, a New York corporation, is the holding company parent for each of Energy Group's competitive business subsidiaries. CH Services is not an operating company.
CH Services is a full-service energy company in the Northeast and mid-Atlantic regions. CH Services' subsidiaries are primarily engaged in the distribution of fuel oil, gasoline, diesel, kerosene and propane; the sale of natural gas; the installation and maintenance of electrical systems and heating, ventilation and air conditioning ("HVAC") equipment; project construction; and providing services for electric generators installed on customers' property. During 2002 CH
Services intends to refocus its lines of business as described in Item 7 under the subcaption "Refocusing of CH Services' Business Plan."
SUBSIDIARIES OF CH SERVICES
CENTRAL HUDSON ENTERPRISES CORPORATION: Central Hudson Enterprises Corporation ("CHEC"), a New York corporation, is a wholly-owned subsidiary of CH Services. CHEC is engaged in the business of marketing electricity, gas, oil and related services to retail and wholesale customers; conducting energy audits; providing services including, but not limited to, the design, financing, installation and maintenance of energy conservation measures and generation systems for private businesses, institutional organizations and governmental entities; and participating in cogeneration, small hydroelectric, alternate fuel and energy production projects and services.
GRIFFITH ENERGY SERVICES, INC.: Griffith Energy Services, Inc. ("Griffith"), a New York corporation, is a wholly-owned subsidiary of CHEC. Griffith is an energy services company engaged in the distribution of fuel oil, gasoline, diesel, kerosene, propane, natural gas and the installation and maintenance of HVAC equipment in the states of Virginia, West Virginia, Maryland, Delaware, and Pennsylvania and in Washington, D.C. During 2001, Griffith acquired Community Oil Company, Inc., an energy service, fuel oil distribution company, four fuel oil distribution companies: Consumers Fuel Company, Inc., R. S. Leitch Company, McMahan Oil Company, and Walker Oil Company, and one propane distribution company, Staats Gas, Inc.
PRIME INDUSTRIAL ENERGY SERVICES, INC.: Prime Industrial Energy Services, Inc. ("Prime"), a New York corporation, a wholly-owned subsidiary of CHEC, is engaged in project construction and providing services for electric generators and HVAC equipment installed on customers' property.
SCASCO, INC.: SCASCO, Inc. ("SCASCO"), a Connecticut corporation, is a wholly-owned subsidiary of CHEC. SCASCO is an energy services company engaged in the distribution of fuel oil, gasoline, diesel, kerosene, propane and natural gas and the installation and maintenance of electrical services and HVAC equipment in the states of Connecticut, Massachusetts and Rhode Island.
CH RESOURCES, INC.: CH Resources, Inc. ("CH Resources"), a New York corporation, is a wholly-owned subsidiary of CH Services established for the purpose of acquiring, developing and operating electric generation facilities, the output of which is sold at the wholesale level to CHEC and other energy services companies, as well as through the New York State Independent System Operator ("NYS ISO") described under the caption "FERC Restructuring and Independent System Operator" of Note 2. CH Resources owns a 100 megawatt ("MW") combined cycle gas turbine facility in Solvay, New York ("CH Syracuse Plant"), a 100 MW combined cycle gas turbine facility in Beaver Falls, New York ("Beaver Falls Plant"), and a 50 MW fluidized bed, coal-fired plant in Niagara County, New York ("CH Niagara Falls Plant"). On December 21, 2001, CH Services entered into an agreement to sell all of its stock ownership interest in CH Resources and its subsidiaries, CH Syracuse Properties, Inc. ("CH Syracuse") and CH Niagara Properties, Inc. ("CH Niagara") to WPS Power Development, Inc., a Wisconsin corporation, for approximately $61 million. The closing on this sale is expected to occur during the second quarter of 2002, subject to obtaining regulatory approvals.
CH SYRACUSE AND CH NIAGARA: CH Syracuse and CH Niagara are New York corporations and wholly-owned subsidiaries of CH Resources used to lease real property for the CH Syracuse Plant and the CH Niagara Falls Plant. Each of these subsidiaries will also be divested upon the sale of CH Services' stock ownership of CH Resources described in the preceding caption.
GREENE POINT DEVELOPMENT CORPORATION: Greene Point Development Corporation ("Greene Point"), a New York corporation, is a wholly-owned subsidiary of CH Services which develops and evaluates business opportunities for CH Services' competitive business subsidiaries. The current assets held by this subsidiary are not significant.
REGULATION
Certain activities of CH Services' competitive business subsidiaries, including accounting and the acquisition and disposition of certain property, are subject to regulation by the FERC, under the Federal Power Act, because of their sales of wholesale electric energy in interstate commerce. Because the electric generating facilities of CH Resources are used exclusively for selling electricity at wholesale, CH Resources is an "exempt wholesale generator" under Section 32(e) of PUHCA and, therefore, is exempt from the provisions of PUHCA.
ENVIRONMENTAL QUALITY REGULATION - CENTRAL HUDSON AND CH SERVICES
Central Hudson and certain of the subsidiaries of CH Services are subject to regulation by federal, state and, to some extent, local authorities with respect to the environmental effects of their operations, including regulations relating to air and water quality, aesthetics, levels of noise, hazardous wastes, toxic substances, protection of vegetation and wildlife and limitations on land use. Environmental matters may expose both Central Hudson and the competitive business subsidiaries of CH Services to potential liability which, in certain instances, may be imposed without regard to fault or historical activities which were lawful at the time they occurred. Both Central Hudson and the competitive business subsidiaries of CH Services continually monitor their activities in order to determine the impact of their activities on the environment and to ensure compliance with various environmental requirements.
Generally, during 2001, the principal environmental areas and requirements to which Central Hudson and certain of the competitive businesses subsidiaries of CH Services were subject were as follows:
AIR: State regulations relating to fossil-fueled generating plants govern the sulfur content of fuel used, the emission of particulate matter and certain other pollutants and the visibility of these emissions. In addition, emissions from fossil-fueled generating plants are required to meet federal and state ambient air quality standards for sulfur dioxide ("SO(2)"), nitrogen oxide ("NOx") and suspended particulates in the areas surrounding the plants.
Based on the operation of continuous emission stack monitoring systems, it is believed that during 2001 air quality standards for NOx, SO(2) and particulates were satisfied in the areas surrounding the Roseton, Danskammer, CH Syracuse, Beaver Falls and the CH Niagara Falls Plants. From time to time, the CH Syracuse, Beaver Falls and Niagara Plants have exceeded applicable emissions limitations, all of which exceedances have been reported to the New York
State Department of Environmental Conservation ("NYS DEC"). See also Note 10 under the caption, "Environmental Matters - Air."
WATER: Central Hudson and CH Services are required to comply with applicable state and federal laws and regulations governing the discharge of pollutants into receiving waters.
The discharge of any pollution into navigable waterways is prohibited except in compliance with a permit issued by the federal Environmental Protection Agency ("EPA") under the National Pollutant Discharge Elimination System ("NPDES") established under the Clean Water Act. Likewise, under the New York Environmental Conservation Law, pollutants cannot be discharged into state waters without a State Pollutant Discharge Elimination System ("SPDES") permit issued by the NYS DEC. Issuance of a SPDES permit satisfies the NPDES permit requirement.
Central Hudson has SPDES permits for its Eltings Corners maintenance and warehouse facility and its Rifton Recreation and Training Center, both in New York.
SPDES permits are in effect for the Beaver Falls and the CH Syracuse Plants and, as required, all applicable local permits have been obtained for the CH Niagara Falls Plant's discharge flows into the local municipal wastewater system. From time to time these Plants have exceeded applicable discharge limitations, all of which exceedances have been reported to the NYS DEC.
See Note 10 under the caption "Environmental Matters - Water" regarding Central Hudson's application to the NYS DEC for a SPDES permit for its Neversink Hydroelectric Facility.
TOXIC SUBSTANCES AND HAZARDOUS WASTES: Central Hudson and certain of the competitive business subsidiaries of CH Services are subject to state and federal laws and regulations relating to the use, handling, storage, treatment, transportation and disposal of industrial, hazardous and toxic wastes.
OTHER: Central Hudson expenditures attributable, in whole or in substantial part, to environmental considerations totaled $4.1 million in 2001, of which approximately $1.3 million related to capital projects and $2.8 million were charged to expense. It is estimated that in 2002 the total of these expenditures will be approximately $3.4 million.
CH Services expenditures attributable, in whole or in substantial part, to environmental considerations totaled $.4 million in 2001, of which approximately $.1 million related to capital projects and $.3 million were charged to expense. It is estimated that in 2002 the total of these expenditures will be approximately $.6 million.
Neither Energy Group, Central Hudson nor CH Services and its competitive business subsidiaries are involved as defendants in any litigation, administrative proceedings, or investigations regarding environmental matters and, to the best of their knowledge, none are threatened against them, except with respect to the matters described in Note 10 under the subcaption "Environmental Matters."
EXECUTIVE OFFICERS
All executive officers of Energy Group are elected or appointed annually by its Board of Directors. There are no family relationships existing among any of the executive officers of Energy Group or its subsidiaries. The names of the current executive officers of Energy Group, their positions held and business experience during the past five (5) years and ages (at December 31, 2001) are as follows:
(1) Executive is an officer of Energy Group, Central Hudson and CH Services
(2) Executive is an officer of Energy Group and Central Hudson
(3) Executive is an officer of Energy Group and CH Services
(a) For Central Hudson
(b) For CH Services
(c) For Energy Group
(d) Effective February 1, 2002, Mr. Lant was appointed Chief Operating Officer of Energy Group.
ITEM 2
ITEM 2 - PROPERTIES -------------------
Energy Group has no significant properties other than those of Central Hudson and the competitive business subsidiaries of CH Services.
CENTRAL HUDSON
ELECTRIC: The net capability of Central Hudson's electric generating plants as of December 31, 2001, the net output of each plant for the year ended December 31, 2001, and the year each plant was placed in service or rehabilitated are as set forth below:
Year Placed MW* 2001 Unit Electric In Service/ Net Capability Net Output Generating Rehabil- (2001) (2000-2001) Megawatthour Plant Type of Fuel itated Summer Winter ("MWh") - -------------- ------------ ----------- ------ ------ ------------ Neversink** Water 1953 21 22 49,827 Hydro Station
Dashville Water 1920 5.5 4 6,575 Hydro Station
Sturgeon Pool Water 1924 16 16 63,417 Hydro Station
High Falls Water 1986 3 3 6,755 Hydro Station
Coxsackie Gas Kerosene or 1969 19 24 2,068 Turbine ("GT") Natural Gas
So. Cairo GT Kerosene 1970 18 22 1,425
Groveville Hydro St. Water 2000 .8 .8 775 ---- ---- ------- Total 83.3 91.8 130,842 ==== ==== =======
* Reflects maximum one-hour net capability of Central Hudson's ownership of generation resources and, therefore, does not include firm purchases or sales.
** As provided for under contract, the ownership of the Neversink Hydro Station will be conveyed by Central Hudson to the New York City Board of Water Supply in December 2003.
For a discussion of Central Hudson's sales of its ownership interests in the Roseton, Danskammer, and Nine Mile 2 Plants, see Note 1 under the subcaption "Jointly Owned Facilities," Note 2 under the caption "Sales of Principal Generating Facilities," and Note 3.
Central Hudson has a contract with the Power Authority of the State of New York which entitles Central Hudson to 49 MW net capability from the Blenheim-Gilboa Pumped Storage Hydroelectric Plant through June 30, 2002.
Central Hudson owns 86 substations having an aggregate transformer capacity of 4.1 million kilovolt amps. The transmission system consists of 588 pole miles of line and the distribution system of 7,385 pole miles of overhead lines and 934 trench miles of underground lines.
LOAD AND CAPACITY: Central Hudson's maximum one-hour demand within its own territory, for the year ended December 31, 2001, occurred on August 9, 2001, and amounted to 1,049 MW. Central Hudson's maximum one-hour demand within its own territory, for that part of the 2001-2002 winter capability period, through January 17, 2002, occurred on December 27, 2001 and amounted to 815 MW.
As a result of the sales of Central Hudson's interests in the Roseton, Danskammer and Nine Mile 2 Plants, Central Hudson no longer owns sufficient capacity to serve the peak demands of its transmission and distribution customers and needs to rely on purchased capacity from third-party providers to meet these demands. To partially supply its full service customers, Central Hudson entered into a transition power agreement with another Dynegy affiliate for a period from January 30, 2001, to, and including, October 31, 2003, subject to a one-year extension option at the election of Central Hudson, to provide for the purchase of energy and capacity from that affiliate. This contract is "financially firm" in that the Dynegy affiliate is required to supply power under the terms of the contract regardless of the operational status of the Danskammer and Roseton Plants. Central Hudson has also entered into an agreement with Constellation to purchase capacity and energy from the Nine Mile 2 Plant for a ten-year period. That contract is "unit contingent" in that Constellation is only required to supply power if the Nine Mile 2 Plant is operating. In the case of both contracts, the energy will be purchased at defined prices which escalate over the lives of the contracts.
See Note 2 under the caption "FERC Restructuring and Independent System Operator" for information regarding the NYS ISO and the New York State Reliability Council ("Reliability Council"), which coordinate reliability and operation of New York State's bulk power transmission systems.
The following table sets forth the amounts of any excess capacity of Central Hudson by summer and winter capability periods for 2002 and 2003:
Forecasted UCAP Peak - Reqmts. Available Excess of Total for Peak UCAP UCAP Over Delivery Loads Capacity NYS ISO Capability Rqts. (MW) (MW) (MW) Requirements Period (1) (2) (3) (4) (5) (MW)(3) Percent(3) ---------- ---------- -------- -------- --------------------
2002 Summer 985 1062 1105 43 4.0 2002-2003 Winter 905 1062 1066 4 .3
(1) Total delivery requirements include requirements for both full service (delivery and energy) and retail access (delivery only) customers.
(2) Unforced capacity ("UCAP") is generation capacity adjusted for forced outages. Summer period UCAP requirements carry over to the following winter period.
(3) Based on full service requirements.
(4) Owned capacity of 100 MW plus firm contract capacity of 1005 MW as of January 31, 2002 for the summer 2002 period.
(5) Owned capacity of 107 MW plus firm contract capacity of 959 MW as of January 31, 2002 for the winter 2002-2003 period.
GAS: Central Hudson's gas system consists of 161 miles of transmission pipelines and 1,026 miles of distribution pipelines.
For the year ended December 31, 2001, the total amount of gas purchased by Central Hudson from all sources was 11,494,252 thousand cubic feet ("Mcf.").
Central Hudson also owns two propane-air mixing facilities for emergency and peak shaving purposes located in Poughkeepsie and Newburgh, New York. Each facility has the capability of supplying 8,000 Mcf. per day with propane storage capability adequate to provide maximum facility sendout for up to three consecutive days.
The peak daily demand for natural gas by Central Hudson's customers for the year ended December 31, 2001 occurred on January 2, 2001, and amounted to 92,028 Mcf. Central Hudson's firm peak-day gas capability in 2001 was 124,491 Mcf. The peak daily demand for natural gas by Central Hudson's customers for that part of the 2001-2002 heating season through January 14, 2002, occurred on January 7, 2002, and amounted to 81,261 Mcf.
OTHER GAS MATTERS: FERC permits non-discriminatory access to the pipeline facilities of interstate gas pipeline transmission companies subject to the jurisdiction of FERC under the Natural Gas Act. This rule allows access to these pipelines by the pipeline transmission company's customers, enabling them to transport gas purchased directly from third parties and spot sources. This access also permits industrial
customers of gas distribution utilities to connect directly and contract directly with the pipeline transmission companies to transport gas, thereby bypassing the distribution utility. None of Central Hudson's customers has elected this bypass option.
The PSC has authorized New York State gas distribution utilities to transport customer-owned gas through their facilities upon request of a customer for a specified transportation charge. Currently, interstate pipeline transmission companies are located in certain areas where Central Hudson provides retail gas service (the Towns of Carmel, Pleasant Valley, Coxsackie, and LaGrange in New York State).
OTHER CENTRAL HUDSON MATTERS: All of Central Hudson's generating plants and important property units are held by it in fee simple, except (1) certain rights-of-way, and (2) a portion of the property used in connection with hydroelectric plants consisting of flowage or other riparian rights. Certain of the Central Hudson properties are subject to rights-of-way and easements which do not interfere with operations. In the case of certain distribution lines, Central Hudson owns only a part interest in the poles upon which its wires are installed, the remaining interest being owned by telephone companies. Certain electric and gas transmission facilities owned by others are used by Central Hudson under long-term contractual arrangements.
All of the physical properties of Central Hudson, other than property such as material and supplies and Central Hudson franchises, are, from time to time, subject to liens for current taxes and assessments which Central Hudson pays regularly as and when due.
During the three-year period ended December 31, 2001, Central Hudson made gross property additions of $174.7 million and property retirements and adjustments of $820.0 million, resulting in a net decrease (including Construction Work in Progress or "CWIP") in utility plant of $645.3 million, or 41.3%.
CH SERVICES
For a description of the material properties owned by CH Services and its competitive business subsidiaries, see Item 1 under the caption "Subsidiaries of Energy Group - CH Services" and the caption "Acquisitions" in Note 1.
ITEM 3
ITEM 3 - LEGAL PROCEEDINGS --------------------------
WAPPINGERS FALLS MATTER
On February 12, 1994, two fires destroyed a residence and a nearby commercial facility in the Village of Wappingers Falls, New York. Lawsuits arising out of this incident included one commenced by John DeLorenzo in August 1994 and another commenced by Cengiz Ceng in March 1995. These lawsuits were brought in the New York Supreme Court, County of Dutchess, against Central Hudson and the Village of Wappingers Falls, and the plaintiffs sought damages for personal injury and property damage. These suits were settled in November 2001 in amounts not material to Central Hudson. Confidentiality Agreements and Stipulations of Settlement with regard to each suit were filed with the Court in December 2001.
OTHER
For a discussion of certain other legal proceedings and certain administrative matters involving Central Hudson, see Note 10, which other legal proceedings discussion is incorporated herein by reference.
ITEM 4
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2001.
PART II
ITEM 5
ITEM 5 - MARKET FOR ENERGY GROUP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
For information regarding the market for Energy Group's Common Stock and related stockholder matters, see Item 7 under the captions "Capital Resources and Liquidity - Financing Program of Energy Group and Its Subsidiaries" and "Common Stock Dividends and Price Ranges" and Note 6.
Under applicable statutes and their respective Certificates of Incorporation, Energy Group may pay dividends on shares of its Common Stock, and Central Hudson may pay dividends on its Common Stock and its Preferred Stock, only out of surplus.
ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA OF ENERGY GROUP AND ITS SUBSIDIARIES
FIVE-YEAR SUMMARY OF CONSOLIDATED OPERATIONS AND SELECTED FINANCIAL DATA*, (ENERGY GROUP) (In Thousands)
FIVE-YEAR SUMMARY OF CONSOLIDATED OPERATIONS AND SELECTED FINANCIAL DATA*, (ENERGY GROUP CONT'D) (In Thousands)
* This summary should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Item 8 of this Form 10-K Annual Report.
** Holding company was formed November 1999; years 1999 and 1998 were restated to reflect fully consolidated results for comparative purposes.
SELECTED FINANCIAL DATA OF CENTRAL HUDSON -----------------------------------------
FIVE-YEAR SUMMARY OF CONSOLIDATED OPERATIONS AND SELECTED FINANCIAL DATA* (In Thousands)
FIVE-YEAR SUMMARY OF CONSOLIDATED OPERATIONS AND SELECTED FINANCIAL DATA*, (CENTRAL HUDSON CONT'D) (In Thousands)
* This summary should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Item 8 of this Form 10-K Annual Report.
ITEM 7
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following is Management's assessment of certain significant factors affecting the financial condition and operating results of Energy Group and its subsidiaries over the past three years. The Consolidated Financial Statements and the Notes thereto contain additional data. For the twelve months ended December 31, 2001, 59% of Energy Group's operating revenues were derived from Central Hudson's electric service, 15% from Central Hudson's natural gas service, and 26% from unregulated businesses.
COMPETITION/DEREGULATION
HOLDING COMPANY RESTRUCTURING
Energy Group is the holding company parent corporation of Central Hudson and CH Services and its competitive business subsidiaries, as described under the caption "Subsidiaries of Energy Group" in Item 1. Energy Group's operations are conducted through Central Hudson and the competitive business subsidiaries. Energy Group common stock trades on the New York Stock Exchange under the symbol "CHG."
The holding company structure was instituted to permit quick response to changes in the evolving competitive energy industry. The structure permits the use of financing techniques that are better suited to the particular requirements, characteristics and risks of competitive operations without affecting the capital structure or creditworthiness of Energy Group's regulated subsidiary, Central Hudson. This increases Energy Group's financial flexibility by allowing it to establish different capital structures for each of its individual lines of business.
REFOCUSING OF CH SERVICES' BUSINESS PLAN
During 2002, CH Services intends to refocus its lines of business by divesting its CH Resources subsidiary and also assessing the possible discontinuation of certain activities conducted by its CHEC subsidiary; namely, cogeneration partnerships, energy efficiency projects and its limited partnership interest in the Nth Power - Fund II. The divestiture of CH Resources is expected to result in a net gain. Energy Group is unable to predict the net effect of discontinuing the activities noted above.
The purpose of the steps described above is to discontinue operations which have resulted in lower than expected returns and increase focus on the energy distribution activities carried out through CH Services' subsidiaries, Griffith and SCASCO. It is the intent in 2002 to continue to expand these two subsidiaries through acquisitions, depending on performance and opportunities available.
COMPETITIVE OPPORTUNITIES PROCEEDING SETTLEMENT AGREEMENT
For a discussion of the Agreement approved by the PSC in its Competitive Opportunities Proceeding and a discussion of the impact of the Agreement on Energy Group's accounting policies, see the caption "Competitive Opportunities Proceeding Settlement Agreement" in Note 2.
PROCEEDS FROM SALES OF PRINCIPAL GENERATING FACILITIES
On January 30, 2001, Central Hudson received cash proceeds of $713 million from the sale of the Danskammer Plant and its interest in the Roseton Plant to Dynegy. On November 7, 2001, Central Hudson received cash proceeds of $28.4 million as part of the consideration for selling its interest in the Nine Mile 2 Plant to an affiliate of Constellation. Additional cash proceeds of $37.8 million of principal and interest at the rate of 11% under a five year promissory note will be received from Constellation. For information on the proposed disposition of the proceeds from these sales, see Note 7 under the caption "Use of Proceeds from Sales of Principal Generating Facilities."
FERC RESTRUCTURING AND INDEPENDENT SYSTEM OPERATOR
For information with respect to the NYS ISO, the Reliability Council and FERC rulings relating to electric restructuring, see the caption "FERC Restructuring and Independent System Operator" of Note 2.
RATE PROCEEDINGS - ELECTRIC AND GAS
For information regarding Central Hudson's most recent electric and gas rate restructuring request and the Order of the PSC issued in that proceeding, see Note 2 under the caption "Rate Proceedings - Electric and Gas."
CAPITAL RESOURCES AND LIQUIDITY
CONSTRUCTION PROGRAM - CENTRAL HUDSON
As shown in the Consolidated Statement of Cash Flows, the cash expenditures related to Central Hudson's construction program amounted to $60.5 million in 2001, a $1.8 million increase from the $58.7 million expended in 2000. Cash construction expenditures for 2002 are estimated to be $54.3 million, a decrease of $6.2 million compared to 2001 expenditures.
Central Hudson's estimates of construction expenditures, internal funds available, mandatory and optional redemption or repurchase of long-term securities, and working capital requirements for 2002 are set forth in the following table:
(In Thousands)
Construction Expenditures* Cash Construction Expenditures .................................. $54,300
Internal Funds Available .......................................... 43,200 -------
Balance of Construction Requirements to be Financed ............... 11,100 -------
Dividend to Parent - Energy Group ................................. 32,000 -------
Total Cash Requirements ....................................... $43,100 =======
* Excluding the equity portion of Allowance for Funds Used During Construction ("AFDC"), a noncash item.
Estimates of construction expenditures are subject to continuous review and adjustment, and actual expenditures may vary from estimates. These construction expenditures include capitalized overheads and the debt portion of AFDC.
It is presently estimated that funds available from internal sources will finance 79.6% of Central Hudson's cash construction expenditures in 2002. During this same period, total external financing of construction expenditure requirements of Central Hudson are projected to amount to $11.1 million.
Internal funds available to fund construction expenditures are less than in past years because of the reduction in depreciation which occurred due to the sales of Central Hudson's interests in the Roseton, Danskammer and Nine Mile 2 Plants, and the payment of dividends by Central Hudson to Energy Group.
Following changes to its capital structure through the disbursement of funds described in Note 7, Central Hudson may issue securities from time to time as needed to fund its working capital requirements and construction budget.
In 2002, Central Hudson expects to satisfy its external funding requirements, either through short-term borrowings or issuances of Medium-Term Notes.
CAPITAL STRUCTURE
Under the terms of the recent order of the PSC in Central Hudson's rate restructuring proceeding (more fully described in Note 2 under the caption "Rate Proceedings - Electric and Gas"), Central Hudson's common equity ratio will be capped, for purposes of the allowed base return on equity ("ROE"), at 47% for the twelve months ending June 30, 2002 and at 46% and 45%, respectively, for the two subsequent twelve-month periods. It is expected that the capital structure of Central Hudson will allow it to maintain a strong investment grade rating for the next few years. Central Hudson's senior debt ratings are "A2" by Moody's Investors Service and "A" by Standard and Poor's Corporation and Fitch, Duff & Phelps Credit Rating Company.
As described under the caption "Use of Proceeds from Sales of Principal Generating Facilities" in Note 7, a portion of the proceeds from the sales of the Roseton, Danskammer and Nine Mile 2 Plants was used to redeem a portion of Energy Group's existing debt, and other redemptions may be considered.
Energy Group's capital structure is set forth below at the end of 2001, 2000 and 1999:
YEAR-END CAPITAL STRUCTURE -------------------------------- 2001 2000 1999 ------ ------ ------ Long-term debt .................. 30.0% 35.3% 38.6% Short-term debt ................. -- 15.2 5.2 Preferred stock ................. 7.1 5.2 5.8 Common equity ................... 62.9 44.3 50.4 ------ ------ ------ 100.0% 100.0% 100.0% ====== ====== ======
Central Hudson's capital structure is set forth below at the end of 2001, 2000 and 1999:
YEAR-END CAPITAL STRUCTURE -------------------------------- 2001 2000 1999 ------ ------ ------ Long-term debt .................. 42.5% 41.2% 41.3% Short-term debt ................. -- 2.7 5.6 Preferred stock ................. 10.1 6.0 6.2 Common equity ................... 47.4 50.1 46.9 ------ ------ ------ 100.0% 100.0% 100.0% ====== ====== ======
CH Services' capital structure is set forth below at the end of 2001, 2000 and 1999:
YEAR-END CAPITAL STRUCTURE* -------------------------------- 2001 2000 1999 ------ ------ ------ Long-term debt .................. 50.5% 73.6% 1.5% Short-term debt ................. -- -- -- Preferred stock ................. -- -- -- Common equity ................... 49.5 26.4 98.5 ------ ------ ------ 100.0% 100.0% 100.0% ====== ====== ======
* Based on stand-alone financial statements and includes intercompany balances which are eliminated in Consolidation.
FINANCING PROGRAM OF ENERGY GROUP AND ITS SUBSIDIARIES
Energy Group's Stock Purchase Plan, which can be either an original issue plan or an open market purchase plan, is currently an open market purchase plan.
In 2001, Energy Group reestablished a stock repurchase program of up to 500,000 shares; however, no repurchases of Common Stock were made under that program. The amount of stock to be repurchased in 2002 will be determined as conditions warrant.
On June 30, 2001, PSC authorization for Central Hudson's Medium-Term Note (Series C) Program expired. Central Hudson has received authority from the PSC to issue up to $100 million of unsecured Medium-Term Notes during the three years ending June 30, 2004. Central Hudson expects to establish a new Series D Medium-Term Note Program in 2002.
For more information with respect to the financing program in general, see the captions in Note 6 and Note 7.
The competitive business subsidiaries funded their acquisitions in 2001 through funds received from Energy Group after a dividend was paid to Energy Group by Central Hudson from a portion of its proceeds from the sales of the fossil generating plants.
SHORT-TERM DEBT
Energy Group's revolving credit agreement with several commercial banks for borrowing up to $170 million expired on December 4, 2001. Energy Group has determined that it has sufficient cash reserves to fund its cash requirements and determined not to renew this facility. Consideration to establish a new revolving credit facility will be given as conditions warrant.
As more fully discussed in Note 5, in October, 2001, Central Hudson, pursuant to authority from the PSC, entered into a $75 million revolving credit facility to replace its existing $50 million revolving credit facility. In addition, Central Hudson maintains confirmed lines of credit totaling $1.5 million with regional banks. These agreements give Central Hudson competitive options to minimize its cost of short-term borrowing. Authorization from the PSC limits the amount Central Hudson may have outstanding at any time under all of its short-term borrowing arrangements to $77 million in the aggregate, which authorization expires on June 30, 2004.
As of December 31, 2001, CH Services also has short-term lines of credit totaling $12.5 million.
RESULTS OF OPERATIONS
The following discussion and analyses include explanations of the significant changes in revenues and expenses when comparing the 2000 and 2001 results of Energy Group and when comparing the 2000 and 1999 results of Central Hudson to the 2001 results of Central Hudson. Additional information relating to changes between these years is provided in the Notes hereto.
EARNINGS
Earnings per share of Energy Group's Common Stock are shown after provision for dividends on preferred stock and are computed on the basis of the average number of common shares outstanding during the year. The number of shares of such Common Stock, the earnings per share and the rate of return earned on average common equity are as follows:
2001 2000 1999 ------ ------ ------ Average shares outstanding (000s) ........ 16,362 16,716 16,862 Earnings per share (basic and diluted) ... $ 3.11 $ 3.05 $ 2.88 Return earned on common equity per financial statements ............... 10.4% 10.4% 10.0%
Earnings per share in 2001 (basic and diluted), when compared to 2000 (basic and diluted), increased $.06 per share. This increase resulted substantially from an increase in Central Hudson's electric net operating revenues (net of cost of fuel, purchased electricity and revenue taxes) due primarily to a 4% increase in own territory sales to residential and commercial customers. This increase in sales for the year results from an increase in the average number of customers and warmer weather during the summer months. The number of cooling degree days in 2001 was 22% higher than 2000 and 5% above normal. The increase in Central Hudson's net operating revenues was partially offset by a reduction in profits, permitted by the PSC to be retained from sales of electricity to other utilities and marketers due to the termination of this regulatory incentive effective in early 2001. Also contributing to the increase was an increase in Central Hudson's gas net operating revenues (net of the cost of gas and revenue taxes) primarily due to an increase in residential and commercial space heating sales, and an increase in the average number of customers. Earnings were also favorably impacted by Energy Group's favorable annualization effect on 2001 of the common stock repurchase program in 2000 and due to the recognition of an unrealized gain by Energy Group on a weather derivative contract. Other items which favorably impacted Central Hudson's earnings were the net effect of various items including cost of capital, income taxes, and Central Hudson's operating expenses.
Partially offsetting these increases was the net effect on Central Hudson of regulatory actions in 2001 associated with the sales of Central Hudson's interests in its fossil generating plants and the Nine Mile 2 Plant, such as, reduction in rate base related to these generating Plants, the after tax contribution to Central Hudson's Customer Benefit Fund, described in Note 2 under the caption "Summary of Regulatory Assets and Liabilities - Customer Benefit Fund," recognition of tax benefits related to the sale of these Plants and recognition of net income for shareholders under a prior regulatory agreement. Also contributing to the decrease was a reduction in earnings from the Energy Group's unregulated subsidiary, CH Services, due primarily to losses incurred by CH Resources' generating plants resulting from reduced margins attributable to volatile gas prices and lower than expected power prices. The effect of milder weather also depressed sales of CH Services' oil distribution subsidiaries. This reduction in earnings was partially offset by the recording of unrealized gains by CH Services related to weather derivative contracts entered into as hedges against variations in heating degree days.
Earnings per share in 2000 (basic and diluted), when compared to 1999 (basic and diluted), increased $.17 per share. This increase resulted substantially from an increase in Central Hudson's electric net operating revenues (net of the cost of fuel, purchased electricity and revenue taxes). The increase, despite a drop in cooling degree days, was due primarily to increases in electric sales to own-territory commercial and industrial customers and an increase in the profits retained from sales of electricity to other utilities and marketers. Commercial sales
increased due primarily to an increase in the number of customers while the increase in industrial sales resulted from increased usage by existing customers. Actual cooling degree days in 2000 were 35% lower than 1999 and 13% lower than normal. An increase in non-recoverable fuel costs related to Central Hudson's fuel cost incentive partially offset the total increase to electric net revenues. Also contributing to the increase in earnings per share in 2000 was an increase in earnings from operations of CH Services due primarily to the acquisition of Griffith in November 2000 and the increase in Central Hudson's gas net operating revenues (net of the cost of gas and revenue taxes), largely due to an overall increase in own territory sales. Increases in residential and commercial gas sales in 2000 reflected increased heating sales due to increased heating degree days. Actual heating degree days approximated normal for 2000 and were 10% higher than in 1999. Earnings per share for 2000 were also favorably impacted by Energy Group's common stock repurchase of 500,000 shares during 2000.
The increases in revenues in 2000 were partially offset by an increase in operation and maintenance costs incurred by Central Hudson. That increase reflected increases in the cost of normal storm restoration efforts, gas site remediation, routine and scheduled generating plant maintenance, maintenance of gas mains and workers compensation insurance. The increase in workers compensation insurance was due to the elimination of substantial dividends received by Central Hudson in 1999. Other items impacting earnings unfavorably were non-recurring items, primarily the effect of income recorded in 1999 related to the sale of Energy Group's former New York Stock Exchange symbol; increased depreciation on Central Hudson's utility plant and equipment; and, the net effect of various other items, including increases in taxes other than income taxes and the cost of capital.
Energy Group has established a projection for earnings in calendar year 2002 of $2.70 to $2.85 per share. This projected level, which is below the actual 2001 level of $3.11 per share, reflects the expected decrease in earnings of Central Hudson due to the removal of the Roseton, Danskammer and Nine Mile 2 Plants from Central Hudson's rate base. This decrease in Central Hudson earnings is expected to be partially offset by increased earnings from CH Services.
OPERATING REVENUES
Total operating revenues of Energy Group decreased $21.5 million (3%) in 2001, as compared to 2000, and increased $182.8 million (32%) in 2000, as compared to 1999.
See the table below for details of the variations:
SALES - CENTRAL HUDSON
Central Hudson's sales vary seasonally in response to weather and electric revenues peak in the summer while gas revenues peak in the winter.
Utility sales of electricity within Central Hudson's service territory, plus delivery of electricity supplied by others, increased 4% in 2001 compared to 2000. Sales to residential and commercial customers increased 6% and 5%, respectively, with sales to industrial customers remaining unchanged. The increase in sales is due primarily to an increase in the average number of residential and commercial customers and increased usage due to warmer than normal weather. Cooling degree days in 2001 were 22% higher than 2000 and 5% above normal. Electric sales increased 1% in 2000 versus 1999. The slight improvement in sales, despite the 35% decrease in the number of cooling degree days, was due primarily to an increase in the average number of customers.
Utility sales of firm natural gas within Central Hudson's service territory, plus transportation of gas supplied by others, decreased by 1% from 2000 to 2001; however, sales to residential and commercial customers each increased 3%. The increase in sales for these higher volume customers results primarily from an increase in the average number of customers. Industrial sales decreased 8% and interruptible sales decreased 4% as compared to last year due to a decrease in usage. Sales of firm natural gas increased 9% from 1999 to 2000, resulting, in part, from a 5% increase in heating degree days due to colder weather experienced in 2000.
Changes in sales from the prior year by major customer classification, including interruptible gas sales are set forth below. Also included are the changes related to energy delivery service.
% INCREASE (DECREASE) FROM PRIOR YEAR ---------------------------------------------- ELECTRIC (MWh) GAS (Mcf) ------------------ ----------------- 2001 2000 2001 2000 ---- ---- ---- ---- Residential .............. 6 -- 3 7 Commercial ............... 5 2 3 9 Industrial ............... -- 2 (8) 5 Interruptible ............ N/A N/A (4) (34)
Due to sharing arrangements that are in place for interruptible gas sales and interruptible transportation of customer-owned gas, as described in the caption "Incentive Arrangements" below, variations in these sales from year to year typically have a minimal impact on earnings.
INCENTIVE ARRANGEMENTS
Under certain incentive formulas approved by the PSC, Central Hudson either shares with its customers certain revenues and/or cost savings exceeding defined predetermined levels, or is penalized in some cases for shortfalls from the targeted levels or defined performance standards.
Incentive formulas were in place for fuel cost variations and sales of electricity to other utilities through December 2000. Incentive formulas continue in place for interruptible gas sales, gas capacity release transactions and customer satisfaction, electric reliability and keeping customer appointments.
See Note 2 under the caption "Rate Proceedings - Electric and Gas" for a description of new equity incentive and sharing formulas for Central Hudson approved by the PSC.
The net results of these incentive formulas were to increase pretax earnings by $.2 million, $4.8 million and $2.3 million during 2001, 2000 and 1999, respectively.
SALES AND REVENUES - CH SERVICES
Revenues for CH Services increased $78.3 million, from $111 million in 2000 to $189.3 million in 2001. Of the revenue increase in 2001, revenues from Griffith increased $81 million from $34 million in 2000 to $115 million in 2001, primarily due to the full year of ownership of Griffith, revenues from SCASCO increased $3.4 million, from $31.5 million in 2000 to $34.9 million in 2001 primarily due to a growth in sales resulting from additional acquisitions. Sales of wholesale energy of all three of CH Resources' generating plants' operations during 2001 decreased by $4.7 million, from $34.4 million in 2000 due to reduced wholesale electric prices in New York State.
Revenues for CH Services increased $65.9 million from 1999 to 2000. Of the revenue increase in 2000, revenues from SCASCO increased $15.2 million primarily due to a growth in sales from additional acquisitions. Sales of wholesale energy of all three of CH Resources' generating plants' operation during 2000 increased by $15.6 million. Also included in the 2000 revenues are $34.0 million of revenues from Griffith, which was acquired in November 2000.
OPERATING EXPENSES
The most significant elements of operating expenses are purchased electricity in Central Hudson's electric department and purchased natural gas in Central Hudson's gas department. Approximately 52% in 2001 and 42% in 2000 of every revenue dollar billed by Central Hudson's electric department was expended for the combined cost of fuel used in electric generation and purchased electricity. The corresponding figures in Central Hudson's gas department for the cost of purchased gas were 58% and 60%, respectively.
In an effort to keep the cost of electricity at the lowest reasonable level, Central Hudson has negotiated multi-year purchased energy contracts ("Energy Contracts") with the new owners of the fossil and nuclear plants it divested in 2001. These purchases are supplemented by purchases from the NYS ISO. For information regarding the Energy Contracts, see Item 2 under the subcaption "Load and Capacity," Note 2 under the caption "Sales of Principal Generating Facilities" and Note 3.
Total Central Hudson utility operating expenses decreased $73.8 million (13.1%) from 2000 to 2001. The reduction in these expenses largely reflects the effect of the sale of Central Hudson's interests in its fossil plants and in the Nine Mile 2 Plant.
Fuel and purchased electricity for Central Hudson increased $917,000 (4%) in 2001 compared to 2000 due to an increase in sales to full service residential and commercial customers. In 2000, Central Hudson's utility fuel and purchased electricity increased $92 million (70%) due to the increase in electric sales, as well as sales of electricity for resale. The rise in costs reflected increasing fossil fuel prices and also the impact of changing market conditions brought about by the formation of the NYS ISO in November 1999.
During 2001 Central Hudson purchased natural gas costs remained almost flat with a decrease of $461,000 (.7%), reflecting a reduction in the volume purchased and lower natural gas prices. In 2000, utility purchased natural gas costs increased $10.3 million (19%) due to higher firm and interruptible gas sales, including the use of natural gas as a boiler fuel.
All other expenses of Central Hudson's utility operation decreased $74.3 million due to a reduction in depreciation and amortization, and taxes and other expenses resulting from the elimination of all operating costs associated with the fossil generating plants that were sold and the reduction in depreciation expense for Central Hudson's share of the Nine Mile 2 Plant, the remaining cost of which was recovered using sale proceeds.
CH Services' operating expenses increased $80.0 million from $107.7 million in 2000 to $187.7 million in 2001, primarily due to fuel costs associated with CH Resources' generating plants and the cost of petroleum and natural gas for SCASCO and Griffith.
Fuel costs for CH Resources decreased $1.1 million, from $20 million in 2000, to $19.5 million in 2001 due to decreased generation. Petroleum and natural gas costs increased by $50.8 million, from $46.9 million in 2000 to $97.7 million in 2001, due primarily to the full year of ownership of Griffith.
CH Services' other expenses of operation, excluding energy supply costs, increased $30.5 million, including a $5.3 million increase in depreciation and amortization on related assets. The primary reasons for both the increase in energy supply costs and the increase in other expenses of operation are the full year ownership of Griffith, acquired in November 2000, and the additional acquisitions in 2001.
In 2000, fuel costs for CH Resources increased $8.2 million and petroleum and natural gas costs for SCASCO and Griffith increased $35.0 million. All other expenses increased $19.0 million in 2000, due to the continued growth of CH Services through acquisitions.
See Note 4 for an analysis and reconciliation of federal and state income taxes.
OTHER INCOME AND INTEREST CHARGES
Energy Group's other income and deductions increased $26.3 million in 2001 as compared to 2000 resulting largely from the recognition of tax benefits related to the sales of Central Hudson's interests in its fossil-fueled and nuclear generating plants and the restoration of net income for Central Hudson shareholders under a prior regulatory agreement. The increase also reflects the recognition of unrealized gains related to weather derivative contracts entered into by Energy Group. Other income and deductions for Energy Group in 2000 decreased $2.0 million compared to 1999, primarily due to the non-operating income reported in 1999 from the sale of Energy Group's former New York Stock Exchange symbol.
Total Central Hudson interest charges (excluding AFDC) decreased $4.8 million (14%) in 2001 primarily due to Central Hudson's redemption and repurchase of a number of its long-term debt obligations. This debt was eliminated using a portion of the proceeds from the sale of Central Hudson's interests in the fossil generating plants. Partially offsetting the decrease in interest charges are Central Hudson's carrying charges related to a number of regulatory obligations including the Customer Benefit Fund established in the electric rate proceeding concluded in October 2001 and referred to in Note 2 under the caption "Rate Proceedings - Electric and Gas." In 2000, Central Hudson's interest charges increased $3.9 million (13%) in 2000 because of an increase in financing activity.
The following table sets forth some of the pertinent data on Energy Group's outstanding debt (unless noted otherwise, this debt related to Central Hudson):
2001 2000 1999 -------- -------- -------- (In Thousands) Long-term debt: Debt retired ........................... $147,630 $ 35,100 $ 25,818 Outstanding at year-end: Amount (including current portion) ... 235,874 382,980 370,551 Effective rate ........................ 4.64% 6.54% 6.43% Short-term debt: Average daily amount outstanding ....... $ 1,922 $ 13,490 $ 10,274 Weighted average interest rate ......... 6.56% 6.55% 6.22%
In 2001, Central Hudson redeemed, repurchased or defeased a significant percentage of its long-term debt and experienced a reduction in debt expense and effective rate.
See Note 5 and Note 7 for additional information on short-term and long-term debt of Energy Group and/or Central Hudson.
NUCLEAR OPERATIONS
NINE MILE 2 PLANT: For information regarding Central Hudson's sale of its 9% ownership interest in the Nine Mile 2 Plant on November 7, 2001, see Note 3.
During 2001, Central Hudson's share of operating expenses, taxes and depreciation pertaining to the operation of the Nine Mile 2 Plant were included in Energy Group's financial results. In both 2001 and 2000, underruns in costs of operations and maintenance expenses for the Nine Mile 2 Plant, compared to the amount allowed in rates, were entirely deferred for the future benefit of customers. For further information regarding the Customer Benefit Fund, see Note 2.
NUCLEAR DECOMMISSIONING: For nuclear decommissioning information relating to the Nine Mile 2 Plant, see Note 1 and Note 3.
OTHER MATTERS
NEW ACCOUNTING STANDARDS: For information about market risk and activities relating to derivative financial instruments and other financial instruments, see Item 7A
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The primary market risks for Energy Group and its subsidiaries are commodity price risk and interest rate risk. Exposure to commodity price risk related to purchases and/or sales of natural gas, power supplies and petroleum products is mitigated in several different ways. Depending on market conditions, Central Hudson and CH Services enter into long-term fixed supply and long-term forward supply contracts for
the purchase and/or sale of these commodities. Central Hudson also uses gas storage facilities to purchase blocks of natural gas at pre-heating season prices for use during the heating season. Both Central Hudson and CH Services also enter into derivative transactions to hedge market price fluctuations.
Energy Group and Central Hudson have in place a common energy risk management program with the primary goal to further manage, through the use of defined risk management practices, price and volume risks associated with commodity purchases in its operations. The written policy and procedures for this program permit the use of derivative financial instruments to hedge price risk. Both Central Hudson and CH Services have entered into either exchange-traded futures contracts or over-the-counter contracts with third parties to hedge commodity price risk associated with the purchase and/or sale of natural gas, electricity and petroleum products.
Central Hudson has entered into derivative contracts to hedge a portion of its total gas supply requirements and the purchase of electricity. The fair value of open positions at December 31, 2001 was $25.6 million and a total of $14.3 million in realized net gains was recorded in 2001. These realized gains served to offset the differences between the expected price of the commodity and the actual price.
Central Hudson's exposure to commodity price risk related to its purchases of natural gas, fuel for electric generation, and other power purchases is also mitigated by its electric and gas cost adjustment clauses. These adjustment clauses provide for the collection of costs, including risk management costs, from customers to reflect the actual costs incurred in obtaining supply. Risk management costs are defined by the PSC as "costs associated with transactions that are intended to reduce price volatility or reduce overall costs to customers. These costs include transaction costs, and gains and losses associated with other risk management instruments."
Central Hudson manages its interest rate risk through the issuance of fixed-rate debt with varying maturities and variable rate debt for which interest is reset on a periodic basis reflecting current market conditions. The difference between costs associated with actual variable interest rates related to Central Hudson's bonds issued by the New York State Energy Research Development Authority ("NYSERDA") and costs embedded in customer rates is deferred for eventual passback to, or recovery from, customers. Central Hudson also repurchases or redeems existing debt at a lower cost when economical.
CH Services has entered into derivative transactions to hedge the purchase and sale of electricity and the purchase of natural gas and heating oil. Open positions at December 31, 2001 reflected a fair value of $186,000 and an actual realized gain totaling $3.8 million was recorded in 2001 for settled derivatives which served to offset the change in the difference between the expected price of the commodity sold or purchased and the actual price.
In order to hedge sales volume risk, Energy Group and certain of its subsidiaries entered into weather derivative contracts known as "costless collars" to economically hedge the effect on earnings due to significant variations in weather conditions from normal patterns and to reduce exposure to variations in heating degree days in the
November 1, 2001 through March 31, 2002 period. Unrealized gains totaling $2.8 million were recorded in 2001. Because the weather collar has a deadband, if weather patterns approximate normal for the remaining months of the weather contract, estimated losses would be recorded each month and likely result in realized gains less than the $2.8 million.
In accordance with the approved guidelines set forth in Energy Group's and Central Hudson's risk management policy and procedures, over the counter ("OTC") derivative transactions are entered into only with counter-parties that meet certain approved credit criteria. The creditworthiness of these counter-parties is determined primarily by reference to published credit ratings.
At December 31, 2001, CH Services' subsidiary, SCASCO, had open OTC put option positions extending through April 2002, with counter-parties covering approximately 21% of the anticipated oil supply requirements for the period January 2002 through April 2002. SCASCO generally enters into oil put derivative contracts to hedge firm oil purchase commitments covering approximately 20% of its total forecasted requirements.
At December 31, 2001, Central Hudson had one open OTC derivative contract to hedge natural gas basis risk in 2002, which represents less than 1% of Central Hudson's projected total natural gas requirements. In 2001, OTC transactions were used to hedge 4.6% of Central Hudson's total natural gas supply requirements. In its electric operations, Central Hudson had open OTC derivatives at December 31, 2001 to hedge a portion of its required power supply through October 2004. In 2001, Central Hudson hedged approximately 35% of its total power supply requirements with OTC derivative contracts. The notional amounts hedged for 2002, 2003 and 2004 represent approximately 42%, 25% and 16%, respectively, of the forecasted total power supply requirements for each of those years.
Derivative contracts are discussed in more detail in Note 1 under the caption "Accounting for Derivative Instruments and Hedging Activities."
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
I - Index to Financial Statements: PAGE ----
Report of Independent Accountants 40
Statement of Management's Responsibility 41
Energy Group Consolidated Statement of Income for the three years ended December 31, 2001 42 Energy Group Consolidated Statement of Comprehensive Income for the three years ended December 31, 2001 44 Energy Group Consolidated Balance Sheet at December 31, 2001 and 2000 45 Energy Group Consolidated Statement of Cash Flows for the three years ended December 31, 2001 47 Energy Group Consolidated Statement of Retained Earnings for the three years ended December 31, 2001 49 Central Hudson Consolidated Statement of Income for the three years ended December 31, 2001 50 Central Hudson Consolidated Statement of Retained Earnings for the three years ended December 31, 2001 52 Central Hudson Consolidated Statement of Cash Flows for the three years ended December 31, 2001 53 Central Hudson Consolidated Balance Sheet at December 31, 2001 and 2000 55
Notes to Consolidated Financial Statements 57
Selected Quarterly Financial Data (Unaudited) 100
II - Schedule II - Reserves 102
All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or the Notes thereto.
SUPPLEMENTARY DATA
Supplementary data are included in "Selected Quarterly Financial Data (Unaudited)" referred to in "I" above, and reference is made thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of CH Energy Group, Inc. and Central Hudson Gas & Electric Corporation
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and comprehensive income, of retained earnings and of cash flows present fairly, in all material respects, the financial position of CH Energy Group, Inc. and its directly or indirectly wholly-owned subsidiaries and Central Hudson Gas & Electric Corporation and its subsidiary at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index in Item 8, Financial Statements and Supplementary Data, presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements are the responsibility of Energy Group's and Central Hudson's Management, respectively; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurances about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by Management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
New York, New York January 25, 2002
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
Management is responsible for the preparation, integrity and objectivity of the consolidated financial statements of CH Energy Group, Inc., and its subsidiaries Central Hudson Gas & Electric Corporation, Central Hudson Energy Services, Inc. and the competitive business subsidiaries (collectively, the "Corporation"), as well as all other information contained in this Form 10-K Annual Report for the fiscal year ended December 31, 2001. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles and, in some cases, reflect amounts based on the best estimates and judgments of Management, giving due consideration to materiality.
The Corporation maintains adequate systems of internal control to provide reasonable assurance, that, among other things, transactions are executed in accordance with Management's authorization, that the consolidated financial statements are prepared in accordance with generally accepted accounting principles and that the assets of the Corporation are properly safeguarded. The systems of internal control are documented, evaluated and tested by the Corporation's internal auditors on a continuing basis. Due to the inherent limitations of the effectiveness of internal controls, no internal control system can provide absolute assurance that errors will not occur. Management believes that the Corporation has maintained an effective system of internal control over the preparation of its financial information, including the consolidated financial statements of the Corporation for the year ended December 31, 2001.
Independent accountants were engaged to audit the consolidated financial statements of the Corporation and issue their report thereon. The Report of Independent Accountants, which is presented herein, does not limit the responsibility of Management for information contained in the consolidated financial statements and elsewhere in this Form 10-K Annual Report.
The Corporation's Board of Directors maintains an Audit Committee which is composed of Directors who are not employees of the Corporation. The Audit Committee meets with Management, the Internal Auditing Manager, and the Corporation's independent accountants several times a year to discuss internal controls and accounting matters, the Corporation's consolidated financial statements, and the scope and results of the audits performed by the independent accountants and the Internal Auditing Department.
The independent accountants and the Internal Auditing Manager have direct access to the Audit Committee.
PAUL J. GANCI DONNA S. DOYLE Chairman of the Board and Vice President - Accounting Chief Executive Officer and Controller
February 1, 2002
ENERGY GROUP CONSOLIDATED STATEMENT OF INCOME (In Thousands) Year ended December 31, 2001 2000 1999 -------- -------- -------- Operating Revenues Electric ............................. $428,416 $531,820 $427,809 Gas .................................. 110,717 107,039 94,131 Unregulated Subsidiary ............... 189,298 111,027 45,157 -------- -------- -------- Total Operating Revenues ........... 728,431 749,886 567,097 -------- -------- -------- Operating Expenses Operation: Fuel used in electric generation and purchased electricity ........................ 248,949 249,338 149,016 Purchased natural gas ................ 72,314 75,624 61,548 Purchased petroleum .................. 89,173 35,485 4,347 Other expenses of operation .......... 106,751 137,800 126,768 Other expenses of operation - unregulated subsidiaries ........... 56,482 30,343 14,373 Depreciation and amortization (Note 1) .............................. 35,637 51,453 48,246 Taxes, other than income tax .......... 50,402 54,151 64,510 Federal/State income tax (Note 4) ............................. 21,043 37,229 27,772 -------- -------- -------- Total Operating Expenses ........... 680,751 671,423 496,580 -------- -------- --------
Operating Income ....................... 47,680 78,463 70,517 -------- -------- --------
Other Income Allowance for equity funds used during construction (Note 1) ............................ 429 -- -- Federal/State income tax (Note 4) ............................ 24,381 (986) (371) Other - net .......................... 11,100 10,626 12,051 -------- -------- -------- Total Other Income ................. 35,910 9,640 11,680 -------- -------- --------
Income before Interest Charges ........ 83,590 88,103 82,197 -------- -------- --------
The Notes to Consolidated Financial Statements are an integral part hereof.
ENERGY GROUP CONSOLIDATED STATEMENT OF INCOME (CONT'D) (In Thousands)
Year ended December 31, 2001 2000 1999 ------- ------- ------- Interest Charges Interest on mortgage bonds ............ $ 5,211 $11,342 $13,057 Interest on other long-term debt ...... 10,446 12,864 11,094 Other interest ........................ 14,187 10,473 6,633 Allowance for borrowed funds used during construction (Note 1) ............... (319) (779) (390) ------- ------- ------- Total Interest Charges .............. 29,525 33,900 30,394 ------- ------- -------
Cumulative Preferred Stock Dividends of Central Hudson ..................... 3,230 3,230 3,230 ------- ------- -------
Net Income .............................. $50,835 $50,973 $48,573 ======= ======= ======= Dividends Declared on Common Stock ...... 35,342 35,945 36,422
Balance Retained in the Business ........ $15,493 $15,028 $12,151 ======= ======= =======
Common Stock: Average shares outstanding (000s) ..... 16,362 16,716 16,862 Earnings per share (basic and diluted) ........................ $ 3.11 $ 3.05 $ 2.88
Dividends Declared per share .......... $ 2.16 $ 2.16 $ 2.16
The Notes to Consolidated Financial Statements are an integral part hereof.
ENERGY GROUP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (In Thousands)
Year ended December 31, 2001 2000 1999 -------- -------- --------
Net Income ............................. $ 50,835 $ 50,973 $ 48,573
Other comprehensive income, net of tax: FAS 133 transition adjustment -- cumulative effect of unrealized losses at implementation date of January 1, 2001 ...................... (1,896) -- --
Less: reclassification adjustment for gains realized in net income ....................... 795 -- -- Plus: change in fair value for transition adjustment amounts 2,691 -------- -------- -------- Balance of FAS 133 transition adjustment at December 31, 2001 .... -- -- -- -------- -------- --------
Comprehensive Income ................... $ 50,835 $ 50,973 $ 48,573 ======== ======== ========
The Notes to Consolidated Financial Statements are an integral part hereof.
ENERGY GROUP CONSOLIDATED BALANCE SHEET (In Thousands) December 31, ASSETS ........................................... 2001 2000 ---------- ---------- Utility Plant Electric ....................................... $ 584,831 $1,277,617 Gas .............................................. 180,673 172,242 Common ......................................... 97,124 99,353 Nuclear fuel ................................... -- 46,688 ---------- ---------- 862,628 1,595,900
Less: Accumulated depreciation ................. 354,010 668,168 Nuclear fuel amortization ................ -- 40,762 ---------- ---------- 508,618 886,970 Construction work in progress .................. 53,139 43,882 ---------- ---------- Net Utility Plant ............................ 561,757 930,852 ---------- ----------
Other Property and Plant ......................... 48,202 42,979 ---------- ----------
Prefunded Pension Costs and Other Investments Prefunded pension costs ........................ 78,743 63,390 Other Investments .............................. 6,300 23,201 ---------- ---------- Total Prefunded Pension Costs and Other Investments ............................... 85,043 86,591 ---------- ----------
Intangible Assets ................................ 79,587 68,458 ---------- ----------
Current Assets Cash and cash equivalents ...................... 132,395 28,318 Accounts receivable from customers - net of allowance for doubtful accounts; $3.8 million in 2001 and $3.4 million in 2000 ...................................... 61,540 109,403 Accrued unbilled utility revenues .............. 11,765 19,751 Other receivables .............................. 8,968 5,352 Fuel, materials and supplies, at average cost ................................. 18,402 30,629 Special deposits and prepayments ............... 53,582 21,608 ---------- ---------- Total Current Assets ......................... 286,652 215,061 ---------- ----------
Deferred Charges and Other Assets Regulatory assets (Note 2) ..................... 35,094 155,230 Unamortized debt expense ....................... 3,545 4,869 Fair value of derivative instruments ........... 28,591 -- Other Assets ................................... 60,171 26,933 ---------- ---------- Total Deferred Charges and Other Assets ...... 127,401 187,032 ---------- ----------
TOTAL ASSETS ............................. $1,188,642 $1,530,973 ========== ==========
The Notes to Consolidated Financial Statements are an integral part hereof.
ENERGY GROUP CONSOLIDATED BALANCE SHEET (CONT'D) (In Thousands)
CAPITALIZATION AND LIABILITIES December 31, 2001 2000 ---------- ---------- Capitalization Common Stock Equity Common stock, $.10 par value (Note 6) ...... $ 1,686 $ 1,686 Paid-in capital (Note 6) ................... 351,230 351,230 Retained earnings .......................... 163,317 147,824 Treasury stock (Note 6) .................... (18,766) (18,766) Capital stock expense ...................... (1,158) (1,232) ---------- ---------- Total Common Stock Equity ................ 496,309 480,742 ---------- ----------
Cumulative Preferred Stock (Note 6) Not subject to mandatory redemption ........ 21,030 21,030 Subject to mandatory redemption ............ 35,000 35,000 ---------- ---------- Total Cumulative Preferred Stock ......... 56,030 56,030 ---------- ----------
Long-term Debt (Note 7) ...................... 216,124 320,369 ---------- ---------- Total Capitalization ..................... 768,463 857,141 ---------- ----------
Current Liabilities Current maturities of long-term debt ......... 20,000 62,610 Notes payable ................................ 250 165,000 Accounts payable ............................. 62,535 63,845 Accrued interest ............................. 2,538 7,256 Dividends payable ............................ 9,643 9,643 Accrued vacation ............................. 3,900 4,472 Customer deposits ............................ 5,032 4,637 Other ........................................ 11,545 11,092 ---------- ---------- Total Current Liabilities .................. 115,443 328,555 ---------- ----------
Deferred Credits and Other Liabilities Regulatory liabilities (Note 2) .............. 235,960 118,574 Operating reserves ........................... 4,853 4,755 Other ........................................ 42,563 27,120 ---------- ---------- Total Deferred Credits and
Other Liabilities ........................ 283,376 150,449 ---------- ----------
Accumulated Deferred Income Tax (Note 4) ....... 21,360 194,828 ---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES .......... $1,188,642 $1,530,973 ========== ==========
The Notes to Consolidated Financial Statements are an integral part hereof.
ENERGY GROUP CONSOLIDATED STATEMENT OF CASH FLOWS (In Thousands) Year ended December 31, 2001 2000 1999 --------- -------- --------- Operating Activities Net Income ................................ $ 50,835 $ 50,973 $ 48,573 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and nuclear fuel amortization ........... 39,138 55,297 51,186 Deferred income taxes, net ............ 2,545 2,940 4,219 Nine Mile 2 Plant deferred finance charges, net ................ 22 (3,286) (4,855) Provisions for uncollectibles ......... 2,614 3,935 2,930 Accrued/deferred pension costs ............................... (17,304) (13,789) (10,968) Deferred gas costs/gas refunds ............................. (3,388) (4,769) 3,061 Other - net ........................... 16,043 10,231 9,423 Changes in current assets and liabilities, net: Accounts receivable and unbilled utility revenues .................... 54,951 (60,422) (15,474) Fuel, materials and supplies .......... (6,034) 856 (7,898) Special deposits and prepayments ......................... (12,652) (6,216) 17,291 Accounts payable ...................... 12,764 27,099 13,155 Accrued taxes and interest ............ (61,628) 10,209 (6,665) Deferred taxes related to sale of plants and Nine Mile 2 Plant write-off ........................... (259,494) -- -- Other, net ............................ 3,666 780 (175) --------- -------- --------- Net cash (used in) provided by operating activities .................... (177,922) 73,838 103,803 --------- -------- ---------
The Notes to Consolidated Financial Statements are an integral part hereof.
ENERGY GROUP CONSOLIDATED STATEMENT OF CASH FLOWS (CONT'D) (In Thousands)
2001 2000 1999 -------- -------- -------- Investing Activities Proceeds from sale of fossil generation plants and nuclear plant .................. 770,835 -- -- Issuance of mortgage receivable - sale of Nine Mile 2 Plant ......................... (29,688) -- -- Additions to plant .......................... (67,818) (58,656) (46,495) Acquisitions made by unregulated subsidiaries .............................. (17,908) (77,543) (11,945) Nine Mile 2 Plant decommissioning trust fund (Note 3) ....................... (737) (868) (868) Other - net ................................. 17,409 (855) (589) -------- -------- -------- Net cash provided by (used in) investing activities ................................ 672,093 (137,922) (59,897) -------- -------- --------
Financing Activities Proceeds from issuance of: long-term debt ............................ -- 47,500 176,250 (Repayments) borrowings of short-term debt, net ................................. (164,250) 115,000 32,000 Repayment of long-term debt ................. (147,880) (35,100) (201,318) Dividends paid on common stock ..................................... (35,342) (36,215) (36,422) Issuance and redemption costs ............... (3,341) (403) (4,530) Defeasance of long-term debt ................ (39,281) -- -- Purchase of treasury stock .................. -- (18,765) -- -------- -------- -------- Net cash (used in) provided by financing activities ...................... (390,094) 72,017 (34,020) -------- -------- --------
Net Change in Cash and Cash Equivalents ................................. 104,077 7,933 9,886 Cash and Cash Equivalents at Beginning of Year ........................... 28,318 20,385 10,499 -------- -------- -------- Cash and Cash Equivalents at End of Year ..................................... $132,395 $ 28,318 $ 20,385 ======== ======== ========
Supplemental Disclosure of Cash Flow Information Interest paid .............................. $ 22,144 $ 25,904 $ 26,307 Federal/State income taxes paid ............ 263,005 24,300 29,025
The Notes to Consolidated Financial Statements are an integral part hereof.
ENERGY GROUP CONSOLIDATED STATEMENT OF RETAINED EARNINGS (In Thousands)
Year ended December 31, 2001 2000 1999 --------- --------- ---------
Balance at beginning of year ........ $ 147,824 $ 132,796 $ 133,287
Net Income ........................... 50,835 50,973 48,573
Common Stock Retirement (cancellation) ..................... -- -- (12,642)
Dividends declared: On common stock ($2.16 per share in 2001, 2000 and 1999) ...... (35,342) (35,945) (36,422) --------- --------- ---------
Balance at end of year ............... $ 163,317 $ 147,824 $ 132,796 ========= ========= =========
The Notes to Consolidated Financial Statements are an integral part hereof.
CENTRAL HUDSON CONSOLIDATED STATEMENT OF INCOME (In Thousands)
Year ended December 31, 2001 2000 1999 --------- --------- --------- Operating Revenues Electric .............................. $ 428,416 $ 531,820 $ 427,809 Gas ................................... 110,717 107,039 94,131 --------- --------- --------- Total Operating Revenues ........... 539,133 638,859 521,940 Operating Expenses Operation: Fuel used in electric generation ..... 15,406 100,305 85,848 Purchased electricity ................ 209,103 123,287 45,731 Purchased natural gas ................ 63,751 64,212 53,957 Other expenses of operation .......... 106,812 137,515 126,741 Depreciation and amortization (Note 1) .............................. 26,813 47,914 46,913 Taxes, other than income tax .......... 50,170 53,993 63,986 Federal/State income tax (Note 4) ............................ 17,743 36,374 27,852 --------- --------- --------- Total Operating Expenses .......... 489,798 563,600 451,028 --------- --------- ---------
Operating Income ........................ 49,335 75,259 70,912 --------- --------- --------- Other Income Allowance for equity funds used during construction (Note 1) ............................ 429 -- -- Federal/State income tax (Note 4) ............................ 25,380 (776) (292) Other - net ........................... (2,458) 8,960 10,875 --------- --------- --------- Total Other Income ................ 23,351 8,184 10,583 --------- --------- ---------
Income before Interest Charges .......... 72,686 83,443 81,495 --------- --------- ---------
The Notes to Consolidated Financial Statements are an integral part hereof.
CENTRAL HUDSON CONSOLIDATED STATEMENT OF INCOME (CONT'D) (In Thousands)
Year ended December 31, 2001 2000 1999 -------- -------- -------- Interest Charges Interest on mortgage bonds ............ 5,211 11,342 13,057 Interest on other long-term debt ...... 10,446 12,864 11,094 Other interest ........................ 13,170 7,421 5,853 Allowance for borrowed funds used during construction (Note 1) ............................ (319) (779) (390) -------- -------- -------- Total Interest Charges .............. 28,508 30,848 29,614 -------- -------- --------
Net Income .............................. $ 44,178 $ 52,595 $ 51,881 ======== ======== ======== Dividends Declared on Cumulative Preferred Stock ....................... 3,230 3,230 3,230 -------- -------- --------
Income Available for Common Stock ....... $ 40,948 $ 49,365 $ 48,651 ======== ======== ========
The Notes to Consolidated Financial Statements are an integral part hereof.
CENTRAL HUDSON CONSOLIDATED STATEMENT OF RETAINED EARNINGS (In Thousands)
Year ended December 31, 2001 2000 1999 --------- --------- ---------
Balance at beginning of year ........... $ 114,546 $ 69,281 $ 133,287
Net Income .............................. 44,178 52,595 51,881
Reverse Equity Transfer ................. -- 26,000 --
Common Stock Retirement (cancellation) ........................ -- -- (12,642)
Transfer of Competitive Business Subsidiaries to Energy Group .......... -- (2,500) (65,698)
Transfer of Property to Energy Group .... (75) -- --
Dividends declared: On cumulative preferred stock ......... (3,230) (3,230) (3,230) On common stock ....................... -- -- (27,317) To parent - Energy Group ............ (145,642) (27,600) (7,000) --------- --------- --------- Total Dividends Declared ............ (148,872) (30,830) (37,547) --------- --------- ---------
Balance at end of year .................. $ 9,777 $ 114,546 $ 69,281 ========= ========= =========
The Notes to Consolidated Financial Statements are an integral part hereof.
CENTRAL HUDSON CONSOLIDATED STATEMENT OF CASH FLOWS (In Thousands)
Year ended December 31, 2001 2000 1999 --------- -------- --------- Operating Activities Net Income ................................. $ 44,178 $ 52,595 $ 51,881 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and nuclear fuel amortization .............. 30,315 51,757 51,186 Deferred income taxes, net ............... 1,765 2,940 4,219 Nine Mile 2 Plant deferred finance charges, net ........................... 22 (3,286) (4,855) Provisions for uncollectibles ............ 2,614 3,350 2,930 Accrued/deferred pension costs ........... (17,304) (13,789) (10,968) Deferred gas costs/gas refunds ........... (3,388) (4,769) 3,061 Other - net .............................. 17,931 10,380 9,297 Changes in current assets and liabilities, net: Accounts receivable and unbilled utility revenues ....................... 39,003 (30,617) (10,385) Fuel, materials and supplies ............. (4,668) 2,825 (6,975) Special deposits and prepayments ......... 1,334 195 17,746 Accounts payable ......................... (4,594) 8,693 8,784 Accrued taxes and interest ............... (57,857) 12,508 (6,715) Deferred taxes related to sale of plants and Nine Mile 2 Plant write-off ........ (259,494) -- -- Other current liabilities ................ 3,666 452 (221) --------- -------- --------- Net cash (used in) provided by operating activities ............................... (206,477) 93,234 108,985 --------- -------- ---------
The Notes to Consolidated Financial Statements are an integral part hereof.
CENTRAL HUDSON CONSOLIDATED STATEMENT OF CASH FLOWS (CONT'D) (In Thousands)
2001 2000 1999 --------- -------- --------- Investing Activities Proceeds from sale of fossil generation plants and nuclear plant ................ 770,835 -- -- Issuance of mortgage receivable - sale of Nine Mile 2 Plant ....................... (29,688) -- -- Additions to plant ........................ (60,469) (58,656) (46,495) Net return of equity from subsidiaries .... (76) 23,500 -- Investment activity of unregulated subsidiary .............................. -- -- (38,381) Nine Mile 2 Plant decommissioning trust fund (Note 3) ..................... (737) (868) (868) Other - net ............................... 19,579 (854) (589) --------- -------- --------- Net cash provided by (used in) investing activities .............................. 699,444 (36,878) (86,333) --------- -------- ---------
Financing Activities Proceeds from issuance of long-term debt .......................... -- 47,500 176,250 (Repayments) borrowings of short-term debt, net .................... (25,000) (25,000) 32,000 Repayment of long-term debt ............... (147,630) (35,100) (185,462) Dividends paid on cumulative preferred and common stock ........................ (35,130) (37,830) (39,652) Defeasance of long-term debt .............. (39,281) -- -- Special dividend to parent ................ (212,000) -- -- Issuance and redemption costs ............. (3,341) (403) (4,531) --------- -------- --------- Net cash used in financing activities .............................. (462,382) (50,833) (21,395) --------- -------- ---------
Net Change in Cash and Cash Equivalents ..... 30,585 5,523 1,257 Cash and Cash Equivalents at Beginning of Year ......................... 17,279 11,756 10,499 --------- -------- --------- Cash and Cash Equivalents at End of Year ............................... $ 47,864 $ 17,279 $ 11,756 ========= ======== =========
Supplemental Disclosure of Cash Flow Information Interest paid ........................... $ 19,817 $ 22,922 $ 26,236 Federal/State income taxes paid ......... 269,567 22,300 29,025
The Notes to Consolidated Financial Statements are an integral part hereof.
CENTRAL HUDSON CONSOLIDATED BALANCE SHEET (In Thousands)
December 31, ASSETS 2001 2000 ---------- ---------- Utility Plant Electric ....................................... $ 584,831 $1,277,617 Gas ............................................ 180,673 172,242 Common ......................................... 97,124 99,353 Nuclear fuel ................................... -- 46,688 ---------- ---------- 862,628 1,595,900
Less: Accumulated depreciation ................. 354,010 668,168 Nuclear fuel amortization ................ -- 40,762 ---------- ---------- 508,618 886,970 Construction work in progress .................. 53,139 43,882 ---------- ---------- Net Utility Plant ............................ 561,757 930,852 ---------- ----------
Other Property and Plant ......................... 970 973 ---------- ----------
Prefunded Pension Costs and Other Investments Prefunded pension costs ........................ 78,743 63,390 Other Investments .............................. 1,893 18,199 ---------- ---------- Total Prefunded Pension Costs and Other Investments ................................ 80,636 81,589 ---------- ----------
Current Assets Cash and cash equivalents ...................... 47,864 17,279 Accounts receivable from customers - net of allowance for doubtful accounts; $2.3 million in 2001 and $2.5 million in 2000 ............. 37,356 70,072 Accrued unbilled utility revenues .............. 11,765 19,751 Other receivables .............................. 9,145 4,377 Fuel, materials and supplies, at average cost ......................................... 13,867 27,460 Special deposits and prepayments ............... 32,207 14,379 ---------- ---------- Total Current Assets ......................... 152,204 153,318 ---------- ----------
Deferred Charges and Other Assets Regulatory assets (Note 2) ..................... 35,094 155,230 Unamortized debt expense ....................... 3,545 4,869 Fair value of derivative instruments ........... 25,642 -- Other Assets ................................... 45,405 5,467 ---------- ---------- Total Deferred Charges and Other Assets ...... 109,686 165,566 ---------- ----------
TOTAL ASSETS ............................. $ 905,253 $1,332,298 ========== ==========
The Notes to Consolidated Financial Statements are an integral part hereof.
CENTRAL HUDSON CONSOLIDATED BALANCE SHEET (CONT'D) (In Thousands)
CAPITALIZATION AND LIABILITIES December 31, 2001 2000 ---------- ---------- Capitalization Common Stock Equity Common stock, $5 par value (Note 6) ...... $ 84,311 $ 84,311 Paid-in capital (Note 6) ................. 174,980 273,238 Retained earnings ........................ 9,777 114,546 Capital stock expense .................... (5,791) (5,865) ---------- ---------- Total Common Stock Equity .............. 263,277 466,230 ---------- ----------
Cumulative Preferred Stock (Note 6) Not subject to mandatory redemption ...... 21,030 21,030 Subject to mandatory redemption .......... 35,000 35,000 ---------- ---------- Total Cumulative Preferred Stock ....... 56,030 56,030 ---------- ----------
Long-term Debt (Note 7) .................... 215,874 320,370 ---------- ---------- Total Capitalization ..................... 535,181 842,630 ---------- ----------
Current Liabilities Current maturities of long-term debt ....... 20,000 62,610 Notes payable .............................. -- 25,000 Accounts payable ........................... 32,125 36,719 Accrued interest ........................... 2,538 6,315 Dividends payable .......................... 807 807 Accrued vacation ........................... 3,900 4,472 Customer deposits .......................... 5,032 4,637 Other ...................................... 2,095 12,695 ---------- ---------- Total Current Liabilities ................ 66,497 153,255 ---------- ----------
Deferred Credits and Other Liabilities Regulatory liabilities (Note 2) ............ 235,960 118,574 Operating reserves ......................... 4,853 4,755 Other ...................................... 42,563 18,636 ---------- ---------- Total Deferred Credits and Other Liabilities ........................ 283,376 141,965 ---------- ----------
Accumulated Deferred Income Tax (Note 4) ..... 20,199 194,448 ---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES ....... $ 905,253 $1,332,298 ========== ==========
The Notes to Consolidated Financial Statements are an integral part hereof.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
This is a combined report of CH Energy Group, Inc. ("Energy Group") and Central Hudson Gas & Electric Corporation ("Central Hudson"), a regulated wholly-owned subsidiary. The Notes to the Consolidated Financial Statements apply to the Consolidated Financial Statements of both Energy Group and Central Hudson. Energy Group's Consolidated Financial Statements include the accounts of Energy Group and its wholly-owned subsidiaries, including Central Hudson. Energy Group's Consolidated Financial Statements, following a one-for-one common stock share exchange with Central Hudson, effective as of December 15, 1999, ("Holding Company Restructuring") have been prepared from Central Hudson's prior period consolidated financial statements.
PRINCIPLES OF CONSOLIDATION
Upon the Holding Company Restructuring, Central Hudson became a wholly-owned subsidiary of Energy Group. In addition, Central Hudson Energy Services, Inc. ("CH Services") became a wholly-owned subsidiary of Energy Group for the purpose of becoming the holding company parent of Central Hudson Enterprises Corporation ("CHEC"), SCASCO, Inc. ("SCASCO"), Prime Industrial Energy Services, Inc., CH Resources, Inc. ("CH Resources"), CH Syracuse Properties, Inc. ("CH Syracuse"), CH Niagara Properties, Inc. ("CH Niagara") and Greene Point Development Corporation. In November 2000, CH Services formed Griffith Energy Services, Inc. ("Griffith") as a subsidiary of CHEC for the purpose of acquiring the assets of Griffith Consumers Company, Inc., a division of AllEnergy Marketing Company, L.L.C. All these subsidiaries of CH Services are hereinafter referred to as "competitive business subsidiaries." Phoenix Development Company, Inc. remains a wholly-owned subsidiary of Central Hudson. See Note 2 - "Regulatory Matters," under the caption "Competitive Opportunities Proceeding Settlement Agreement" for further details.
Central Hudson and the competitive business subsidiaries are each directly or indirectly wholly owned by Energy Group and their businesses are comprised of an electric and gas utility, landholding, cogeneration, fuel oil distribution, electric generating, energy management companies and electric and gas sales.
Energy Group's fully Consolidated Financial Statements include the accounts of Energy Group, Central Hudson and CH Services and its competitive business subsidiaries. Intercompany balances and transactions have been eliminated.
RATES, REVENUES AND COST ADJUSTMENT CLAUSES
Central Hudson's electric and gas retail rates are regulated by the Public Service Commission of the State of New York ("PSC"). Transmission rates, facilities charges and rates for electricity sold for resale in interstate commerce are regulated by the Federal Energy Regulatory Commission ("FERC").
Central Hudson's tariff for retail electric service includes a purchased power cost adjustment clause by which electric rates are adjusted to collect actual purchased power costs incurred in providing service. Central Hudson's tariff for gas service contains a comparable clause to collect actual costs incurred in purchasing natural gas.
REVENUE RECOGNITION
Revenue is recorded on the basis of meters read. In addition, Central Hudson records an estimate of unbilled revenue for service rendered to bimonthly customers for thirty days subsequent to the meter-read date through the end of the accounting period.
CH Services' revenues are recognized when products are delivered to customers or services have been rendered.
UTILITY PLANT - CENTRAL HUDSON
The costs of additions to utility plant and replacements of retired units of property are capitalized at original cost. Capitalized costs include labor, materials and supplies, indirect charges for such items as transportation, certain taxes, pension and other employee benefits and Allowance for the Cost of Funds Used During Construction ("AFDC"), or capitalized interest. Replacement of minor items of property is included in maintenance expenses.
The original cost of property, together with removal cost less salvage, is charged to accumulated depreciation at the time the property is retired and removed from service.
Central Hudson accrued in advance for its share of the costs for planned maintenance and nuclear fuel reloadings performed at Unit No. 2 of the Nine Mile Point Nuclear Station ("Nine Mile 2 Plant"). All other maintenance is expensed as incurred.
JOINTLY OWNED FACILITIES
In January 2001, Central Hudson sold its 35%, or 420 megawatt ("MW"), undivided interest in the 1,200 MW Roseton Electric Generating Station ("Roseton Plant") and in November 2001, sold its 9%, or 103 MW, undivided interest in the 1,143 MW Nine Mile 2 Plant (see Note 3 - "Nine Mile 2 Plant"). For information on Central Hudson's sales of its interests in the Roseton and Nine Mile 2 Plants, see Note 2 - "Regulatory Matters - Sales of Principal Generating Facilities" and Note 3 - "Nine Mile 2 Plant," respectively.
Central Hudson's share of the respective interests in the Nine Mile 2 and the Roseton Plants, as included in its Consolidated Balance Sheet at December 31, 2001 and 2000, were:
2001 2000 -------- --------- (In Thousands) Nine Mile 2 Plant Plant in service .................................. -- $ 315,210 Accumulated depreciation .......................... -- (91,197) ---- --------- Net Plant ....................................... -- 224,013 Construction work in progress ..................... -- 2,197
Roseton Plant Plant in service .................................. -- $ 135,711 Accumulated depreciation .......................... -- (86,688) ---- --------- Net Plant ....................................... -- 49,023 Construction work in progress ..................... -- 656
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
Central Hudson's regulated utility plant includes AFDC, which is defined in applicable regulatory systems as the net cost of borrowed funds used for construction purposes and a reasonable rate on other funds when so used. The concurrent credit for the amount so capitalized is reported in the Consolidated Statement of Income as follows: the portion applicable to borrowed funds is reported as a reduction of interest charges while the portion applicable to other funds (the equity component, a noncash item) is reported as other income. The AFDC rate was 8.25% in 2001, 6.5% in 2000 and 6.25% in 1999.
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, with the exception of the Nine Mile 2 Plant, which was depreciated on a remaining life amortization method. The year 2026, the year in which the Nine Mile 2 Plant operating license expires, was used as the end date in the development of the remaining life amortization. Central Hudson performs depreciation studies on a continuing basis and, upon approval by the PSC, periodically adjusts the rates of its various classes of depreciable property.
Central Hudson's composite rates for depreciation were 3.17% in 2001, 3.21% in 2000, and 3.22% in 1999 of the original cost of average depreciable property. The ratio of the amount of accumulated depreciation to the cost of depreciable property at December 31 was 41.2% in 2001, 42.1% in 2000 and 41.0% in 1999.
The cost of the Nine Mile 2 Plant nuclear fuel assemblies and components was amortized to operating expense based on the quantity of heat produced for the generation of electric energy.
For financial statement purposes, CH Services' depreciation provisions are computed on the straight-line method using rates based on the estimated useful lives. Expenditures for
major renewals and betterments, which extend the useful lives of property and equipment, are capitalized. Expenditures for maintenance and repairs are charged to expense when incurred. Retirements, sales and disposals of assets are recorded by removing the cost and accumulated depreciation from the asset and accumulated depreciation accounts with any resulting gain or loss reflected on the income statement.
INTANGIBLE ASSETS
Goodwill included in Intangible Assets on the Energy Group Consolidated Balance Sheet represents the excess of cost over the net tangible and identifiable intangible assets of businesses acquired by CH Services. It is stated at cost and is amortized, principally on a straight-line basis, over the estimated future periods to be benefitted (15 years). On an annual basis, CH Services reviews the recoverability of goodwill based primarily upon an analysis of undiscounted cash flows from the acquired businesses. Accumulated amortization of intangible assets amounted to $7.3 million at December 31, 2001 and $2.2 million at December 31, 2000. See the subcaption "Business Combinations and Intangible Assets - Accounting for Goodwill" of this Note 1 for a discussion of the future accounting for goodwill.
ACQUISITIONS
During 2001, certain of the subsidiaries of CH Services acquired the operating assets of several companies. The total amount paid for these assets was $18.6 million and all acquisitions have been accounted for using the purchase method of accounting. The amount charged to intangible assets including goodwill was $16.2 million The amount charged to goodwill totaled $8.9 million. The principal tangible assets acquired were vehicles, fuel storage tanks, buildings, fuel oil and gasoline inventory.
OTHER SALES OF PROPERTY
On December 21, 2001, CH Services entered into an agreement to sell all of its stock ownership interest in CH Resources and its subsidiaries, CH Syracuse and CH Niagara to WPS Power Development, Inc., a Wisconsin corporation, for approximately $61 million. CH Resources is CH Services' business segment which acquires, develops and operates electric generation facilities and sells the output at the wholesale level. The sale, which is expected to close during the second quarter of 2002, will result in a modest gain, net of taxes and transaction costs. The assets and liabilities of CH Resources, primarily related to its investment in generating facilities, have not been separately disclosed on CH Energy's consolidated balance sheet. Total CH Resources assets included in the consolidated results are $47.9 million, of which $33.0 million is fixed assets.
In accordance with Accounting Principles Board ("APB") Opinion No. 30 ("APB 30"), REPORTING THE RESULTS OF OPERATIONS - REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS, and Emerging Issues Task Force ("EITF") Abstract 85-36, DISCONTINUED OPERATIONS WITH EXPECTED GAIN AND INTERIM OPERATING LOSSES, CH Services deferred a net operating loss of $293,000, for December 2001, for offset against the expected gain on the date of disposal. The Consolidated Income Statement for Energy Group does not include any operating results for CH Resources related to December 2001 operations. The deferred net income effect is reflected as part of the Special Deposits and Prepayments line item on Energy Group's Consolidated Balance Sheet.
Any subsequent losses from operations during the measurement period will also be deferred for offset against the expected gain. The measurement period, as defined by APB 30, is the period between December 1, 2001 and the actual date of disposal.
CASH AND CASH EQUIVALENTS
For purposes of the Consolidated Statement of Cash Flows, Energy Group and Central Hudson consider temporary cash investments with a maturity, when purchased, of three months or less to be cash equivalents.
INCOME TAX
Energy Group and its subsidiaries file consolidated federal and state income tax returns. Federal and state income taxes are allocated to operating expenses and other income and deductions in the Consolidated Statement of Income. Income taxes are deferred under the liability method in accordance with Statement of Financial Accounting Standard No. 109, ACCOUNTING FOR INCOME TAXES ("SFAS 109"). Under the liability method, deferred income taxes are provided for all differences between the financial statement and the tax basis of assets and liabilities. Additional deferred income taxes and offsetting regulatory assets or liabilities are recorded by Central Hudson to recognize that income taxes will be recovered or refunded through future revenues. For federal income tax purposes, Energy Group and its subsidiaries use an accelerated method of depreciation and generally use the shortest life permitted for each class of assets. For state income tax purposes, Energy Group and its subsidiaries use the same method of depreciation as for federal income taxes. For property placed in service in 1999 or earlier, Central Hudson uses book depreciation in accordance with transition property rules under Article 9-A of the New York State Tax Law. For more information, see Note 4 - "Income Taxes."
USE OF ESTIMATES
Preparation of the financial statements in accordance with generally accepted accounting principles includes the use of estimates and assumptions by Management that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amount of revenues and expenses during the reporting period. Actual results may differ from those estimated.
RELATED TRANSACTIONS
A partner in the law firm of Gould & Wilkie LLP, which serves as general counsel to Energy Group and Central Hudson, serves as Assistant Secretary of each corporation. This Assistant Secretary appointment serves to assist in closure of specified transactions in the ordinary course of business. This Assistant Secretary receives no compensation for such role. The combined fees paid by Energy Group and Central Hudson to such general counsel during 1999 through 2001 range from $2.8 to $3.1 million annually.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement No. 133 ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 133"), which standard was subsequently amended in June 2000 by FASB Statement No. 138, and which establishes accounting and reporting requirements for derivative instruments and hedging activities. The standard requires that an entity recognize the fair value of all derivative instruments as either assets or liabilities in the balance sheet with the corresponding unrealized gains or losses recognized in earnings. The standard permits the deferral of unrealized hedge gains and losses, under stringent hedge accounting provisions, until the hedged transaction is realized. The standard also provides an exception for certain derivative transactions that meet the criteria of "normal purchases and normal sales." Transactions that can be excepted from SFAS 133 are those that provide for the purchase or sale of something other than a financial or derivative instrument that will be delivered in quantities expected to be used or sold by the reporting entity over a reasonable period in the normal course of business.
As part of the initial adoption process for SFAS 133, Energy Group recognized a net of tax transition adjustment of $(1.9) million to Other Comprehensive Income ("OCI") at January 1, 2001. This amount represents the cumulative effect of a change in accounting principle for unrealized losses related to derivatives redesignated as cash flow hedges. This adjustment was fully reversed by year-end as the actual related gains and losses were realized during the period from January 2001 to December 2001. The actual gains and losses served to offset the variability in cash flow related to the energy transactions hedged.
Central Hudson uses derivative instruments to hedge the exposure to the variability in sales and purchases of gas and electricity. These derivatives are not formally designated as hedges under the provisions of SFAS 133 and were not redesignated under the provisions of SFAS 133 at January 1, 2001, as the related gains and losses are included as part of Central Hudson's commodity cost and/or price reconciled in its natural gas and electric energy cost charge clauses. The earnings impact from these derivatives are, therefore, deferred for pass-back to, or recovery from, customers under these regulatory adjustment mechanisms. The total fair value (net unrealized gain) of Central Hudson derivatives at December 31, 2001 was $25.6 million due largely to the conversion, effective July 1, 2001, of a multi-year transition purchase power agreement ("TPA") from a physical to a financial arrangement. Under the terms of the modified agreement, Central Hudson will purchase electric energy volumes covered by the TPA at market and reconcile with the TPA counter-party for differences between market prices and the fixed prices stipulated in the TPA. Actual net gains totaling $14.3 million were realized in 2001 which served to reduce energy costs recovered through Central Hudson's electric and gas energy cost adjustment clauses.
In accordance with SFAS 133 implementation requirements, open hedge instruments for CH Services were redesignated at January 1, 2001 for eligibility under SFAS 133 hedge accounting. CH Services uses derivative instruments to hedge variability in the price of natural gas and fuel oil and as a means to sell electricity at fixed prices. These fair value and cash flow hedges have been highly effective and no gains or losses from ineffectiveness were recorded. The assessment of hedge effectiveness for fair value hedges excludes the change in the fair value of the premium paid for these derivative instruments. These premiums, which are not material, are expensed based on the change in their fair value. The earnings impact from the change in fair value of the cash flow hedges is deferred to OCI and is recognized in earnings
when earnings are affected by the hedged transactions (forecasted purchase or sale). As amounts are transferred from OCI to earnings, the impact on earnings is offset by the recognition of the hedged transactions. Gains and losses restored to earnings are recorded as part of the cost or price of the related commodity. CH Services had no cash flow hedges outstanding at December 31, 2001. In 2001, CH Services realized actual net gains of $3.8 million which served to offset corresponding increases in the cost or price of the related commodity transactions at settlement. The fair value of fair value hedges at December 31, 2001 was $186,000.
The implementation of SFAS 133 has not had a significant impact on the financial results of Energy Group and Central Hudson since the majority of their transactions are either excluded under the "normal purchases and normal sales" exception, qualify for hedge accounting or are subject to deferral accounting under the provisions of SFAS 71.
In addition to the above, Energy Group and certain of its subsidiaries entered into weather derivative contracts to hedge the effect on earnings due to significant variances in weather conditions from normal patterns for the November 2001 through March 2002 time period. The weather derivative is structured based on put and call strike levels with a deadband and also, a settlement cap, in aggregate, of $3.8 million. In accordance with the accounting guidance provided in EITF 99-2, "Accounting for Weather Derivatives," estimated gains or losses are determined on a monthly basis and recorded in earnings. Unrealized gains totaling $2.8 million were recorded in 2001. If weather patterns approximate normal for the remaining months of the weather contract, estimated losses would be recorded each month and likely result in realized gains less than the $2.8 million. Final settlement of the weather derivative contracts is based on the difference between the cumulative actual heating degree-days and the cumulative strike levels established in the contracts for the five-month period.
NEW ACCOUNTING STANDARDS AND OTHER FASB PROJECTS
BUSINESS COMBINATIONS AND INTANGIBLE ASSETS - ACCOUNTING FOR GOODWILL
In July 2001, the FASB issued two statements related to its Business Combinations issues - Statement No. 141, BUSINESS COMBINATIONS ("SFAS 141"), and Statement No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS ("SFAS 142"). SFAS 141 requires that all business combinations initiated after June 30, 2001 be accounted for under a single method - the purchase method. The use of the pooling-of-interests method is no longer permitted and this Statement will be applied as required.
SFAS 142 requires that goodwill no longer be amortized to earnings, but instead be periodically reviewed for impairment. The amortization of goodwill related to all acquisitions made by CH Services ceased upon adoption of SFAS 142 by Energy Group on January 1, 2002, which favorably impacts Energy Group's results of operations. The balance of goodwill will be tested for impairment prior to the end of the first quarter, 2002. It is expected that an impairment adjustment will not be required.
ASSET RETIREMENT OBLIGATIONS
On July 5, 2001, the FASB issued Statement No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS ("SFAS 143"). Initially started in 1994 as a project to account for the costs of nuclear decommissioning, the FASB expanded the scope to include similar closure or removal-type costs in other industries that are incurred at any time during the life of an asset. SFAS 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is reflected in its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. SFAS 143 is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged. Energy Group and Central Hudson are reviewing this new accounting standard, and cannot make any prediction at this time as to its ultimate effect(s) on the financial condition, results of operations and cash flows of Energy Group and/or its subsidiaries.
LONG-LIVED ASSETS
In August 2001, the FASB issued Statement No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS ("SFAS 144"). SFAS 144 requires that long-lived assets be measured at the lower of carrying amount or fair value less cost to sell. Whether reported in continuing or in discontinued operations, an impairment loss is the amount by which the carrying amount of the long-lived asset exceeds its fair value. SFAS 144 also contains specific accounting and financial reporting criteria for the disposal of a long-lived asset either by sale or other than by sale. The standard is effective for Energy Group's 2002 fiscal year. It is expected that the change in accounting will have no significant impact on Energy Group's or Central Hudson's results of operations when implemented.
PROPERTY, PLANT AND EQUIPMENT
During the second quarter of 2001, the FASB issued an Exposure Draft ACCOUNTING IN INTERIM AND ANNUAL FINANCIAL STATEMENTS FOR CERTAIN COSTS AND ACTIVITIES RELATED TO PROPERTY, PLANT, AND EQUIPMENT, that would amend certain APB Opinions and FASB Statements to incorporate changes resulting from the issuance of a proposed American Institute of Certified Public Accountants Statement of Position ("SOP"), ACCOUNTING FOR CERTAIN COSTS AND ACTIVITIES RELATED TO PROPERTY, PLANT, AND EQUIPMENT. The proposed SOP addresses diversity in accounting for expenditures related to property, plant and equipment ("PP&E"), including improvements, replacements, betterments, additions, repairs and maintenance, as well as, accounting and disclosure issues regarding which PP&E costs should be capitalized versus those that should be charged to expense as incurred. The proposed SOP also addresses capitalization of indirect and overhead costs and component accounting for PP&E. The FASB Exposure Draft proposes to amend APB Opinion No. 28, INTERIM FINANCIAL REPORTING, so the provisions of the proposed SOP requiring certain costs to be charged to expense as incurred would also apply to interim periods.
If adopted as a final Statement, the FASB proposal would be effective for annual and interim financial statements for fiscal years beginning after June 15, 2002, with earlier adoption encouraged.
Energy Group and Central Hudson can make no prediction at this time as to the ultimate form of the proposed accounting standard, assuming it is adopted, nor can it make any prediction as to its ultimate effect(s) on the financial condition, results of operations and cash flows of Energy Group and/or its subsidiaries.
NOTE 2 - REGULATORY MATTERS
COMPETITIVE OPPORTUNITIES PROCEEDING SETTLEMENT AGREEMENT
In response to the May 1996 Order of the PSC issued in its generic Competitive Opportunities Proceeding, Central Hudson, the PSC Staff and certain other parties entered into an Amended and Restated Settlement Agreement, dated January 2, 1998. The PSC approved the Amended and Restated Settlement Agreement by its final Order issued and effective June 30, 1998, for which a final amendment was issued and approved as of March 7, 2000 (hereinafter called the "Agreement").
The Agreement, which expired on June 30, 2001, included the following major provisions which survived its expiration date: (i) certain limitations on Central Hudson and its affiliates owning electric generation facilities/capability; (ii) standards of conduct in transactions between Central Hudson, Energy Group and the competitive business subsidiaries; (iii) prohibitions against Central Hudson making loans to Energy Group, or any other subsidiary of Energy Group or Central Hudson guaranteeing debt of Energy Group or any other subsidiary of Energy Group; (iv) limitations on the transfer of Central Hudson employees to Energy Group or any of the other Energy Group subsidiaries and on the use of Central Hudson officers in common with Energy Group or any of the other Energy Group subsidiaries; and (v) certain dividend payment restrictions on Central Hudson.
SALES OF PRINCIPAL GENERATING FACILITIES
On January 30, 2001 Central Hudson, after a competitive bidding process, sold its Danskammer Point Steam Electric Generating Station ("Danskammer Plant") and its interest in the Roseton Plant to affiliates of Dynegy Power Corp. (collectively, "Dynegy"), for $713 million. By Order issued and effective October 26, 2001 ("Nine Mile 2 Order"), the PSC authorized the sale of Central Hudson's Nine Mile 2 Plant interest. On November 7, 2001, Central Hudson sold its interest in the Nine Mile 2 Plant to an affiliate of Constellation Nuclear LLC ("Constellation") for approximately $66.2 million, of which $28.4 million was paid in cash and $37.8 million of principal and interest at the rate of 11% will be paid under a five (5) year promissory note, all subject to certain post-closing adjustments. Central Hudson's net gain after tax resulting from these sales was used to recover the book value and the net regulatory assets related to Central Hudson's interest in these Plants.
Central Hudson remains obligated to continue to serve its electric customers. No prediction can be made as to the amount of service that Central Hudson will be obligated to provide or the cost or availability of electricity to satisfy Central Hudson's retail customer load requirements. To partially supply its full service customers, Central Hudson entered into a TPA with Dynegy to purchase capacity and energy from January 30, 2001 through October 31, 2003 (with the right of Central Hudson to extend that period to October 31, 2004). Effective July 1, 2001, the TPA with Dynegy was converted from a physical to a financial arrangement. Under
the terms of the modified arrangement, Central Hudson will purchase electric energy volumes covered by the TPA at market and financially net settle with Dynegy for differences between market prices and the fixed prices stipulated in the TPA. This financial arrangement qualifies as a derivative under SFAS 133 (See Note 1 - "Summary of Significant Accounting Policies," under the subcaption "Accounting for Derivative Instruments and Hedging Activities"). Central Hudson also entered into an agreement with Constellation to purchase capacity and energy from the Nine Mile 2 Plant during the ten-year period beginning on the sale of that Plant on November 7, 2001. In the case of each of these contracts, the energy will be purchased at defined prices which escalate over the lives of the contracts. It is expected that the capacity supplied under these two purchase agreements in 2002 will be sufficient to supply approximately 42% of Central Hudson's retail customer load requirements.
IMPACT OF SETTLEMENT AGREEMENT ON ACCOUNTING POLICIES
The Agreement created certain changes to Energy Group's and Central Hudson's accounting policies. These accounting policies conform to generally accepted accounting principles, which, for regulated public utilities, include SFAS 71. Under SFAS 71, regulated companies apply AFDC to the cost of construction projects and defer costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that those costs and credits will be allowed in the rate-making process in a period different from when they otherwise would have been reflected in income. These deferred regulatory assets and liabilities are then reflected in the income statement in the period in which the same amounts are reflected in rates. If some of an enterprise's operations are regulated and meet the appropriate criteria, SFAS 71 is applied only to that regulated portion of the enterprise's operations. The requirement of Central Hudson to divest its fossil-fueled generating plants resulted in SFAS 71 no longer applying to those assets. However, if cash flows from the regulated business are for recovery of regulatory assets of the fossil-fueled generating plants, those regulatory assets may remain on the balance sheet. Also, instead of applying AFDC to construction projects at the fossil-fueled generating plants, capitalized interest is applied to qualifying projects. For 2001 and 2000, none of these projects met the criteria for capitalized interest.
At December 31, 2001 and December 31, 2000, net regulatory assets associated with the fossil-fueled generating assets, including asbestos litigation costs and Clean Air Act credits, totaled zero and $1.9 million, respectively. The fossil-fueled, generation-related net regulatory assets were offset by the fossil generating plant sale proceeds in excess of the net book value of the Danskammer Plant and Central Hudson's interest in the Roseton Plant.
SUMMARY OF REGULATORY ASSETS AND LIABILITIES
The following table sets forth Central Hudson's regulatory assets and liabilities:
AT DECEMBER 31, 2001 2000 - -------------------------------------------------------------------------------- REGULATORY ASSETS (DEBITS): (In Thousands)
Deferred electric and gas purchased costs (Note 1) ........................................... $ 24,954 $ 3,057 Deferred finance charges - Nine Mile 2 Plant .................................. -- 65,036 Income taxes recoverable through future rates ............................... (2,987) 26,129 Deferred Newburgh Gas Site (Note 10) ................. -- 15,612 Other ................................................ 13,127 45,396 --------- -------- Total Regulatory Assets ............................ $ 35,094 $155,230 --------- --------
REGULATORY LIABILITIES (CREDITS):
FAS 133 - deferred change in fair value (Note 1) ............................................ $ 25,642 $ -- Income taxes refundable .............................. 5,834 23,414 Deferred Nine Mile 2 Plant costs ..................... 1,318 22,534 Deferred pension costs overcollection (Note 8) ............................................ (915) 10,108 Deferred OPEB costs overcollection (Note 8) ............................................ (25) 19,049 Customer benefits fund ............................... 195,746 14,418 Other ................................................ 8,360 29,051 --------- -------- Total Regulatory Liabilities ....................... $ 235,960 $118,574 --------- --------
Net Regulatory (Liabilities) Assets .............. $(200,866) $ 36,656 ========= ========
Some of the significant regulatory assets and liabilities include:
DEFERRED FINANCE CHARGES - NINE MILE 2 PLANT: During the construction of the Nine Mile 2 Plant, the PSC authorized the inclusion in rate base of increasing amounts of Central Hudson's investment in that Plant construction work in progress ("CWIP"). Central Hudson did not accrue AFDC on any of the Nine Mile 2 Plant CWIP which was included in rate base and for which a cash return was being allowed; however, the PSC ordered, effective January 1, 1983, that amounts be accumulated in deferred debit and credit accounts equal to the amount of AFDC which was not being accrued on the CWIP included in rate base ("Mirror CWIP"). The balance in the deferred credit account was available to reduce future revenue requirements by amortizing portions of the deferred credit to other income or by the elimination through writing off other deferred balances as directed by the PSC. When amounts of the deferred credit were applied in order to reduce revenue requirements, amortization was started for a corresponding amount of the deferred debit, which amortization was to continue on a level basis over the remaining life of the Nine Mile 2 Plant and result in recovery of the corresponding amount through rates. The net effect of this procedure was to be that at the end of the amortization period for the deferred credit, the accounting and rate-making treatment was the same as if the Nine Mile 2 Plant CWIP had not been included in rate base during the construction period.
As authorized by PSC Order, issued and effective February 11, 1994 in an electric rate proceeding, a $6 million deferred Mirror CWIP credit was amortized annually and was fully amortized in 2000, and under provisions of the Agreement, the amortization was replaced with amortization of other deferred credits. The deferred Mirror CWIP debit of $64.9 million was recovered in 2001 as part of the sales of Central Hudson's interests in the Roseton, Danskammer and Nine Mile 2 Plants and amortization of any deferred debit was discontinued. Deferred credits were continued to be amortized until new rates were established pursuant to the restructuring petition and settlement discussed under the caption "Rate Proceedings - Electric and Gas" below.
INCOME TAXES RECOVERABLE/REFUNDABLE: The adoption of SFAS 109 in 1993 increased Central Hudson's net deferred tax obligation. As it is probable that the liability will be returned to customers, Central Hudson established a net regulatory liability for the future taxes. The SFAS 109 amounts related to the Roseton, Danskammer and Nine Mile 2 Plants were eliminated at the time of the sales, with no impact on earnings.
DEFERRED NINE MILE 2 PLANT COSTS: The existing rate-making for the Nine Mile 2 Plant, as directed by the PSC in its Order on Nine Mile 2 Operating and Capital Forecast for 1996 ("Supplement No. 5"), provided for the deferral of the difference between actual and authorized operating and maintenance expenses and continued in effect through 2001. For 2001 and 2000, the Nine Mile 2 Plant incurred less actual expense than authorized, and Central Hudson's share was recorded as a regulatory liability in accordance with Supplement No. 5.
CUSTOMER BENEFIT FUND: The Agreement required that Central Hudson set aside $10 million per calendar year in a Customer Benefit Fund to fund rate reductions and retail access options. Funding sources include $3 million from shareholder sources, $3.5 million from fuel cost savings generated by the installation of Central Hudson's coal dock unloading facility at the Danskammer Plant and $3.5 million from deferred credits related to the reconciliation of pension and other post-employment benefit costs. The Agreement also stipulated that unused funding accumulated to the end of the Agreement term be used for offsetting strandable costs or providing other ratepayer benefits. This Customer Benefit Fund was supplemented, as described in the following caption "Rate Proceedings - Electric and Gas."
RATE PROCEEDINGS - ELECTRIC AND GAS
On August 1, 2000, Central Hudson filed a major rate and restructuring request with the PSC which proposed, among other things: (a) unbundled gas and electric delivery rates, (b) purchased power and gas cost recovery mechanisms, (c) retail choice for all customers, (d) increasing its return on equity to 12%, (e) removal of all fossil production costs from rates, (f) enhanced electric reliability programs, and (g) a performance incentive and penalty system to reflect Central Hudson's performance on meeting important customer service objectives. New electric and gas delivery prices resulting from this filing were to go into effect on July 1, 2001 at the expiration of the Agreement; however, Central Hudson agreed to extend the proceeding through November 1, 2001.
On October 25, 2001 the PSC issued its Order Establishing Rates in that Proceeding ("Rate Order"). New rates became effective November 1, 2001. All accounting related to the rate proceeding and any offsetting balances which would have resulted if the new rates had been in effect on July 1, 2001 were reconciled.
Significant terms and conditions of the Rate Order are: (i) a three (3) year term, beginning July 1, 2001, with a Central Hudson option to extend the Rate Order for up to two (2) years; (ii) electric delivery rates will be reduced by 1.2% and then frozen at rates in effect on June 30, 2001, for the remainder of the term of the Rate Order and natural gas delivery rates will be frozen for the term of the Rate Order; (iii) Central Hudson will continue to purchase electric energy and natural gas for its full service customers and will recover 100% of these costs from customers through energy adjustment mechanisms; (iv) customer charges will be increased and volumetric delivery charges will be reduced; (v) customer bills will be formatted to show the market price of electricity in order to encourage competition and enhance customer migration to third party energy suppliers; (vi) electric customers will receive refunds of $25 million annually for each of the first three (3) years the Rate Order is effective; (vii) Central Hudson will be allowed a base return on equity ("ROE") of 10.3% on the equity portion of its rate base (approximately $250 million); (viii) the common equity ratio will be capped, for purposes of the ROE, at 47% in the first year of the Rate Order and decline 1% per year in each of the next two (2) years; (ix) earnings above the 10.3% base ROE will be retained by Central Hudson up to 11.3%, with a 50-50 sharing between customers and Central Hudson between 11.3% and 14%, and earnings above 14% will be reserved for the Customer Benefit Fund; (x) the establishment of customer service standards with associated penalties if standards are not met, and enhanced low income and customer education programs; and (xi) excess proceeds from the power plant sales and deferred regulatory accounts approximating $169 million (net of tax) will be available for the Customer Benefit Fund uses identified as:
1) Customer refunds $45 million (after tax) 2) Rate Base reduction $42.5 million (after tax) 3) Reliability Program $13 million (after tax) 4) Offset of manufactured gas plant site remediation costs $12.6 million (after tax)
Also included in the Rate Order and the Nine Mile 2 Order were approval for Central Hudson to recognize $19.8 million of tax benefits related to its 2001 power plant sales, offset by $11.4 million of after-tax contributions by Central Hudson to the Customer Benefit Fund, or a net benefit to shareholders of $8.4 million, which amount was recorded in the fourth quarter of 2001. Central Hudson will additionally recognize net income for shareholders under a prior regulatory settlement, as follows: $3.2 million in 2001, $2.9 million in 2002, $5.9 million in 2003 and $5.9 million in 2004. These tax benefits and prior settlement-related amounts are excluded from the ROE sharing calculation described above. Pursuant to the Agreement, interim electric delivery rates reflecting the sales of Central Hudson's interests in the Roseton and Danskammer Plants became effective on February 1, 2001.
FERC RESTRUCTURING AND INDEPENDENT SYSTEM OPERATOR
In its Order No. 888, the FERC directed members of existing tight power pools to restructure their operations to promote open transmission access. As proposed in response to Order 888 and as approved by the FERC, on December 1, 1999, the New York State Independent System Operator, Inc. ("NYS ISO") became responsible for the operation of the New York State transmission system.
The NYS ISO is a not-for-profit New York corporation open to buyers, sellers, consumers and transmission providers which are each represented on its Board of Directors. As part of the establishment of the NYS ISO, a New York State Reliability Council ("Reliability Council") was also established. The Reliability Council is governed by a committee comprised of transmission providers and representatives of buyers, sellers and consumer and environmental groups. The Reliability Council promotes and preserves the reliability of the bulk power system within New York State through its promulgation of reliability rules; the NYS ISO developed the procedures necessary to operate the system within these reliability rules. Central Hudson is a member of the NYS ISO and the Reliability Council.
The FERC, in its Order No. 2000, directed all utilities subject to its jurisdiction under the Federal Power Act which belong to an ISO to make a filing on or before January 15, 2001 addressing the extent to which, and the plan for, the ISO to conform to the minimum characteristics and functions of a Regional Transmission Organization ("RTO") and to identify any obstacles to full compliance with the FERC's RTO requirements. A compliance filing was made by the six jurisdictional New York State transmission owners (including Central Hudson) and the NYS ISO which demonstrated that the NYS ISO would satisfy all of FERC's RTO requirements. Upon review of the compliance filing made, the FERC issued an order determining the NYS ISO does not satisfy the RTO requirements set forth in Order No. 2000, and directed the parties to participate in a mediation process with a goal of establishing a single northeast RTO.
On November 7, 2001, the FERC issued an "Order Providing Guidance on Continued Processing of RTO Filings" under which the FERC intends to complete the RTO effort using two parallel tracks to resolve business and process issues relating to: (i) geographic scope and governance of qualifying RTOs across the nation, and (ii) transmission tariff and market design rulemaking for public utilities, including RTOs, to accomplish the functions of Order No. 2000.
In concert with the FERC mediation process, a group of transmission owners in the Northeast (including Central Hudson) have agreed to develop a proposal for an Independent Transmission Company to function as an integral component of a hybrid northeastern RTO.
No prediction can be made as to the outcome of the FERC electric restructuring effort, including whether or not Central Hudson will participate in forming an independent transmission company.
NOTE 3 - NINE MILE 2 PLANT
GENERAL
The Nine Mile 2 Plant, formerly owned as tenants-in-common by Central Hudson (9% interest), Niagara Mohawk Power Corporation ("Niagara Mohawk") (41% interest), New York State Electric and Gas Corporation ("NYSEG") (18% interest), Long Island Lighting Company, d/b/a Long Island Power Authority (18% interest) and Rochester Gas and Electric Corporation ("Rochester") (14% interest), is located in Oswego County, New York and has a rated net capability of 1,143 MW. As described in Note 2 herein, Central Hudson, together with Niagara Mohawk, NYSEG and Rochester, sold its interest in the Nine Mile 2 Plant to an affiliate of Constellation on November 7, 2001.
The output of the Nine Mile 2 Plant was shared, and the operating expenses of that Plant allocated to the cotenants in the same proportions as the cotenants' respective ownership interests. Central Hudson's share of direct operating expense for the Nine Mile 2 Plant was included in the appropriate expense classifications in the accompanying Consolidated Statement of Income.
Central Hudson will receive a total of $66.2 million for its share of the Nine Mile 2 Plant, including $28.4 million paid in cash at closing on November 7, 2001, and will receive another $37.8 million in principal and interest payments in five annual installments under a promissory note, all subject to certain post-closing adjustments. As part of a Power Purchase Agreement with Constellation, Central Hudson will also buy, at negotiated prices, 90% of the electricity currently received from the Nine Mile 2 Plant over the next ten years. After the completion of the Power Purchase Agreement, a Revenue Sharing Agreement with Constellation begins which will provide a hedge against electricity price increases and could provide additional future revenue for Central Hudson through 2021.
NUCLEAR PLANT DECOMMISSIONING COSTS
Prior to the sale of Central Hudson's interest in the Nine Mile 2 Plant, Central Hudson made annual contributions of $868,000 to a qualified external nuclear decommissioning trust fund relating to the Nine Mile 2 Plant. The total annual amount allowed in rates was $999,000, but the maximum annual tax deduction allowed was $868,000. The difference between the rate allowance and the amount contributed to the external qualified fund was recorded as an internal reserve, and the funds were held by Central Hudson.
The qualified external decommissioning trust fund at December 31, 2001 and December 31, 2000, amounted to zero and $16.6 million, respectively. The qualified external decommissioning trust fund was reflected in the Consolidated Balance Sheet in "Other Investments." There was a zero balance in the internal reserve held by Central Hudson at December 31, 2001 and $2.0 million at December 31, 2000.
As part of the sale of the Nine Mile 2 Plant, the external decommissioning fund amounting to $14.7 million and the obligation of the selling owners for decommissioning were transferred to Constellation on November 7, 2001, subject to possible post-closing adjustments.
NOTE 4 - INCOME TAX
Energy Group and its subsidiaries file a consolidated federal income tax return.
In 2000, New York State law was changed so that Central Hudson and other New York State utilities are now subject to an income-based state income tax. The tax law repealed the .75 percent tax on gross earnings and the excess dividends tax under Section 186 of the New York State Tax Law and replaced it with an income-based tax under Article 9-A of the New York State Tax Law. The Article 9-A state income tax is being recovered from Central Hudson customers as a revenue tax, and this treatment will continue until a future PSC rate order includes this tax in the base rates of Central Hudson in the same manner as federal income tax.
See Note 2 - "Regulatory Matters - Summary of Regulatory Assets and Liabilities" for additional information regarding Energy Group and its subsidiaries' income taxes.
COMPONENTS OF INCOME TAX
The following is a summary of the components of state and federal income taxes for ENERGY GROUP as reported in its Consolidated Statement of Income:
2001 2000 1999 --------- -------- -------- (In Thousands) Charged to operating expense: Federal income tax ................... $ 227,732 $ 27,926 $ 22,174 State income tax ..................... 22,843 5,808 -- Deferred federal income tax .......... (207,867) 2,725 5,598 Deferred state income tax ............ (21,665) 770 -- --------- -------- -------- Income tax charged to operating expense ................ 21,043 37,229 27,772 --------- -------- -------- Charged (credited) to other income and deductions: Federal income tax .................. 3,678 1,352 1,749 State income tax .................... (44) 189 -- Deferred federal income tax ......... (26,963) (731) (1,378) Deferred state income tax ........... (1,052) 176 -- --------- -------- -------- Income tax (credited) charged to other income and deductions ..... (24,381) 986 371 --------- -------- -------- Total income tax .................. $ (3,338) $ 38,215 $ 28,143 ========= ======== ========
The 2001 deferred federal income tax charged (credited) to other income and deductions includes recognition of Investment Tax Credit ("ITC") in the amount of $(18.8) million upon the sales of Central Hudson's interests in its fossil and nuclear plants.
RECONCILIATION: The following is a reconciliation between the amount of federal income tax computed on income before taxes at the statutory rate and the amount reported in the ENERGY GROUP Consolidated Statement of Income:
2001 2000 1999 --------- -------- -------- (In Thousands) Net income ............................. $ 50,835 $ 50,973 $ 48,573 Preferred Stock Dividend of Central Hudson ............................... 3,230 3,230 3,230 Federal income tax ..................... 231,410 29,278 23,923 State income tax ("SIT") ............... 22,799 5,997 -- Deferred federal income tax ............ (234,830) 1,994 4,220 Deferred state income tax .............. (22,717) 946 -- --------- -------- -------- Income before taxes .................. $ 50,727 $ 92,418 $ 79,946 ========= ======== ========
Computed federal tax @ 35% statutory rate ....................... $ 17,754 $ 32,346 $ 27,981 SIT net of federal tax benefit ......... 2,638 5,106 -- Increase (decrease) to computed tax due to: Pension expense .................... (5,569) (5,424) (3,697) Tax depreciation ................... (1,711) 2,822 (550) Customer Benefits Account .......... (2,178) 2,132 1,299 Nine Mile 2 Plant write-off ........ 7,638 -- -- Amortization of shareholder's share of gain on plant sale ............ (2,168) -- -- Deferred gain on sale of Plants - Roseton and Danskammer ........... 230,620 -- -- Deferred gain on sale of Plants - Nine Mile 2 Plant ................ 12,171 -- -- Deferred New York State taxes - Tax Law 2000 adjustment .......... 2,336 (343) -- Regulatory asset write-off ......... (1,766) -- -- Carrying Charge - Customer Benefit Account .................. 3,260 -- -- Deferred Excess Earnings ............. 3,235 1,890 982 Unbilled Revenue ..................... (2,306) 3,543 315 Deferred Electric Fuel Costs ......... (6,016) (1,882) (897) Other ................................ (3,729) (4,915) (1,510) --------- -------- -------- Subtotal income tax .................... 254,209 35,275 23,923 Deferred income tax .................... (257,547) 2,940 4,220 --------- -------- -------- Total income tax ..................... $ (3,338) $ 38,215 $ 28,143 ========= ======== ========
Effective tax rate ................... (6.6%) 41.4% 35.2% ========= ======== ========
The effective tax rate for 2001 consists of a (6.7)% effective rate for federal income taxes and a 0.1% effective rate for state income taxes, and the effective tax rate for 2000 consisted of a 36.6% effective rate for federal income taxes and a 4.8% effective rate for state income taxes. The effective tax rate for 1999 was solely the effective tax rate for federal income tax.
The following is a summary of the components of deferred taxes at December 31, 2001 and December 31, 2000, as reported in ENERGY GROUP'S Consolidated Balance Sheet:
2001 2000 -------- -------- Accumulated Deferred Income (In Thousands) Tax Assets: Future tax benefits on investment tax credit basis difference ........................ $ 2,063 $ 12,426 Unbilled revenues .................................... 7,279 9,521 Other ................................................ 101,428 57,838 -------- -------- Accumulated Deferred Income Tax Assets ........................................... $110,770 $ 79,785 -------- -------- Accumulated Deferred Income Tax Liabilities: Tax depreciation ................................... $ 74,630 $179,120 Accumulated deferred investment tax credit ....................................... 3,832 23,076 Future revenues - recovery of plant basis differences ................................ 1,078 11,825 Other .............................................. 52,590 60,592 -------- -------- Accumulated Deferred Income Tax Liabilities ...................................... $132,130 $274,613 -------- -------- Net Accumulated Deferred Income Tax Liability ........................................ $ 21,360 $194,828 ======== ========
The following is a summary of the components of state and federal income taxes for CENTRAL HUDSON as reported in its Consolidated Statement of Income:
2001 2000 1999 --------- -------- -------- (In Thousands) Charged to operating expense: Federal income tax ...................... $ 225,240 $ 27,297 $ 22,254 State income tax ........................ 22,035 5,582 -- Deferred federal income tax ............. (207,867) 2,725 5,598 Deferred state income tax ............... (21,665) 770 -- --------- -------- -------- Income tax charged to operating expense ................... 17,743 36,374 27,852 --------- -------- -------- Charged (credited) to other income and deductions: Federal income tax ..................... 2,679 1,142 1,670 State income tax ....................... (44) 189 -- Deferred federal income tax ............ (26,963) (731) (1,378) Deferred state income tax .............. (1,052) 176 -- --------- -------- -------- Income tax (credited) charged to other income and deductions ........ (25,380) 776 292 --------- -------- -------- Total income tax ..................... $ (7,637) $ 37,150 $ 28,144 ========= ======== ========
The 2001 deferred federal income tax charged (credited) to other income and deductions includes recognition of ITC in the amount of $(18.8) million upon the sales of Central Hudson's interests in its fossil and nuclear plants.
RECONCILIATION: The following is a reconciliation between the amount of federal income tax computed on income before taxes at the statutory rate and the amount reported in the CENTRAL HUDSON Consolidated Statement of Income:
2001 2000 1999 --------- -------- -------- (In Thousands) Net income ................................ $ 40,948 $ 49,365 $ 48,651 Preferred Stock Dividend of Central Hudson .................................. 3,230 3,230 3,230 Federal income tax ........................ 227,919 28,437 23,924 State income tax .......................... 21,991 5,771 -- Deferred federal income tax ............... (234,830) 1,994 4,220 Deferred state income tax ................. (22,717) 946 -- --------- -------- -------- Income before taxes ..................... $ 36,541 $ 89,743 $ 80,025 ========= ======== ========
Computed federal tax @ 35% statutory rate .......................... $ 12,789 $ 31,410 $ 28,008 SIT net of federal tax benefit ............ 1,900 4,958 -- Increase (decrease) to computed tax due to: Pension expense ........................ (5,569) (5,424) (3,697) Tax depreciation ....................... (1,711) 2,822 (550) Customer Benefits Account .............. (2,178) 2,132 1,299 Nine Mile 2 Plant write-off ............ 7,638 -- -- Amortization of shareholder's share of gain on plant sale ................... (2,168) -- -- Deferred gain on sale of Plants - Roseton and Danskammer ............... 230,620 -- -- Deferred gain on sale of Plants - Nine Mile 2 Plant .................... 12,171 -- -- Deferred New York State taxes - Tax Law 2000 adjustment .............. 2,336 (343) -- Regulatory asset write-off ............. (1,766) -- -- Carrying Charge - Customer Benefit
Account .............................. 3,260 -- -- Deferred Excess Earnings ................ 3,235 1,890 982 Unbilled Revenue ........................ (2,306) 3,543 315 Deferred Electric Fuel Costs ............ (6,016) (1,882) (897) Other ................................... (2,325) (4,896) (1,536) --------- -------- -------- Subtotal income tax ....................... 249,910 34,210 23,924 Deferred income tax ....................... (257,547) 2,940 4,220 --------- -------- -------- Total income tax ........................ $ (7,637) $ 37,150 $ 28,144 ========= ======== ========
Effective tax rate....................... (20.9%) 41.4% 35.2% ========= ======== ========
The effective tax rate for 2001 consists of a (18.9)% effective rate for federal income taxes and a (2.0)% effective rate for state income taxes, and the effective tax rate for 2000 consisted of a 36.6% effective rate for federal income taxes and a 4.8% effective rate for state income taxes. The effective tax rate for 1999 was solely the effective tax rate for federal income tax.
The following is a summary of the components of deferred taxes at December 31, 2001 and December 31, 2000, as reported in CENTRAL HUDSON'S Consolidated Balance Sheet:
2001 2000 -------- -------- Accumulated Deferred Income (In Thousands) Tax Assets: Future tax benefits on investment tax credit basis difference ................ $ 2,063 $ 12,426 Unbilled revenues ............................ 7,279 9,521 Other ........................................ 101,364 57,838 -------- -------- Accumulated Deferred Income
Tax Assets ................................... $110,706 $ 79,785 -------- -------- Accumulated Deferred Income Tax Liabilities:
Tax depreciation ........................... $ 74,630 $179,120 Accumulated deferred investment tax credit ............................... 3,832 23,076 Future revenues - recovery of plant basis differences .................. 1,078 11,825 Other ...................................... 51,365 60,212 -------- -------- Accumulated Deferred Income Tax Liabilities .............................. $130,905 $274,233 -------- -------- Net Accumulated Deferred Income Tax Liability ................................ $ 20,199 $194,448 ======== ========
NOTE 5 - SHORT-TERM BORROWING ARRANGEMENTS
Energy Group's $170 million revolving credit agreement with several commercial banks expired on December 4, 2001. Energy Group has determined that its cash reserves are sufficient to meet its needs for 2002, and the establishment of another revolving credit agreement will be reviewed in the future as conditions warrant. In early February 2001, the short-term debt under Energy Group's revolving credit agreement was prepaid in full with a portion of the proceeds from the sales of the Roseton and Danskammer Plants.
Pursuant to PSC authorization, effective October 19, 2001, Central Hudson terminated its $50 million credit facility and entered into a $75 million credit facility with several commercial banks through June 30, 2004 ("Borrowing Agreement"). Compensating balances are not required under the Borrowing Agreement. In addition, Central Hudson maintains confirmed lines of credit totaling $1.5 million with regional banks. There were no outstanding loans under the Borrowing Agreement or the line of credit at December 31, 2001 or 2000. In order to diversify its sources of short-term financing, Central Hudson has entered into short-term credit facility agreements with several commercial banks. At December 31, 2001, Central Hudson had no outstanding short-term debt. Authorization from the PSC limits the amount Central Hudson may have outstanding, at any time, under all of its short-term borrowing arrangements to $77 million in the aggregate.
Also in October 2001, the PSC approved the issuance by Central Hudson of up to $100 million of unsecured Medium-Term Notes prior to June 30, 2004.
The competitive business subsidiaries of CH Services have lines of credit totaling $12.5 million. There were no borrowings against these lines of credit at December 31, 2001.
NOTE 6 - CAPITALIZATION - ENERGY GROUP CAPITAL STOCK COMMON STOCK, $.10 par value; 30,000,000 shares authorized:
CAPITALIZATION - CENTRAL HUDSON CAPITAL STOCK COMMON STOCK, $5.00 par value; 30,000,000 shares authorized:
CUMULATIVE PREFERRED STOCK, Central Hudson, $100 par value; 1,200,000 shares authorized:
Shares Outstanding Final Redemption ------------------ Redemption Price December 31, Series Date 12/31/01 2001 2000 ------ ---------- ---------- ---- ---- Not Subject to Mandatory Redemption:
4 1/2% $107.00 70,300 70,300 4.75% 106.75 20,000 20,000 4.35% 102.00 60,000 60,000 4.96% 101.00 60,000 60,000 ------- ------- 210,300 210,300 ------- -------
Subject to Mandatory Redemption:
6.20% 10/1/08 (a) 200,000 200,000 6.80% 10/1/27 (b) 150,000 150,000 ------- ------- 350,000 350,000 ------- ------- Total 560,300 560,300 ======= =======
(a) Cannot be redeemed prior to October 1, 2003. Subject to mandatory annual sinking fund payment of $1.0 million commencing October 1, 2003 with final payment of $15.0 million on the final redemption date.
(b) Cannot be redeemed prior to October 1, 2003. Subject to mandatory annual sinking fund payment of $600,000 commencing October 1, 2003 through final redemption date.
Central Hudson had no cumulative preferred stock redemptions or issuances during 2001 and 2000.
REPURCHASE PROGRAM AND CAPITAL STOCK EXPENSE: Expenses incurred on issuance of capital stock are accumulated and reported as a reduction in common stock equity. These expenses are generally not amortized; however, as directed by the PSC, certain issuance and redemption costs and unamortized expenses associated with certain issues of preferred stock that were redeemed have been deferred and are being amortized over the remaining lives of the issues subject to mandatory redemptions.
In 2001, Energy Group reestablished a stock repurchase program to repurchase up to 500,000 shares of its Common Stock; however, no shares were repurchased during the year. Future repurchases will be made as conditions warrant at Management's discretion.
NOTE 7 - CAPITALIZATION - LONG-TERM DEBT
Details of Central Hudson's long-term debt are as follows:
Series Maturity Date December 31, ------ ------------- ----------------- First Mortgage Bonds: 2001 2000 ---- ---- (In Thousands) 7.97% (a)(b) June 11, 2003 $ 5,000 $ 8,000 7.97% (a)(b) June 13, 2003 500 8,000 6.46% (a)(b) Aug. 11, 2003 9,500 10,000 6.25%(c) June 1, 2007 -- 4,130 9.25% May 1, 2021 -- 70,000 8.12% (a)(b)(d) Aug. 29, 2022 10,000 10,000 8.14% (a)(b)(d) Aug. 29, 2022 10,000 10,000 -------- -------- 35,000 120,130 Promissory Notes: 1998 Series A (4.20%)(c) Dec. 1, 2028 16,700 16,700 5.93% (b) Sept. 10, 2001 -- 15,000 7.85% (b) July 2, 2004 15,000 15,000 1999 Series C (7.32%)(b) June 13, 2001 -- 40,000 1999 Series C (7.05%)(b) June 30, 2001 -- 7,500 1999 Series C (6%)(b) Jan. 15, 2009 20,000 20,000 1999 Series A (5.45%)(c) Aug. 1, 2027 33,400 33,400 1999 Series B (Var. rate)(c) July 1, 2034 33,700 33,700 1999 Series C (Var. rate)(c) Aug. 1, 2028 41,150 41,150 1999 Series D (Var. rate)(c) Aug. 1, 2028 41,000 41,000 -------- -------- 200,950 263,450
Unamortized Discount on Debt (76) (600) -------- -------- $235,874 $382,980 -------- -------- Less: Current Portion (20,000) (62,610) -------- -------- Total $215,874 $320,370 ======== ========
(a) Central Hudson's First Mortgage Bond Indenture was defeased on November 6, 2001.
(b) Issued under Central Hudson's Medium-Term Note Program.
(c) First Mortgage Bonds or Promissory Notes issued in connection with the sale by New York State Energy Research and Development Authority ("NYSERDA") of tax-exempt pollution control revenue bonds.
(d) To be redeemed in 2002 using defeasance funds held by the Mortgage Trustee.
The competitive business subsidiaries of CH Services had long-term debt of $250,000 as of December 31, 2001 and $500,000 as of December 31, 2000.
LONG-TERM DEBT MATURITIES
The aggregate principal amounts of Central Hudson long-term debt maturing or to be redeemed for the next five years and thereafter are as follows: $20 million in 2002, $15 million in 2003, $15 million in 2004, none in 2005 and 2006, and $186 million thereafter. Defeasance funds held by the Mortgage Trustee will be used for debt to be redeemed in 2002 or maturing in 2003.
USE OF PROCEEDS FROM SALES OF PRINCIPAL GENERATING FACILITIES
On January 30, 2001, Central Hudson sold its Danskammer Plant and its interest in the Roseton Plant to Dynegy and received cash proceeds of $713 million. On November 7, 2001 Central Hudson sold its interest in the Nine Mile 2 Plant and received cash proceeds of $28.4 million. The major uses of the cash proceeds received at closing by Central Hudson are as follows:
$ MILLION
Payment of state and federal income taxes $231 Payment of dividend to Energy Group 212 Redemption, repurchase and defeasance of long-term debt of Central Hudson 192 Payment of transaction related costs 25
The remainder of the funds, including $23 million of the proceeds from the sale of Central Hudson's interest in the Nine Mile 2 Plant, were invested in highly-liquid, high-quality marketable securities or used for various internal requirements.
Of the amount paid as a dividend to Energy Group, $140 million was used to fully repay Energy Group's outstanding debt. The remainder is available to further its business strategies, including expansion of its competitive business subsidiaries, making acquisitions and/or repurchasing common stock.
NYSERDA
The 1999 NYSERDA Bonds, Series B, C, D are unsecured and insured as to payment of principal and interest as they become due by a municipal bond insurance policy issued by AMBAC Assurance Corporation. In its rate orders, the PSC has authorized deferred accounting for the interest costs on Central Hudson's variable rate NYSERDA Bonds. The authorization provides for full recovery of the actual interest costs supporting utility operations. The percent of interest costs supporting utility operations represents approximately 94% of the total costs. The deferred balances under this accounting were $(.2) million and $8.2 million at December 31, 2001 and at December 31, 2000, respectively, and are included in "Regulatory Assets" in Energy Group's and Central Hudson's Consolidated Balance Sheets. The deferred balances at June 30, 2001 were eliminated. The ongoing deferred balances are to be addressed in future rate cases. To further mitigate the risk of rising interest rates, Central Hudson, from time to time, purchases derivative instruments known as "interest rate caps" to limit its exposure to a defined cost ceiling.
DEBT EXPENSE
Expenses incurred on debt issues and any discount or premium on debt are deferred and amortized over the lives of the related issues. Expenses incurred on debt redemptions prior to maturity have been deferred and are generally being amortized over the shorter of the remaining lives of the related extinguished issues or the new issues as directed by the PSC.
DEBT COVENANTS
Central Hudson's $75 million credit facility requires the maintenance by Central Hudson of certain financial ratios and contains other restrictive covenants. Currently, Central Hudson is in compliance with all of its debt covenants. The only debt outstanding at CH Services is amounts borrowed from Energy Group. No amounts are outstanding on CH Services' line of credit with its commercial bank, and accordingly, it is in compliance with all of its debt covenants.
MORTGAGE INDENTURE
Effective November 6, 2001, Central Hudson defeased its First Mortgage Bond Indenture, dated January 1, 1927 and thereafter amended and supplemented, by depositing approximately $39 million with the Mortgage Trustee under this Indenture. Central Hudson remains obligated under outstanding First Mortgage Bonds to the extent, if any, not covered by this deposit. Effective upon the defeasance, Central Hudson was released of all obligations under the Indenture, the lien of the Indenture was released from Central Hudson's property, and Central Hudson can no longer issue secured debt under that Indenture. The amount deposited with the Trustee is included in the Special Deposits and Prepayments line in Central Hudson's Balance Sheet.
Article XXI of Central Hudson's Mortgage Indenture required generally that, to the extent that the cost of property additions (as defined in the Mortgage) acquired by Central Hudson during a calendar year was less than the allowance for depreciation on property subject to the Mortgage for that calendar year, Central Hudson deposit cash with the Mortgage Trustee in the amount of the deficiency, less certain credits available to Central Hudson under the Mortgage (the "Article XXI Deficiency"). For calendar year 2000, Central Hudson experienced an Article XXI Deficiency in an amount that was not material, in satisfaction of which it deposited with the Mortgage Trustee cash for the purpose of satisfying the deficiency. Central Hudson did not experience an Article XXI Deficiency during 2001, and is no longer subject to the provisions of Article XXI.
NOTE 8 - POST-EMPLOYMENT BENEFITS
PENSION BENEFITS
Central Hudson has a non-contributory retirement income plan ("Retirement Plan") covering substantially all of its employees and certain employees of CHEC and CH Resources. The Retirement Plan provides pension benefits that are based on the employee's compensation and years of service. It has been Central Hudson's practice to provide periodic updates to the benefit formula stated in the Retirement Plan.
Central Hudson's funding policy is to make annual contributions equal to the amount of net periodic pension cost, but not in excess of the maximum allowable tax-deductible contribution under the federal income tax law nor less than the minimum requirement under the Employee Retirement Income Security Act of 1974.
The accounting for pension benefits reflects adoption of PSC prescribed provisions which, among other things, requires ten-year amortization of actuarial gains and losses. As authorized by the PSC, any difference between the amount collected in rates and the actual amount recorded as net periodic pension cost was deferred as either a regulatory asset or liability, as appropriate. The pension assets and liabilities transferred to Dynegy as a result of the sale of the Danskammer and Roseton Plants were reflected in the amount recorded in 2001 for net periodic pension cost.
In addition to the Retirement Plan, Central Hudson's and Energy Group's officers and executives are covered under a Directors and Executives Deferred Compensation Plan and a Supplementary Retirement Plan. Central Hudson also sponsors a nonqualified Retirement Benefit Restoration Plan.
OTHER POST-RETIREMENT BENEFITS
Central Hudson provides certain health care and life insurance benefits for retired employees through its post-retirement benefit plan, including certain retirees of CHEC and CH Resources. Substantially all of Central Hudson's employees may become eligible for these benefits if they reach retirement age while working for Central Hudson. These and similar benefits for active employees are provided through insurance companies whose premiums are based on the benefits paid during the year. In order to reduce the total costs of these benefits, Central Hudson requires employees who retired on or after October 1, 1994 to contribute toward the cost of these benefits.
Central Hudson is fully recovering its net periodic post-retirement costs in accordance with PSC guidelines. Under these guidelines, the difference between the amounts of post-retirement benefits recoverable in rates and the amounts of post-retirement benefits determined by the actuary under SFAS 106, EMPLOYERS ACCOUNTING FOR POST-RETIREMENT BENEFITS OTHER THAN PENSIONS, is deferred as either a regulatory asset or liability, as appropriate.
The only post-employment benefits provided to any of the CH Services competitive business subsidiaries are those offered to employees of CHEC and one former Central Hudson employee transferred to CH Resources, which allow participation in the same Central Hudson benefit plans. All other employees of CH Services' competitive business subsidiaries (except Greene Point Development Corporation) participate in company-sponsored 401(k) plans. No other post-employment benefits are provided.
Reconciliations of Pension and OPEB Plans' benefit obligation, plan assets and funded status, as well as the components of net periodic pension cost and the weighted average assumptions (excluding CH Services employees not covered by these plans) are as follows:
For measurement purposes, an 8.2% (8.5% for participants over age 65) annual rate of increase in the per capita cost of covered health benefits was assumed for 2002. The rate is assumed to decrease gradually to 5.5% for 2008 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
NOTE 9 - STOCK-BASED COMPENSATION INCENTIVE PLANS
Energy Group's shareholders approved, at their annual meeting on April 25, 2000, a Long-Term Performance-Based Incentive Plan ("Incentive Plan") for executive officers and other key employees, effective January 1, 2000. The Incentive Plan provides for the granting of stock options, stock appreciation rights, restricted stock awards, performance shares and performance units. No participant may be granted total awards in excess of 150,000 shares over the life of the Incentive Plan. The aggregate number of shares available for the grant of awards is 500,000, subject to adjustment in the event of a change in Energy Group's capitalization. Shares awarded may be in the form of authorized but unissued shares, treasury shares, open market shares or any combination thereof. The Stock Options granted to officers of Energy Group and its subsidiaries are exercisable over a period of ten years, with 40% vesting after two years and 20% each year thereafter for the following three years; however, Stock Options granted to officers retiring prior to June 30, 2006 are immediately exercisable.
The Incentive Plan was amended by shareholder vote on April 24, 2001 to: (i) revise the definition of Plan Participants to include Non-Employee Directors, and (ii) provide that (a) Non-qualified Stock Options, for a term of ten (10) years, be granted automatically to Non-Employee Directors of Energy Group on January 1 of each year under conditions as the Compensation and Succession Committee of Energy Group ("Compensation Committee") shall determine; (b) 3,000 Options be granted initially to each such Director, effective January 1, 2001; (c) 1,000 Options be granted to each such Director each January 1 thereafter; (d) the Options' price be the Fair Market Value of Energy Group's underlying Common Stock on the date of the grant; (e) the Options be immediately exercisable; and (f) no other Awards under the Plan be granted to Non-Employee Directors. The Incentive Plan was further amended, effective January 1, 2002, to provide that Stock Option grants to Non-Employee Directors will be made only at the discretion of the Compensation Committee.
Effective January 1, 2000, a total of 30,300 stock options were granted by the Energy Group Compensation Committee under the Incentive Plan. The exercise price is $31.94 per share and was established by the Compensation Committee based on the average market price (as traded on the New York Stock Exchange) on January 5, 2000.
Further, effective as of January 1, 2001, the Compensation Committee granted 59,900 Stock Options under the Incentive Plan. The exercise price is $44.06 per share and was established by the Compensation Committee based on the average market price (as traded on the New York Stock Exchange) on January 2, 2001.
Also under the Incentive Plan, the Compensation Committee has granted 6,380 performance shares, effective as of January 1, 2000, and 7,500 performance shares, effective as of January 1, 2001, on the basis of achieving superior total shareholder return over three-year periods ending December 31, 2002, and December 31, 2003, respectively, as measured against an industry Index.
Energy Group, as permitted by SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION," has elected to account for stock-based employee compensation under the provisions of APB Opinion No. 25 ("APB 25"), "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES." The amount of compensation cost related to the Incentive Plan that has been recorded through December 31, 2001 was not material to Energy Group's financial position, results of operations or liquidity. For accounting and disclosure purposes, Energy Group's grant dates of April 25, 2000 and April 24, 2001 are considered to be the dates of shareholder approval, as defined in FASB Interpretation No. 44, "ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION: AN INTERPRETATION OF APB OPINION NO. 25."
SFAS No. 123 requires a company to disclose pro forma net income and earnings per share as if the resulting stock-based compensation amounts were recorded in the Consolidated Statement of Earnings, and to determine the fair market value of all awards of stock-based compensation using an option-pricing model. The after-tax effect of these awards on net income, as well as basic and diluted earnings per share of Energy Group, was less than $140,000 and $79,000 for the years ended December 31, 2001 and 2000 and is considered immaterial. The Stock Options are considered to be anti-dilutive (no earnings per share impact) since it is expected that shares, when Stock Options are exercised, will be purchased in the open market.
The fair market values of Energy Group Stock Options granted in 2001 and 2000 are $4.46 and $4.41 per share, respectively. They were estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
2001 2000 ---- ---- Risk-free interest rate 4.78% 6.36% Expected lives - in years 5 5 Expected stock volatility 20.06% 15.59% Dividend yield 5.4% 5.4%
A summary of the status of Stock Options awarded to officers and Non-Employee Directors of Energy Group under the Incentive Plan as of December 31, 2001 and 2000 and changes during those years is as follows:
WEIGHTED AVERAGE STOCK EXERCISE REMAINING OPTIONS PRICE CONTRACTUAL LIFE - ------------------------------------------------------------------------------- Outstanding at 1/1/00 Granted 30,300 $31.94 8 years Exercised -- -- Forfeited -- -- - ------------------------------------------------------------------------------- Outstanding at 12/31/00 30,300 $31.94 Granted 1/1/01 59,900 $44.06 9 years Exercised -- -- Forfeited (800) $44.06 - ------------------------------------------------------------------------------- Total Outstanding at 12/31/01 89,400 $39.95 - -------------------------------------------------------------------------------
NOTE 10 - COMMITMENTS AND CONTINGENCIES
PURCHASED POWER COMMITMENTS
Under federal and New York State laws and regulations, Central Hudson is required to purchase the electrical output of unregulated cogeneration facilities ("IPPs") which meet certain criteria for Qualifying Facilities, as this term is defined in the appropriate legislation. Purchases are made under long-term contracts which require payment at rates higher than what can be purchased on the wholesale market. These costs are currently fully recoverable through Central Hudson's electric fuel adjustment clause. Central Hudson had contracts with IPPs in 2001 which represented 2% of Central Hudson's energy purchases. These contracts are physical contracts that do not meet the definition of a derivative instrument under SFAS 133 and, accordingly, are not recorded at their fair value.
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 damage to nearby residences and several deaths. Five separate lawsuits arising out of this incident have been commenced in New York State Supreme Court, County of Dutchess, by approximately 19 plaintiffs against Central Hudson and other defendants, each lawsuit alleging that Central Hudson supplied the Taylor Avenue residence with gas service for cooking purposes at the time of the fire. The basis for Central Hudson's alleged liability in these actions is that it was negligent in the supply of such gas. The suits seek an aggregate of $438 million in compensatory damages for alleged property damage, personal injuries, wrongful death and loss of consortium or services. Central Hudson notified its insurance carrier, is investigating the incident, and presently has insufficient information on which to predict the outcome of these lawsuits.
ENVIRONMENTAL MATTERS
Central Hudson and certain of the competitive business subsidiaries of CH Services are subject to regulation by federal, state and, to some extent, local authorities with respect to the environmental effects of their operations, including regulations relating to air and water quality, aesthetics, levels of noise, hazardous wastes, toxic substances, protection of vegetation and wildlife and limitations on land use. Environmental matters may expose both Central Hudson and certain of CH Services' competitive business subsidiaries to potential liability which, in certain instances, may be imposed without regard to fault or historical activities which were lawful at the time they occurred. Both Central Hudson and the applicable competitive business subsidiaries of CH Services continually monitor their activities in order to determine their impact on the environment and to ensure compliance with various environmental requirements.
CENTRAL HUDSON:
In connection with this regulation, certain permits required for Central Hudson's operation of the Roseton and Danskammer Plants were assigned to Dynegy upon the sales of those Plants.
WATER: New York State Pollution Discharge Elimination System ("SPDES") permits for the Roseton and Danskammer Plants, required to operate those Plants' cooling water systems and wastewater treatment systems, were transferred to those Plants' new owner, Dynegy, upon their sales. The required SPDES permits are in effect for the generating facilities of CH Resources.
In February 2001, Central Hudson received a letter from New York State Department of Environmental Conservation ("NYS DEC") indicating that it must terminate the discharge from an internal sump at its Neversink Hydroelectric Facility into a regulated stream or obtain a SPDES permit for it. An emergency authorization for the discharge was issued by the NYS DEC. Central Hudson has evaluated the discharge and receiving stream characteristics and does not believe that this discharge causes or contributes to a violation of water quality. As a result, Central Hudson believes that a SPDES permit is unnecessary. Central Hudson has advised the NYS DEC of this opinion, but has also submitted an application to the NYS DEC for a SPDES permit as a precautionary measure. The NYS DEC has authorized the continued discharge during its review of Central Hudson's application.
AIR: As a result of the sales of the Roseton and Danskammer Plants to Dynegy, only Central Hudson's South Cairo and Coxsackie combustion turbines remain subject to the Clean Air Act Amendments of 1990 ("Clean Air Act Amendments") which address attainment and maintenance of national ambient air quality standards, including control of particulate emissions from fossil-fueled electric generating plants and emissions that affect "acid rain" and ozone. Each of these facilities was in compliance with the Clean Air Act Amendments during 2001.
In October 1999, Central Hudson was informed by the New York State Attorney General that the Danskammer Plant was part of an investigation by the Attorney
General's Office into the compliance of eight older New York State 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." As part of this investigation, Central Hudson has received several requests for information from the New York State Attorney General, the NYS DEC and the U. S. Environmental Protection Agency ("EPA"), which collectively sought information about the operation and maintenance of the Danskammer Plant during the period of 1980 to 2000, including specific information regarding approximately 45 projects conducted during that period. In March 2000, the EPA assumed responsibility for the investigation. Central Hudson has concluded its production of documents in connection with the information requests, and believes any required permits were obtained. 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.
FORMER MANUFACTURED GAS PLANT FACILITIES
The NYS DEC, in 1986, added to the New York State Registry of Inactive Hazardous Waste Disposal Sites ("Registry") six locations, including the site in Newburgh, New York, discussed below, at which gas manufacturing plants owned or operated by Central Hudson or its predecessors were once located. Two additional former gas manufacturing plants, were identified by Central Hudson but not placed on the Registry. Three of the eight sites identified are in Poughkeepsie, New York, (at Laurel Street, North Water Street and North Perry Street); the remaining five sites are in Newburgh, Beacon, Saugerties, Kingston and Catskill, New York. Central Hudson studied all eight sites to determine whether or not they contain any hazardous wastes which could pose a threat to the environment or public health and, if wastes were located at the sites, to determine whether or not remedial actions should be considered. The NYS DEC subsequently removed the six sites it had previously placed on the Registry, subject to future revisions of its testing methods.
CITY OF NEWBURGH: In October 1995, Central Hudson and the NYS DEC entered into an Order on Consent regarding the development and implementation of an investigation and remediation program for Central Hudson's former gas manufacturing plant in Newburgh, New York ("Central Hudson Site"), the City of Newburgh's ("City") adjacent and nearby property and the adjoining areas of the Hudson River. The City subsequently filed a lawsuit against Central Hudson in the United States District Court for the Southern District of New York alleging violation by Central Hudson of, among others, federal environmental laws and damages of at least $70 million.
Subsequent to a 1998 jury award of $16 million in that lawsuit, reflecting the estimated cost of environmental remediation and damages, Central Hudson and the City entered into a court-approved Settlement Agreement in 1999 under which, among others, (i) Central Hudson agreed to remediate the City's property at Central Hudson's cost pursuant to the NYS DEC's October 1995 Order on Consent and (ii) if the total cost of the remediation were less than $16 million, Central Hudson would pay the City an additional amount up to $500,000 depending on the extent to which the cost of remediation was less than $16 million.
Further studies of the City's property by Central Hudson were provided to the NYS DEC which determined that the contaminants found may pose a significant threat to human health or the environment. As a result, Central Hudson developed a draft Feasibility Study Report ("Feasibility Report") which was filed with the NYS DEC and given to the City in December 1999. The Feasibility Report summarizes the nature and location of the contamination at and around the City's property, evaluates the potential ecological and human health risks associated with that contamination and discusses clean-up alternatives. The Feasibility Report recommends (1) limited soil removal from the southern portion of the City's property where there is elevated contamination and (2) capping of contaminated sediments in the Hudson River. The estimated costs for the proposed remediation activities are $3 million for the soil removal and $2.5 million for the capping of sediment in the Hudson River.
As requested by the NYS DEC and the New York State Department of Health ("DOH"), additional sampling was conducted by Central Hudson and reported to the NYS DEC, DOH and the City in revised risk assessments that were submitted in June 2001. The NYS DEC and DOH provided comments on these reports in December 2001. Final risk assessment reports are expected to be submitted to the NYS DEC, DOH and the City in the first quarter of 2002. Upon the approval of the reports, Central Hudson will revise the Feasibility Report for the NYS DEC approval and subsequent to approving the Feasibility Report, the NYS DEC will issue a Proposed Remedial Action Plan for public review and comment. After the public review, the NYS DEC will issue a Record of Decision that will specify a remediation plan for Central Hudson's implementation. It is not presently anticipated that the NYS DEC will issue a Record of Decision before the end of 2002.
Central Hudson has received authorization from the PSC to defer costs expected to be recoverable in future rates related to this matter, including legal defense costs but excluding Central Hudson's labor related to environmental site investigation and remediation actions. The cumulative deferred costs related to this matter through 2001 amount to $15.6 million that were recovered from the Customer Benefit Fund pursuant to the Rate Order.
As of December 31, 2001, liabilities of $6.1 million were recorded regarding this matter which are included in "Deferred Credits and Other Liabilities - Other" in Energy Group's and Central Hudson's Consolidated Balance Sheets.
Neither Energy Group nor Central Hudson can make any prediction as to the full financial effect this matter will have on it, including the extent, if any, of insurance reimbursement and including implementation of environmental clean-up under the Order on Consent. However, Central Hudson has put its insurers on notice of this matter and intends to seek reimbursement from its insurers for the cost of any liability. Two of the insurers have denied coverage.
Central Hudson was informed in December 2001 that there is another manufactured gas plant site in the City which was owned by a predecessor company of Central Hudson in the late 19th Century. Central Hudson is reviewing this matter as to whether it has any liability with respect to this site.
OTHER FORMER MANUFACTURED GAS PLANT SITES: In February 1999 the NYS DEC informed Central Hudson of its intention to perform site assessments at three of the other previously identified manufactured gas plant sites; namely, the Poughkeepsie Laurel Street and North Water Street sites and the Beacon site. Central Hudson conducted these site assessments for each site under agreements negotiated with the NYS DEC to determine if there are any significant quantities of residues from the manufactured gas operations on the sites.
In October 2000, Central Hudson was notified by the NYS DEC that it had determined that the Poughkeepsie North Perry Street site and the Catskill site posed little or no significant threat to the public and that no additional investigation or action was necessary at the present time. During the fourth quarter of 2001, Central Hudson was advised that the NYS DEC and the DOH found that no further remedial action is presently necessary at the Beacon site.
The NYS DEC also notified Central Hudson that additional information is necessary for the previously identified sites in Kingston and Saugerties. Central Hudson is pursuing an agreement with the NYS DEC regarding the Saugerties site and will negotiate an agreement with the NYS DEC for the Kingston site under which Central Hudson will propose for the Kingston site removal of contaminated soils and reinforcement of an existing retaining wall that separates the site from the Rondout Creek. It is anticipated that work at the Kingston site will commence in 2002. The estimated cost for this work is currently $1 million.
Final NYS DEC approval of the Central Hudson report for the North Water Street site has not yet been received. The NYS DEC has approved a conceptual remedial plan prepared by Central Hudson addressing soil contamination at the Laurel Street site. This information is expected to be submitted by Central Hudson by the end of the first quarter of 2002. Upon approval of the work plans, Central Hudson intends to conduct the Laurel Street remediation in 2002 at an estimated cost of $3 million.
Remedial actions ultimately required at any of the four sites (Poughkeepsie North Water Street and Laurel Street, Kingston and Saugerties), for which additional information has been requested by the NYS DEC, could cause a material adverse effect (the extent of which cannot be reasonably estimated) on the financial condition of Energy Group and Central Hudson if Central Hudson were unable to recover all, or a substantial portion of these costs, through insurance and rates. Central Hudson has put its insurers on notice regarding this matter and intends to seek reimbursement from its carriers for amounts for which it may become liable.
In 2001, Central Hudson requested permission from the PSC to defer the incremental costs of the investigations and potential remediation of these sites. This request is currently under review.
ORANGE COUNTY LANDFILL
In June 2000, the NYS DEC sent a letter to Central Hudson requesting that it provide information about disposal of wastes at the Orange County Landfill ("Site") located in the Township of Goshen, New York, which is listed on the New York State Inactive Hazardous Waste Disposal Site Registry.
The NYS DEC states that its records indicate Central Hudson, or a predecessor entity, did dispose, or may have disposed of, wastes at the Site or that Central Hudson transported wastes to the Site for disposal.
Documents submitted by Central Hudson in response to the request of the NYS DEC indicate that at least three shipments of wastes may have been disposed of by Central Hudson at the Site; one of construction waste, one of office and commercial waste and one of asbestos waste. Central Hudson entered into a Tolling Agreement, dated September 7, 2001, with the NYS DEC and other state agencies whereby Central Hudson agreed to toll the applicable statute of limitations by the state agencies against Central Hudson for certain alleged causes of action until February 28, 2002. Central Hudson expects to renew the tolling agreement.
Neither Energy Group nor Central Hudson can predict the outcome of this investigation at this time.
NEWBURGH CONSOLIDATED IRON WORKS
By letter dated November 28, 2001 from the EPA, 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 the Consolidated Iron and Metal Co., Inc., a Superfund site located in Newburgh, New York. Sampling by the EPA has indicated that lead and PCBs are present at the site, and the EPA expects to commence a remedial investigation/feasibility study at the site in the near future. Central Hudson is evaluating this request and its response.
ASBESTOS LITIGATION
Since 1987, Central Hudson, along with many other parties, has been joined as a defendant or third-party defendant in 2,783 asbestos lawsuits commenced in New York State and federal courts. The plaintiffs in these lawsuits have each sought millions of dollars in compensatory and punitive damages from all defendants. The cases were brought by or on behalf of individuals who have allegedly suffered injury from exposure to asbestos, including exposure which allegedly occurred at the Roseton and Danskammer Plants.
As of February 4, 2002, of the 2,783 cases brought against Central Hudson, 1,223 remain pending. Of the 1,560 cases no longer pending against Central Hudson, 1,423 have been dismissed or discontinued, and Central Hudson has settled 137 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 costs which may be incurred in connection with the remaining lawsuits will not have a material adverse effect on Energy Group's or Central Hudson's financial positions or results of operations.
OTHER CENTRAL HUDSON MATTERS
Central Hudson is involved in various other legal and administrative proceedings incidental to its business which are in various stages. While these matters collectively involve substantial amounts, it is the opinion of Management that their ultimate resolution will not have a material adverse effect on either Energy Group's or Central Hudson's financial positions or results of operations.
CH SERVICES:
CH Resources is subject to federal, state and local laws and regulation dealing with air and water quality and other environmental matters. The generating facilities of CH Resources remain subject to the Clean Air Act Amendments and were in compliance with those Amendments during 2001.
CH Services has entered into an agreement to sell all of its stock ownership interest in CH Resources to WPS Power Development, Inc. Upon the sale, expected to occur during the second quarter of 2002, CH Services will retain up to $4 million of environmental liabilities for a period of four (4) years incurred by CH Resources prior to the closing, although no such liabilities have been identified. Energy Group will guarantee the post-closing obligations of CH Services under the sale agreement.
During 2001, neither CH Services nor its competitive business subsidiaries were involved in or threatened with litigation or administrative orders relating to environmental liabilities, except that CH Resources entered into a Consent Order in April 2001 with the NYS DEC with respect to nitrogen oxide emissions and the calibration of the continuing emissions monitoring system at the CH Syracuse Plant.
Griffith also has a voluntary environmental program in connection with the West Virginia Division of Environmental Protection regarding Griffith's Kable Oil Bulk Plant. During 2001, approximately $400,000 was spent on site remediation efforts and it is anticipated that an additional $70,000 may be expended in 2002. The State of West Virginia has indicated no further remediation will be required of the site.
CITGO Petroleum Corporation ("CITGO") alleges that the Griffith Consumers Division is obligated to indemnify CITGO regarding any CITGO liability arising out of a claim by James and Casey Threatte against CITGO, among others, filed on May 15, 2001, in the Circuit Court for Loudon County, State of Virginia.
In November 2000, CHEC purchased the assets and business of Griffith. Pursuant to the Asset Purchase Agreement, the base purchase price is subject to a post-closing adjustment if the earnings before interest, taxes, depreciation and amortization of the business of Griffith for the year 2001 were $10.2 million or more. In
this case, CHEC would be liable in an amount, determined on a formula basis, up to $12 million payable on March 31, 2002. Based upon a preliminary analysis, Energy Group does not believe any amount is payable under this post-closing adjustment.
NOTE 11 - SEGMENTS AND RELATED INFORMATION
ENERGY GROUP
Energy Group's reportable operating segments are the regulated electric and gas operations of Central Hudson and the activities of the competitive business subsidiaries of CH Services, covered under the "Unregulated" segment for Energy Group. Also included in the "Unregulated" segment is the investment activity of Energy Group. All of the segments currently operate in the Northeast and mid-Atlantic regions of the United States.
Certain additional information regarding these segments is set forth in the following table. General corporate expenses, property common to both electric and gas segments and depreciation of the common property have been allocated to those segments in accordance with practice established for regulatory purposes.
CH Energy Group, Inc. Segment Disclosure - FAS 131 Year Ended December 31,
(1) Primarily due to the investment activity of Energy Group.
CH Energy Group, Inc. Segment Disclosure - FAS 131 Year Ended December 31,
CH Energy Group, Inc. Segment Disclosure - FAS 131 Year Ended December 31,
(2) Due to the sale of Energy Group's former New York Stock Exchange symbol.
Central Hudson Gas & Electric Corporation Segment Disclosure - FAS 131 Year Ended December 31,
Central Hudson Gas & Electric Corporation Segment Disclosure - FAS 131 Year Ended December 31,
NOTE 12 - FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
CASH AND TEMPORARY CASH INVESTMENTS: The carrying amount approximates fair value because of the short maturity of those instruments.
CUMULATIVE PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION: The fair value is estimated based on the quoted market price of similar instruments. The preferred stock is issued by Central Hudson.
LONG-TERM DEBT: The fair value is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to Central Hudson for debt of the same remaining maturities and quality.
NOTES PAYABLE: The carrying amount approximates fair value because of the short maturity of those instruments.
The estimated fair values of Energy Group's and Central Hudson's financial Instruments are as follows:
December 31, 2001 ---------------------------- Carrying Fair Amount Value ---------- --------- ENERGY GROUP (In Thousands) - ------------ Cumulative preferred stock subject to mandatory redemption ........ $ 35,000 $ 35,513 Long-term debt (including current maturities) ............ 236,124 241,498
CENTRAL HUDSON - -------------- Cumulative preferred stock subject to mandatory redemption ........ $ 35,000 $ 35,513 Long-term debt (including current maturities) ............ 235,874 241,248
December 31, 2000 ---------------------------- Carrying Fair Amount Value ---------- --------- ENERGY GROUP (In Thousands) - ------------ Cumulative preferred stock subject to mandatory redemption ........ $ 35,000 $ 33,690 Long-term debt (including current maturities) ............ 382,979 384,728
CENTRAL HUDSON - -------------- Cumulative preferred stock subject to mandatory redemption ........ $ 35,000 $ 33,690 Long-term debt (including current maturities) ............ 382,979 384,728
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) - ENERGY GROUP
Selected financial data for each quarterly period within 2001 and 2000 are presented below:
Earnings Per Average Share of Operating Operating Net Common Revenues Income Income Stock ------------ --------- -------- Outstanding ------------ Quarter Ended: (In Thousands) (Dollars) -------------------------------- ------------ ---- March 31 .................... $242,509 $ 24,346 $ 18,310 $ 1.12 June 30 ..................... 166,418 5,328 3,224 .20 September 30 ................ 165,831 10,837 9,539 .58 December 31 ................. 153,673 7,169 19,762 1.21
---- March 31 .................... $177,950 $ 24,286 $ 18,114 $ 1.07 June 30 ..................... 160,926 13,757 7,827 .47 September 30 ................ 167,897 20,735 14,496 .87 December 31 ................. 243,113 19,685 10,536 .64
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) - CENTRAL HUDSON
Selected financial data for each quarterly period within 2001 and 2000 are presented below:
Income Available for Operating Operating Common Revenues Income Stock ------------ --------- ------------ (In Thousands) --------------------------------------- Quarter Ended:
---- March 31 ...................... $168,868 $ 19,451 $ 11,807 June 30 ....................... 129,614 8,667 2,118 September 30 .................. 130,311 12,341 9,245 December 31 ................... 110,340 8,876 17,778
---- March 31 ...................... $158,980 $ 24,532 $ 18,091 June 30 ....................... 146,138 14,393 8,753 September 30 .................. 154,366 18,944 12,988 December 31 ................... 179,375 17,390 9,533
SCHEDULE II - RESERVES - ENERGY GROUP
SCHEDULE II - RESERVES - CENTRAL HUDSON
YEAR ENDED DECEMBER 31, 2001
ITEM 9
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF ENERGY GROUP AND ITS SUBSIDIARIES
The information on Directors of Energy Group required hereunder is as follows:
- ------------------------------------------------------------------------------- Year Joined Name Age the Board(6) Term of Office - ------------------------------------------------------------------------------- Paul J. Ganci(2,4,5) 63 1989 Class III Director(7) - ------------------------------------------------------------------------------- Jack Effron(3,4,5) 68 1987 Class III Director(7) - ------------------------------------------------------------------------------- Frances D. Fergusson(1,3) 57 1993 Class II Director(8) - ------------------------------------------------------------------------------- Heinz K. Fridrich(1,2,4) 68 1988 Class III Director(7) - ------------------------------------------------------------------------------- Edward F. X. Gallagher(1,5) 68 1984 Class I Director(9) - ------------------------------------------------------------------------------- Stanley J. Grubel(2,3) 59 1999 Class II Director(8) - ------------------------------------------------------------------------------- John E. Mack III(4,5) 67 1981 Class II Director(8) - ------------------------------------------------------------------------------- Steven M. Fetter 50 2002 Unclassified Director(10) - ------------------------------------------------------------------------------- Steven V. Lant 44 2002 Unclassified Director(10) - -------------------------------------------------------------------------------
- ---------------
(1) Member, Audit Committee of the Board of Directors. (2) Member, Business Development Committee of the Board of Directors. (3) Member, Compensation and Succession Committee of the Board of Directors. (4) Member, Executive Committee of the Board of Directors. (5) Member, Finance Committee of the Board of Directors. (6) Years prior to 1999 reflect Directorships of Central Hudson. (7) Term expires at Annual Meeting of Shareholders in 2003. (8) Term expires at Annual Meeting of Shareholders in 2002. Mr. Grubel is a Nominee for re-election as a Director at that Meeting. Ms. Fergusson and Mr. Mack are not standing for re-election. (9) Term expires at Annual Meeting of Shareholders in 2004. (10) Messrs. Fetter and Lant are standing for election at the Annual Meeting of Shareholders as Class II and Class I Directors, respectively.
OFFICERS OF THE BOARD:
Paul J. Ganci Chairman of the Board and the Executive Committee
Heinz K. Fridrich Vice Chairman of the Board and Chairman of the Audit Committee
Jack Effron Chairman of the Compensation Committee
Stanley J. Grubel Chairman of the Business Development Committee
John E. Mack III Chairman of the Finance Committee
The information on those directors of Energy Group standing for election by shareholders at the Annual Meeting of Shareholders to be held on April 23, 2002 is incorporated by reference to the caption "Proposal - Election of Directors" in Energy Group's definitive proxy statement, dated March 1, 2002, and to be used in connection with the Annual Meeting, which proxy statement will be submitted to the Securities and Exchange Commission ("SEC") pursuant to that Commission's Regulation S-T.
The information on the executive officers of Energy Group required hereunder is incorporated by reference to Item 1 hereof, under the caption "Executive Officers."
ITEM 11
ITEM 11 - EXECUTIVE COMPENSATION
The information required hereunder for directors and executives of Energy Group is incorporated by reference to Energy Group's definitive proxy statement, dated March 1, 2002, and to be used in connection with its Annual Meeting of Shareholders to be held on April 23, 2002.
ITEM 12
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required hereunder regarding equity ownership in Energy Group by its Directors and executive officers is incorporated by reference to the caption "Security Ownership of Directors and Officers" in Energy Group's definitive proxy statement, dated March 1, 2002, and to be used in connection with its Annual Meeting of Shareholders to be held on April 23, 2002.
ITEM 13
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no relationships or transactions of the type required to be described by this Item.
PART IV
ITEM 14
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT
1. and 2. All Financial Statements and Financial Statement Schedules filed as part of this Report are included in Item 8 of this Form 10-K and reference is made thereto.
3. Exhibits
Incorporated herein by reference to the Exhibit Index for this Report. Such Exhibits include the following management contracts or compensatory plans or arrangements required to be filed as an Exhibit pursuant to Item 14(c) hereof:
DESCRIPTION IN THE EXHIBIT LIST AND EXHIBIT NOS. FOR THIS REPORT
Energy Group's Stock Plan for Outside Directors.(Exhibits (10) (iii) 7)
Energy Group's Supplementary Retirement Plan. (Exhibits (10) (iii) 11 and 23)
Central Hudson's Retirement Benefit Restoration Plan. (Exhibits (10) (iii) 12 and 24)
Form of Employment Agreement for all officers of Energy Group and its subsidiary companies. (Exhibits (10) (iii) 13)
Employment Agreement between Paul J. Ganci and Energy Group.(Exhibit (10) (iii) 16)
Energy Group's Change of Control Severance Policy.(Exhibits (10) (iii) 6 and 15)
Central Hudson's Savings Incentive Plan. (Exhibits (10) (iii) 1, 2, 3, 14, 18, 19 and 21)
Energy Group's Long-Term Performance-Based Incentive Plan. (Exhibit (10) (iii) 10, 17 and 20)
Energy Group's Directors and Executives Deferred Compensation Plan. (Exhibits (10) (iii) 8, 9 and 22)
(b) REPORTS ON FORM 8-K
During the last quarter of the period covered by this Report and including the period to the date hereof, the following Reports on Form 8-K were filed by Energy Group and/or Central Hudson:
1. Report dated October 26, 2001 of Central Hudson describing the actions of the PSC in (i) approving the sale of the interests of certain of the cotenant owners in the Nine Mile 2 Plant and (ii) issuing its order in Central Hudson's rate proceeding.
2. Reports each dated November 13, 2001, for Energy Group and Central Hudson relating to the sale of Central Hudson's interest in the Nine Mile 2 Plant to Constellation Nuclear LLC.
3. Report dated December 26, 2001 for Energy Group relating to the proposed sale of CH Resources to WPS Power Development, Inc.
4. Report dated January 15, 2002 of Energy Group relating to Energy Group's projected earnings for 2001.
(c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
Incorporated herein by reference to subpart (a)-3 of Item 14, above.
(d) FINANCIAL STATEMENT SCHEDULE REQUIRED BY REGULATION S-X WHICH IS EXCLUDED FROM ENERGY GROUP'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
Not applicable, see Item 8 hereof.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, CH Energy Group, Inc. and Central Hudson Gas & Electric Corporation have duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
CH ENERGY GROUP, INC.
By /s/ PAUL J. GANCI --------------------------------- Paul J. Ganci Chairman of the Board and Chief Executive Officer
Dated: February 15, 2002
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
By /s/ PAUL J. GANCI --------------------------------- Paul J. Ganci Chairman of the Board and Chief Executive Officer
Dated: February 15, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following person on behalf of CH Energy Group, Inc. and Central Hudson Gas & Electric Corporation and in the capacities and on the date indicated:
(d) A majority of Directors of CH Energy Group, Inc.:
Jack Effron*, Frances D. Fergusson*, Heinz K. Fridrich*, Edward F.X.Gallagher*, Paul J. Ganci*, Stanley J. Grubel*, John E. Mack III*, and Steven V. Lant*, Directors
By /s/ PAUL J. GANCI ---------------------------------- (Paul J. Ganci) February 15, 2002
(e) A majority of Directors of Central Hudson Gas & Electric Corporation :
Paul J. Ganci*, Carl E. Meyer*, Steven V. Lant*, and Arthur R. Upright*, Directors
By /s/ PAUL J. GANCI ---------------------------------- (Paul J. Ganci) February 15, 2002
- ----------------
*Paul J. Ganci, by signing his name hereto, does thereby sign this document for himself and on behalf of the persons named above after whose printed name an asterisk appears, pursuant to powers of attorney duly executed by such persons and filed with the SEC as Exhibit 24 hereof.
EXHIBIT INDEX
Following is the list of Exhibits, as required by Item 601 of Regulation S-K, filed as a part of this Annual Report on Form 10-K, including Exhibits incorporated herein by reference (1):
Exhibit No. (Regulation S-K Item 601 Designation) Exhibits ------------ --------
(2) Plan of Acquisition, reorganization, arrangement, liquidation or succession:
(i) Certificate of Exchange of Shares of Central Hudson Gas & Electric Corporation, subject corporation, for shares of CH Energy Group, Inc., acquiring corporation, under Section 913 of the Business Corporation Law of the State of New York. ((45); Exhibit 2(i))
(ii) Agreement and Plan of Exchange by and between Central Hudson Gas & Electric Corporation and CH Energy Group, Inc. ((39; Exhibit 2.1)
(3) Articles of Incorporation and Bylaws:
(i) Restated Certificate of Incorporation of CH Energy Group, Inc. under Section 807 of the Business Corporation Law, filed November 12, 1998. ((37); Exhibit (3)1)
(ii) By-laws of CH Energy Group, Inc. in effect on the date of this Report. ((45), Exhibit (3)(ii))
(iii) Restated Certificate of Incorporation of Central Hudson Gas & Electric Corporation under Section 807 of the Business Corporation Law. ((18); Exhibit (3)1)
- ---------- (1) Exhibits which are incorporated by reference to other filings are followed by information contained in parentheses, as follows: The first reference in the parenthesis is a numeral, corresponding to a numeral set forth in the Notes which follow this Exhibit list, which identifies the prior filing in which the Exhibit was physically filed; and the second reference in the parenthesis is to the specific document in that prior filing in which the Exhibit appears.
E-1
(iv) Certificate of Amendment to the Certificate of Incorporation of Central Hudson Gas & Electric Corporation under Section 805 of the Business Corporation Law. ((18); Exhibit (3)2)
(v) Certificate of Amendment to the Certificate of Incorporation of Central Hudson Gas & Electric Corporation under Section 805 of the Business Corporation Law. ((18); Exhibit (3)3)
(vi) By-laws of Central Hudson Gas & Electric Corporation in effect on the date of this Report.
(4) Instruments defining the rights of security holders, including indentures (see also Exhibits (3)(i)and (ii) above):
*(ii) 1-- Indenture dated January 1, 1927 between Central Hudson Gas & Electric Corporation ("Central Hudson") and American Exchange Irving Trust Company, as Trustee. ((2); Exhibit (4)(ii)1)
*(ii) 2-- Fourth Supplemental Indenture dated March 1, 1941 between Central Hudson and Irving Trust Company, as Trustee. ((2); Exhibit (4)(ii)5)
*(ii) 3-- Fifth Supplemental Indenture dated December 1, 1950 between Central Hudson and Irving Trust Company, as Trustee. ((2); Exhibit (4)(ii)6)
(ii) 4-- Ninth Supplemental Indenture dated December 1, 1967 between Central Hudson and Irving Trust Company, as Trustee. ((2); Exhibit (4)(ii)10)
(ii) 5-- Twenty-Seventh Supplemental Indenture dated as of May 15, 1992 between Central Hudson and The Bank of New York, as Trustee. ((2); Exhibit (4)(ii)28); and
Prospectus Supplement Dated May 28, 1992 (To Prospectus Dated April 13, 1992) relating to $125,000,000 principal amount of First Mortgage Bonds, designated Secured Medium-Term Notes, Series A, and the
E-2
Prospectus Dated April 13, 1992, relating to $125,000,000 principal amount of Central Hudson's debt securities attached thereto, as filed pursuant to Rule 424(b) in connection with Registration Statement No. 33-46624. ((6)(a)), and, as applicable to a tranche of such Secured Medium-Term Notes, one of the following:
(a) Pricing Supplement No. 2, Dated June 4, 1992 (To Prospectus Dated April 13, 1992, as supplemented by a Prospectus Supplement Dated May 28, 1992) filed pursuant to Rule 424(b) in connection with Registration Statement No. 33-46624. ((6)(b))
(b) Pricing Supplement No. 3, Dated June 4, 1992 (To Prospectus Dated April 13, 1992, as supplemented by a Prospectus Supplement Dated May 28, 1992) filed pursuant to Rule 424(b) in connection with Registration Statement No. 33-46624. ((6)(c))
(c) Pricing Supplement No. 4, Dated August 20, 1992 (To Prospectus Dated April 13, 1992, as supplemented by a Prospectus Supplement Dated May 28, 1992) filed pursuant to Rule 424(b) in connection with Registration Statement No. 33-46624. ((6)(d))
(d) Pricing Supplement No. 5, Dated August 20, 1992 (To Prospectus Dated April 13, 1992, as supplemented by a Prospectus Supplement Dated May 28, 1992) filed pursuant to Rule 424(b) in connection with Registration Statement No. 33-46624. ((6)(e))
(e) Pricing Supplement No. 7, Dated July 26, 1993 (To Prospectus Dated April 13, 1992, as supplemented by a Prospectus Supplement Dated May 28, 1992) filed pursuant to Rule 424(b) in connection with Registration Statement No. 33-46624. ((6)(f))
(ii) 6-- Discharge, release and cancellation of Indenture of Mortgage, dated November 6,
E-3
2001, from the Bank of New York, as Trustee.
(ii) 7-- Indenture, dated as of April 1, 1992, between Central Hudson and Morgan Guaranty Trust Company of New York, as Trustee related to unsecured Medium-Term Notes. ((7); Exhibit (4)(ii)29)
(ii) 8-- Prospectus Supplement Dated May 28, 1992 (To Prospectus Dated April 13, 1992) relating to $125,000,000 principal amount of Medium-Term Notes, Series A, and the Prospectus Dated April 13, 1992, relating to $125,000,000 principal amount of Central Hudson's debt securities attached thereto, as filed pursuant to Rule 424(b) in connection with Registration Statement No. 33-46624. ((8)(a)), and, as applicable to a tranche of such Medium-Term Notes, set forth in Pricing Supplement No. 1, Dated June 26, 1992 (To Prospectus Dated April 13, 1992, as supplemented by a Prospectus Supplement Dated May 28, 1992) filed pursuant to Rule 424(b) in connection with Registration Statement No. 33-46624. ((8)(b)).
(ii) 9-- Prospectus Supplement Dated January 8, 1999 (To Prospectus Dated January 7, 1999) relating to $110,000,000 principal amount of Medium-Term Notes, Series C, and the Prospectus Dated January 7, 1999, relating to $110,000,000 principal amount of Central Hudson's debt securities attached thereto, as filed pursuant to Rule 424(b) in connection with Registration Statement Nos. 333-65597 and 33-56349. ((36)(a)), and, as applicable to a tranche of such Medium-Term Notes, set forth in Pricing Supplement No. 1, Dated January 12, 1999 (To Prospectus Dated January 7, 1999, as supplemented by a Prospectus Supplement Dated January 8, 1999) filed pursuant to Rule 424(b) in connection with Registration Statement Nos. 333-65597 and 33-56349. ((36)(b))
(ii) 10-- Central Hudson and another subsidiary of Energy Group have entered into certain other instruments with respect to long-term debt. No such instrument relates to
E-4
securities authorized thereunder which exceed 10% of the total assets of Energy Group and its other subsidiaries or Central Hudson, as the case may be, each on a consolidated basis. Energy Group and Central Hudson agree to provide the Commission, upon request, copies of any instruments defining the rights of holders of long-term debt of Central Hudson and such other subsidiary.
(10) Material contracts:
(i) 1-- Agreement dated April 27, 1973 between Central Hudson and the Power Authority of the State of New York. ((11); Exhibit 5.19)
(i) 2-- Assignment and Assumption dated as of October 24, 1975 between Central Hudson and New York State Electric & Gas Corporation. ((12); Exhibit 5.25)
(i) 3-- Amendment to Assignment and Assumption dated October 30, 1978 between Central Hudson and New York State Electric & Gas Corporation. ((3); Exhibit 5.34)
(i) 4-- Agreement dated April 2, 1980 by and between Central Hudson and the Power Authority of the State of New York. ((2); Exhibit (10)(i)24)
(i) 5-- Transmission Agreement, dated October 25, 1983, between Central Hudson and Niagara Mohawk Power Corporation. ((2); Exhibit (10)(i)30)
(i) 6-- Underground Storage Service Agreement, dated June 30, 1982, between Central Hudson and Penn-York Energy Corporation. ((2); Exhibit (10)(i)32)
(i) 7-- Interruptible Transmission Service Agreement, dated December 20, 1983, between Central Hudson and Power Authority of the State of New York. ((2); Exhibit (10)(i)33)
(i) 8-- Agreement, dated December 7, 1983, between Central Hudson and the Power Authority of
E-5
the State of New York. ((2); Exhibit (10)(i)34)
(i) 9-- General Joint Use Pole Agreement between Central Hudson and the New York Telephone Company effective January 1, 1986 (not including the Administrative and Operating Practices provisions thereof). ((2); Exhibit (10)(i)37)
(i) 10-- Agreement, dated June 3, 1985, between Central Hudson, Consolidated Edison Company of New York, Inc. and the Power Authority of the State of New York relating to Marcy South Real Estate - East Fishkill, New York. ((2); Exhibit (10)(i)38)
(i) 11-- Agreement, dated June 11, 1985, between Central Hudson and the Power Authority of the State of New York relating to Marcy South Substation - East Fishkill, New York. ((2); Exhibit (10)(i)39)
(i) 12-- Memorandum of Understanding, dated as of March 22, 1988, by and among Central Hudson, Alberta Northeast Gas, Limited, the Brooklyn Union Gas Company, New Jersey Natural Gas Company and Connecticut Natural Gas Corporation. ((17); Exhibit (10)(i)98)
(i) 13-- Agreement, effective as of November 1, 1989, between Columbia Gas Transmission Corporation and Central Hudson. ((19); Exhibit (10)(i)75)
(i) 14-- Agreement, dated as of November 1, 1989, between Columbia Gas Transmission Corporation and Central Hudson. ((19); Exhibit (10)(i)77)
(i) 15-- Agreement, dated as of November 1, 1989, between Columbia Gas Transmission Corporation and Central Hudson. ((19); Exhibit (10)(i)78)
(i) 16-- Agreement, dated as of November 1, 1989, between Columbia Gulf Transmission Company and Central Hudson. ((19); Exhibit (10)(i)79)
E-6
(i) 17-- Agreement, dated October 9, 1990, between Texas Eastern Transmission Corporation and Central Hudson. ((19); Exhibit (10)(i)80)
(i) 18-- Agreement, dated July 2, 1990, between Texas Eastern Transmission Corporation and Central Hudson. ((19); Exhibit (10)(i)81)
(i) 19-- Agreement, dated December 28, 1989, between Texas Eastern Transmission Corporation and Central Hudson. ((19); Exhibit (10)(i)82)
(i) 20-- Agreement, dated December 28, 1989, between Texas Eastern Transmission Corporation and Central Hudson. ((19); Exhibit (10)(i)83)
(i) 21-- Agreement, dated November 3, 1989, between Texas Eastern Transmission Corporation and Central Hudson. ((19); Exhibit (10)(i)84)
(i) 22-- Agreement, dated September 4, 1990, between Algonquin Gas Transmission Company and Central Hudson. ((19); Exhibit (10)(i)87)
(i) 23-- Storage Service Agreement, dated July 1, 1989, between CNG Transmission Corporation and Central Hudson. ((19); Exhibit (10)(i)91)
(i) 24-- Agreement dated as of February 7, 1991 between Central Hudson and Alberta Northeast Gas, Limited for the purchase of Canadian natural gas from ATCOR Ltd. to be delivered on the Iroquois Gas Transmission System. ((19); Exhibit (10)(i)92)
(i) 25-- Agreement dated as of February 7, 1991 between Central Hudson and Alberta Northeast Gas, Limited for the purchase of Canadian natural gas from AEC Oil and Gas Company, a Division of Alberta Energy Company, Ltd. to be delivered on the Iroquois Gas Transmission System. ((19); Exhibit (10)(i)93)
(i) 26-- Agreement dated as of February 7, 1991 between Central Hudson and Alberta Northeast Gas, Limited for the purchase of Canadian natural gas from ProGas Limited to be delivered on the Iroquois Gas
E-7
Transmission System. ((19); Exhibit (10)(i)94)
(i) 27-- Agreement No. 2 dated as of February 7, 1991 between Central Hudson and Alberta Northeast Gas, Limited for the purchase of Canadian natural gas from TransCanada Pipelines Limited under Precedent Agreement No. 2 to be delivered on the Iroquois Gas Transmission System. ((19); Exhibit (10)(i)95)
(i) 28-- Agreement No. 1 dated as of February 7, 1991 between Central Hudson and Alberta Northeast Gas, Limited for the purchase of Canadian natural gas from TransCanada Pipelines Limited under Precedent Agreement No. 1 to be delivered on the Iroquois Gas Transmission System. ((19); Exhibit (10)(i)96)
(i) 29-- Agreement dated as of February 7, 1991 between Central Hudson and Iroquois Gas Transmission System to transport gas imported by Alberta Northeast Gas, Limited to Central Hudson. ((19); Exhibit (10)(i)97)
(i) 30-- Service Agreement, dated September 30, 1986, between Central Hudson and Algonquin Gas Transmission Company, for firm storage transportation under Rate Schedule SS-III. ((20); Exhibit (10)(i)95)
(i) 31-- Service Agreement, dated March 12, 1991, between Central Hudson and Algonquin Gas Transmission Company, for firm transportation of 5,056 dth. of Texas Eastern Transmission Corporation incremental volume. ((20); Exhibit (10)(i)99)
(i) 32-- Agreement, dated December 28, 1990 and effective February 5, 1991, between Central Hudson and National Fuel Gas Supply Corporation for interruptible transportation. ((20); Exhibit (10)(i)100)
(i) 33-- Utility Services Contract, effective October 1, 1991, between Central Hudson and the U.S. Department of the Army, for the
E-8
provision of natural gas service to the U.S. Military Academy at West Point and Stewart Army Subpost, together with an Amendment thereto, effective October 10, 1991. ((20); Exhibit (10)(i)101)
(i) 34-- Service Agreement, effective December 1, 1990, between Central Hudson and Texas Eastern Transmission Corporation, for firm transportation service under Rate Schedule FT-1. ((20); Exhibit (10)(i)103)
(i) 35-- Service Agreement, dated February 25, 1991, between Central Hudson and Texas Eastern Transmission Corporation, for incremental 5,056 dth. under Rate Schedule CD-1. ((20); Exhibit (10)(i)104)
(i) 36-- Service Agreement, dated January 7, 1992, between Central Hudson and Texas Eastern Transmission Corporation, for the firm transportation of 6,000 dth./day under Rate Schedule FTS-5. ((20); Exhibit (10)(i)106)
(i) 37-- Agreement dated as of July 1, 1992 between Central Hudson and Tennessee Gas Pipeline Company for storage of natural gas. ((21); Exhibit (10)(i)114)
(i) 38-- Agreement dated as of July 1, 1992 between Central Hudson and Tennessee Gas Pipeline Company for firm transportation periods. ((21); Exhibit (10)(i)115)
(i) 39-- Agreement, dated November 1, 1990, between Tennessee Gas Pipeline and Central Hudson for transportation of third-party gas for injection into and withdrawal from Penn York storage. ((2); Exhibit (10)(i)100)
(i) 40-- Agreement, dated December 1, 1991, between Central Hudson and Iroquois Gas Transmission System for interruptible gas transportation service. ((2); Exhibit (10)(i)101)
(i) 41-- Letter Agreement, dated August 24, 1992, between Central Hudson and Iroquois Gas Transmission System amending that certain Agreement, dated December 1, 1991 between said parties for interruptible gas
E-9
transportation service. ((19); Exhibit (10)(i)102)
(i) 42-- Gas Transportation Agreement, dated as of September 1, 1993, by and between Tennessee Gas Pipeline Company and Central Hudson. ((1); Exhibit(10)(i)108)
(i) 43-- Agreement, dated as of May 20, 1993, between Central Hudson and New York State Electric & Gas Corporation. ((24); Exhibit (10)(i)93)
(i) 44-- Agreement for the Sale and Purchase of Coal, dated as of December 1, 1996, among Central Hudson, Inter-American Coal N.V. and Inter-American Coal, Inc. [Certain portions of the agreement setting forth or relating to pricing provisions are omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under the rules of said Commission.] ((30); Exhibit (10)(i)107)
(i) 45-- Amended and Restated Settlement Agreement, dated January 2, 1998, among Central Hudson, the Staff of the Public Service Commission of the State of New York and the New York State Department of Economic Development. ((32); Exhibit (10)(i)112)
(i) 46-- Amendment, dated as of November 1, 1997, to the Agreement for the Sale and Purchase of Coal, dated December 1, 1996, among Central Hudson, Inter-American Coal N.V. and Inter-American Coal, Inc. [Certain portions of said Amendment set forth and relate to pricing provisions and will be filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under the rules of said Commission.] ((33); Exhibit (10)(i)113)
(i) 47-- Modification to the Amended and Restated Settlement Agreement, dated February 26, 1998, signed by Central Hudson, the Staff of the Public Service Commission of the State of New York, the New York State
E-10
Consumer Protection Board and Pace Energy Project. ((34); Exhibit (10)(i)115)
(i) 48-- Amendment II, dated as of November 1, 1998, to the Agreement for the Sale and Purchase of Coal, dated December 1, 1996, among Central Hudson, Inter-American Coal N.V. and Inter-American Coal, Inc. [Certain portions of said Amendment setting forth or relating to pricing provisions are omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under the rules of said Commission.] ((40); Exhibit (10)(i)80)
(i) 49-- Participation Agreement, dated as of June 1, 1977 by and between New York State Energy Research and Development Authority and Central Hudson. ((45); Exhibit (10)(i)67)
(i) 50-- Agreement, dated as of November 1, 1998, between Central Hudson and Glencore Ltd., for the Sale and Purchase of Coal. [Certain portions of said Agreement setting forth or relating to pricing provisions are omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under the rules of said Commission.] ((40); Exhibit (10)(i)81)
(i) 51-- Participation Agreement, dated as of December 1, 1998, by and between New York State Energy Research and Development Authority and Central Hudson. ((40); Exhibit (10)(i)82)
(i) 52-- Participation Agreement, dated as of July 15, 1999, by and between New York State Energy Research and Development Authority and Central Hudson. ((45); Exhibit (10)(i)66)
(i) 53-- Participation Agreement, dated as of August 1, 1999, by and between New York State Energy Research and Development Authority and Central Hudson. ((45); Exhibit (10)(i)67)
E-11
(i) 54-- Agreement, dated April 1, 1999, between Central Hudson and Arch Coal Sales Company, Inc. for the Sale and Purchase of Coal. [Certain portions of the Agreement setting forth or relating to pricing provisions are omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under the rules of said Commission.] ((38); Exhibit (10)(i)89)
(i) 55-- Amendment No. 3, dated as of November 1, 1999, to the Agreement for the Sale and Purchase of Coal, dated December 1, 1996, between Central Hudson and Inter-American Coal, Inc. [Certain portions of said Amendment set forth and relate to pricing provisions and will be filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under the rules of said Commission.] ((41); Exhibit (10)(i)88)
(i) 56-- Amendment No. 1, dated as of November 1, 1999, to the Agreement for the Sale and Purchase of Coal, dated November 1, 1998, between Central Hudson and Glencore, Ltd. [Certain portions of said Amendment set forth and relate to pricing provisions and will be filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under the rules of said Commission.] ((41); Exhibit (10)(i)89)
(i) 57-- Amendment No. 1, dated as of November 1, 1999, to the Agreement for the Sale and Purchase of Coal, dated April 1, 1999 between Central Hudson and Arch Coal. [Certain portions of said Amendment set forth and relate to pricing provisions and will be filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under the rules of said Commission.] ((41); Exhibit (10)(i)90)
(i) 58-- Asset Purchase and Sale Agreement, dated August 7, 2000, by and among Central Hudson, Consolidated Edison Company of New York, Inc., Niagara Mohawk Power
E-12
Corporation and Dynegy Power Corp. ((44); Exhibit (10)(i)93)
(i) 59-- Asset Purchase and Sale Agreement, dated August 7, 2000, by and between Central Hudson and Dynegy Power Corp. ((44); Exhibit (10)(i)94)
(i) 60-- Purchase Price Agreement, dated August 7, 2000, among Central Hudson, Consolidated Edison Company of New York, Inc., Niagara Mohawk Power Corporation and Dynegy Power Corp. ((44); Exhibit (10)(i)95)
(i) 61-- Guarantee Agreement, dated August 7, 2000, among Central Hudson, Consolidated Edison Company of New York, Inc., Niagara Mohawk Power Corporation and Dynegy Holdings, Inc. ((44); Exhibit (10)(i)96)
(i) 62-- Nine Mile Point Unit 2 Nuclear Generating Facility Asset Purchase Agreement, dated as of December 11, 2000, by and among Central Hudson, Niagara Mohawk Power Corporation, New York State Electric & Gas Corporation, Rochester Gas and Electric Corporation, Constellation Energy Group, Inc. and Constellation Nuclear LLC. ((45); Exhibit (10)(i)(79))
(i) 63-- Power Purchase Agreement, dated as of December 11, 2000, by and between Constellation Nuclear, LLC and Central Hudson. ((45); Exhibit (10)(i)(80))
(i) 64-- Revenue Sharing Agreement, dated as of December 11, 2000, by and between Constellation Nuclear LLC and Central Hudson. ((45); Exhibit (10)(i)(84))
(i) 65-- Transition Power Agreement, dated January 30, 2001, by and between Central Hudson and Dynegy Power Marketing, Inc. ((45); Exhibit (10)(i)(82))
(i) 66-- Amended and Restated Credit Agreement, dated July 10, 2000, among CH Energy Group, Inc., ("Energy Group") certain lenders described therein and Banc One, N.A., as administrative Agent. ((43); Exhibit (10)(i)92)
E-13
(i) 67-- Amendment II, dated as of December 22, 2000, to the Agreement for the Sale and Purchase of Coal, dated April 1, 1999, between Central Hudson and Arch Coal Sales Company, Inc. [Certain portions of said Amendment set forth and relate to pricing provisions and will be filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under the rules of said Commission.] ((45); Exhibit (10)(i)(84))
(i) 68-- Amendment IV, dated as of December 29, 2000, to the Agreement for the Sale and Purchase of Coal made as of December 1, 1996, between Central Hudson and Inter-American Coal N.V. and Inter-American Coal, Inc. [Certain portions of said Amendment set forth and relate to pricing provisions and will be filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under the rules of said Commission.] ((45); Exhibit (10)(i)(85))
(i) 69-- Stock Purchase Agreement, dated December 21, 2001 between Central Hudson Energy Services, Inc. and WPS Power Development, Inc.
(i) 70-- Letter Agreement, dated December 21, 2001, between Central Hudson Enterprises Corporation and WPS Power Development, Inc.
(i) 71-- [reserved]
E-14
(i) 72-- Letter Agreement, dated July 3, 2001 between Central Hudson and Dynegy.
(iii) 1-- Agreement, made March 14, 1994, by and between Central Hudson and Mellon Bank, N.A., amending and restating, effective April 1, 1994, Central Hudson's Savings Incentive Plan and related Trust Agreement with The Bank of New York. ((25); Exhibit (10)(iii)18)
(iii) 2-- Amendment 1, dated July 22, 1994 (effective April 1, 1994) to the Amended and Restated Savings Incentive Plan of Central Hudson. ((26); Exhibit (10)(iii)19)
(iii) 3-- Amendment 2, dated December 16, 1994 (effective January 1, 1995) to the Amended and Restated Savings Incentive Plan of Central Hudson, as amended. ((26); Exhibit (10)(iii)20)
(iii) 4-- Management Incentive Program of Central Hudson, effective April 1, 1994. ((30); Exhibit (10)(iii)23)
(iii) 5-- Amendment, dated July 25, 1997, to the Management Incentive Program of Central Hudson, effective August 1, 1997. ((33); Exhibit (10)(iii)24)
(iii) 6-- CH Energy Group, Inc. Change-of-Control Severance Policy, effective December 1, 1998. ((40); Exhibit (10)(iii)14)
(iii) 7-- Amended and Restated Stock Plan for Outside Directors of CH Energy Group, Inc. effective December 15, 1999. ((41); Exhibit (10)(iii)21).
E-15
(iii) 8-- CH Energy Group, Inc. Directors and Executives Deferred Compensation Plan effective January 1, 2000. ((41); Exhibit (10)(iii)25)
(iii) 9-- Trust and Agency Agreement, dated December 15, 1999 and effective January 1, 2000, between the Corporation and First America Trust Company for the Corporation's Directors and Executives Deferred Compensation Plan. ((41); Exhibit (10)(iii)26)
(iii) 10-- Long-Term Performance-Based Incentive Plan of CH Energy Group, Inc. effective January 1, 2000. ((41); Exhibit (10)(iii)27)
(iii) 11-- CH Energy Group, Inc. Supplementary Retirement Plan, effective December 15, 1999, being an amendment and restatement of the Central Hudson Executive Deferred Compensation Plan as assigned to CH Energy Group, Inc. ((43); Exhibit (10)(ii)29)
(iii) 12-- Amendment to and Restatement of Central Hudson's Retirement Benefit Restoration Plan, effective as of January 1, 2000. ((43); Exhibit (10)(iii)30)
(iii) 13-- Form of Employment Agreement for all officers of CH Energy Group, Inc. and its subsidiary companies.
(iii) 14-- Amendment Number Three to the Central Hudson Savings Incentive Plan, effective January 1, 2001. ((45); Exhibit (10)(iii)32)
(iii) 15-- Amendment to the CH Energy Group, Inc. Change-of-Control Severance Policy, effective August 1, 2000. ((45); Exhibit (10)(iii)33)
(iii) 16-- Employment Agreement, dated September 28, 2001, between CH Energy Group, Inc. and Paul J. Ganci.
E-16
(iii) 17-- Amendment, effective January 1, 2001, to Energy Group's Long-Term Performance-Based Incentive Plan. ((46); Exhibit (10)(iii)1)
(iii) 18-- Amendment and Restatement, dated October 1, 2001, of the Central Hudson Savings Incentive Plan.
(iii) 19-- Form of Trust Agreement, effective as of October 1, 2001, between Central Hudson and ING National Trust, as successor Trustee under the Central Hudson Savings Incentive Plan.
(iii) 20-- Amendment No. 2, effective January 1, 2002, to Energy Group's Long-Term Performance-Based Incentive Plan.
(iii) 21-- Form of Supplemental Participation Agreement, dated October 21, 2001, among Central Hudson Enterprises Corporation, Central Hudson and ING National Trust re: Central Hudson Savings Incentive Plan.
(iii) 22-- Amendment to CH Energy Group, Inc. Directors and Executives Deferred Compensation Plan effective July 1, 2001.
(iii) 23-- Amendment and restatement of CH Energy Group, Inc. Supplementary Retirement Plan, effective July 1, 2001.
(iii) 24-- Amendment and restatement of Central Hudson Gas & Electric Corporation Retirement Benefit Restoration Plan effective June 22, 2001.
(12)(i)-- CH Energy Group Statement showing the computation of the ratio of earnings to fixed charges.
(12)(ii)-- Central Hudson Statement showing the computation of the ratio of earnings to fixed charges and ratio of earnings to fixed charges and preferred dividends.
(21) -- Subsidiaries of Energy Group and Central Hudson:
E-17
State or other Name under which Jurisdiction of Subsidiary conducts Name of Subsidiary Incorporation Business - ----------------- -------------- ----------------------------
Central Hudson Gas New York Central Hudson Gas & & Electric Corporation Electric Corporation
Central Hudson Energy New York Central Hudson Energy Services, Inc. Services, Inc.
Phoenix Development New York Phoenix Development Company, Inc. Company, Inc.
Greene Point New York Greene Point Development Corporation Development Corporation
CH Resources, Inc. New York CH Resources, Inc.
CH Syracuse New York CH Syracuse Properties, Inc. Properties, Inc.
CH Niagara New York CH Niagara Properties, Inc. Properties, Inc.
Central Hudson New York Central Hudson Enterprises Corporation Enterprises Corporation
SCASCO, Inc. Connecticut SCASCO, Inc.
Prime Industrial New York Prime Industrial Energy Energy Services, Inc. Services, Inc.
Griffith Energy New York Griffith Energy Services, Inc. Services, Inc.
(23)-- Consent of Experts:
The consent of PricewaterhouseCoopers LLP.
(24)-- Powers of Attorney:
(i) 1-- Powers of Attorney for each of the directors comprising a majority of the Board of Directors of Energy Group authorizing execution and filing of this Annual Report on Form 10-K by Paul J. Ganci.
(i) 2-- Powers of Attorney for each of the directors comprising a majority of the Board of Directors of Central Hudson authorizing execution and filing of this Annual Report on Form 10-K by Paul J. Ganci.
E-18
(99)-- Additional Exhibits:
(i) 1-- Order on Consent signed on behalf of the New York State Department of Environmental Conservation and Central Hudson relating to Central Hudson's former manufactured gas site located in Newburgh, New York. ((28); Exhibit (99)(i)5)
(i) 2-- Summary of principal terms of the Amended and Restated Settlement Agreement, dated January 2, 1998, among Central Hudson, the Staff of the Public Service Commission of the State of New York and the New York State Department of Economic Development. ((32); Exhibit 99(1))
(i) 3-- Order of the Public Service Commission of the State of New York, issued and effective February 19, 1998, adopting the terms of Central Hudson's Amended Settlement Agreement, subject to certain modifications and conditions. ((34); Exhibit (10)(1))
(i) 4-- Order of the Public Service Commission of the State of New York, issued and effective June 30, 1998, explaining in greater detail and reaffirming its Abbreviated Order, issued and effective February 19, 1998, which February 19, 1998 Order modified, and as modified, approved the Amended and Restated Settlement Agreement, dated January 2, 1998, entered into among Central Hudson, the PSC Staff and others as part of the PSC's "Competitive Opportunities" proceeding (ii) the Order, dated June 24, 1998, of the Federal Energy Regulatory Commission conditionally authorizing the establishment of an Independent System Operator by the member systems of the New York Power Pool and (iii) disclosing, effective August 1, 1998, Paul J. Ganci's appointment by Central Hudson's Board of Directors as President and Chief Executive Officer and John E. Mack III's (formerly Chairman of the Board and Chief Executive Officer) continuation as Chairman of the Board. (35)
(i) 5-- Order of the Public Service Commission of the State of New York, issued and effective December 20, 2000, authorizing the transfer of the Danskammer Plant and the Roseton Plant. ((45); Exhibit (99)(i)8)
E-19
(i) 6-- Order of the Public Service Commission of the State of New York, issued and effective January 25, 2001, clarifying prior Order relating to the approval of the transfer of the Danskammer Plant and the Roseton Plant. ((45); Exhibit (99)(i)9)
(i) 7-- Order of the PSC, issued and effective, October 26, 2001, authorizing asset transfers of the Nine Mile 2 Plant.
(i) 8-- Order of the PSC, issued and effective, September 27, 2001, authorizing new revolving credit facilities and a New Medium Term Note Program for Central Hudson.
(i) 9-- Order of the PSC, issued and effective October 25, 2001, establishing new rates for Central Hudson.
The following are notes to the Exhibits listed above:
(1) Incorporated herein by reference to Central Hudson's Quarterly report on Form 10-Q for fiscal quarter ended September 30, 1993 (File No. 1-3268).
(2) Incorporated herein by reference to Central Hudson's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1992 (File No. 1-3268).
(3) Incorporated herein by reference to Central Hudson's Registration Statement No. 2-65127.
(4) [Reserved]
(5) [Reserved]
(6) (a) Incorporated herein by reference to Prospectus Supplement Dated May 28, 1992 (To Prospectus Dated April 13, 1992) relating to $125,000,000 principal amount of First Mortgage Bonds, designated Secured Medium-Term Notes, Series A, and to the Prospectus Dated April 13, 1992 relating to $125,000,000 principal amount of Central Hudson's debt securities attached thereto, as filed with the Securities and Exchange Commission pursuant to Rule 424(b)(5) under the Securities Act of 1933, in connection with Registration Statement No. 33-46624.
E-20
(b) Incorporated herein by reference to Pricing Supplement No. 2, Dated June 4, 1992 (To Prospectus Dated April 13, 1992, as supplemented by a Prospectus Supplement Dated May 28, 1992), as filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933 in connection with Registration Statement No. 33-46624.
(c) Incorporated herein by reference to Pricing Supplement No. 3, Dated June 4, 1992 (To Prospectus Dated April 13, 1992, as supplemented by a Prospectus Supplement Dated May 28, 1992), as filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933 in connection with Registration Statement No. 33-46624.
(d) Incorporated herein by reference to Pricing Supplement No. 4, Dated August 20, 1992 (To Prospectus Dated April 13, 1992, as supplemented by a Prospectus Supplement Dated May 28, 1992), as filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933 in connection with Registration Statement No. 33-46624.
(e) Incorporated herein by reference to Pricing Supplement No. 5, Dated August 20, 1992 (To Prospectus Dated April 13, 1992, as supplemented by a Prospectus Supplement Dated May 28, 1992), as filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933 in connection with Registration Statement No. 33-46624.
(f) Incorporated herein by reference to Pricing Supplement No. 7, Dated July 26, 1993 (To Prospectus Dated April 13, 1992, as supplemented by a Prospectus Supplement Dated May 28, 1992), as filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933 in connection with Registration Statement No. 33-46624.
(7) Incorporated herein by reference to Central Hudson's Current Report on Form 8-K, dated May 27, 1992 (File No. 1-3268).
E-21
(8) (a) Incorporated herein by reference to Prospectus Supplement Dated May 28, 1992 (To Prospectus Dated April 13, 1992) relating to $125,000,000 principal amount of Medium-Term Notes, Series A, and to the Prospectus Dated April 13, 1992, relating to $125,000,000 principal amount of Central Hudson's debt securities attached thereto, as filed with the Securities and Exchange Commission pursuant to Rule 424(b)(5) under the Securities Act of 1933, in connection with Registration Statement No. 33-46624.
(b) Incorporated herein by reference to Pricing Supplement No. 1, Dated June 26, 1992 (To Prospectus Dated April 13, 1992, as supplemented by a Prospectus Supplement Dated May 28, 1992), as filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933 in connection with Registration Statement No. 33-46624.
(9) [Reserved]
(10) (a) Incorporated herein by reference to Prospectus Supplement Dated August 24, 1998 (To Prospectus Dated April 4, 1995) relating to $80,000,000 principal amount of Medium-Term Notes, Series B, and the Prospectus Dated April 4, 1995, relating to (i) $80,000,000 of Central Hudson's Debt Securities and Common Stock, $5.00 par value, but not in excess of $40 million aggregate initial offering price of such Common Stock and (ii) 250,000 shares of Central Hudson's Cumulative Preferred Stock, par value $100 per share, which may be issued as 1,000,000 shares of Depositary Preferred Shares each representing 1/4 of a share of such Cumulative Preferred Stock attached thereto, as filed pursuant to Rule 424(b) in connection with Registration Statement No. 33-56349.
(b) Incorporated herein by reference to Pricing Supplement No. 1, Dated September 2, 1998 (To Prospectus Dated April 4, 1995, as supplemented by a Prospectus Supplement Dated August 24, 1998), as filed with the Securities and Exchange Commission pursuant to Rule 424(b)(2) under the Securities Act of 1933 in connection with Registration Statement No. 33-56349.
E-22
(11) Incorporated herein by reference to Central Hudson's Registration Statement No. 2-50276.
(12) Incorporated herein by reference to Central Hudson's Registration Statement No. 2-54690.
(13) [Reserved]
(14) [Reserved]
(15) [Reserved]
(16) [Reserved]
(17) Incorporated herein by reference to Central Hudson's Annual Report on Form 10-K for the fiscal year ended December 31, 1987 (File No. 1-3268).
(18) Incorporated herein by reference to Central Hudson's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1993 (File No. 1-3268).
(19) Incorporated herein by reference to Central Hudson's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (File No. 1-3268).
(20) Incorporated herein by reference to Central Hudson's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 (File No. 1-3268).
(21) Incorporated herein by reference to Central Hudson's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1992 (File No. 1-3268).
(22) [Reserved]
(23) Incorporated herein by reference to Central Hudson's Current Report on Form 8-K, dated May 15, 1987 (File No. 1-3268).
(24) Incorporated herein by reference to Central Hudson's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 1-3268).
E-23
(25) Incorporated herein by reference to Central Hudson's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1994 (File No. 1-3268).
(26) Incorporated herein by reference to Central Hudson's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (File No. 1-3268).
(27) [Reserved]
(28) Incorporated herein by reference to Central Hudson's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1995 (File No. 1-3268).
(29) [Reserved]
(30) Incorporated herein by reference to Central Hudson's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (File No. 1-3268).
(31) [Reserved]
(32) Incorporated herein by reference to Central Hudson's Current Report on Form 8-K, dated January 7, 1998 (File No. 1-3268).
(33) Incorporated herein by reference to Central Hudson's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, as amended December 8, 1998 (File No. 1-3268).
(34) Incorporated herein by reference to Central Hudson's Current Report on Form 8-K, dated February 10, 1998 (File No. 1-3268).
(35) Incorporated herein by reference to Central Hudson's Current Report on Form 8-K, dated July 24, 1998 (File No. 1-3268).
(36) (a) Incorporated herein by reference to Prospectus Supplement Dated January 8, 1999 (To Prospectus Dated January 7, 1999) relating to $110,000,000 principal amount of Medium-Term Notes, Series C, and to the Prospectus Dated January 7, 1999, relating to $110,000,000 principal amount of Central Hudson's debt securities attached thereto, as filed with the Securities and
E-24
Exchange Commission pursuant to Rule 424(b)(2) under the Securities Act of 1933, in connection with Registration Statement Nos. 333-65597 and 33-56349.
(b) Incorporated herein by reference to Pricing Supplement No. 1, Dated January 12, 1999 (To Prospectus Dated January 7, 1999, as supplemented by a Prospectus Supplement Dated January 8, 1999), as filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933 in connection with Registration Statement Nos. 333-65597 and 33-56349.
(37) Incorporated herein by reference to Energy Group's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (File No. 333-52797).
(38) Incorporation herein by reference to Central Hudson's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1999 (File No. 1-3268).
(39) Incorporated herein by reference to Central Hudson's Current Report on Form 8-K dated December 15, 1999 (File No. 1-3268)
(40) Incorporated herein by reference to Central Hudson's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (File No. 1-3268).
(41) Incorporated herein by reference to Energy Group's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (File No. 333-52797).
(42) Incorporated herein by reference to Energy Group's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2000 (File No. 0-30512).
(43) Incorporated herein by reference to Energy Group's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2000 (File No. 0-30512).
(44) Incorporated herein by reference to Energy Group's Quarterly Report on Form 10-Q for
E-25
the fiscal quarter ended September 30, 2000 (File No. 0-30512).
(45) Incorporated herein by reference to Energy Group's Annual Report, on Form 10-K, for the fiscal year ended December 31, 2000 (File No. 0-30512).
(46) Incorporated herein by reference to Energy Group's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2001 (File No. 0-30512).
* Exhibits preceded by an asterisk have heretofore been classified as basic documents under previous Rule 24(b) of the SEC Rules of Practice.
E-26