FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended.................September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from.....................to...........................
Commission file number....................................1-3268
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 14-0555980
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
284 SOUTH AVENUE, POUGHKEEPSIE NEW YORK 12601-4879
----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (845) 452-2000
--------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [ X ] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Common stock, par value $5.00 per share; and the number of shares
outstanding of Registrant's common stock, as of September 30, 2000, was
16,862,087. All shares are owned by CH Energy Group, Inc.
<PAGE>
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Consolidated Financial Statements 1
Consolidated Statement of Income -
Three Months Ended September 30, 2000
and 1999 1
Consolidated Statement of Income -
Nine Months Ended September 30, 2000
and 1999 2
Consolidated Balance Sheet - September 30, 2000
and December 31, 1999 3
Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 2000
and 1999 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
Item 3 - Quantitative and Qualitative Disclosure
about Market Risk 17
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 17
Item 5 - Other Information 18
Item 6 - Exhibits and Reports on Form 8-K 19
Signatures 20
Exhibit Index
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - CONSOLIDATED FINANCIAL STATEMENTS
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the 3 Months Ended September 30,
2000 1999
-------- --------
(Thousands of Dollars)
<S> <C> <C>
Operating Revenues
Electric ............................................... $ 126,982 $ 113,944
Gas .................................................... 11,971 12,415
--------- ---------
Total - own territory ................................ 138,953 126,359
Electric Sales to other utilities ...................... 13,644 7,921
Gas Sales to other utilities ........................... 1,769 43
--------- ---------
154,366 134,323
--------- ---------
Operating Expenses
Operation:
Fuel used in electric generation ..................... 24,331 27,935
Purchased electricity ................................ 36,623 13,521
Purchased natural gas ................................ 8,221 7,960
Other expenses of operation .......................... 25,251 25,338
Maintenance ............................................ 6,625 6,325
Depreciation and amortization .......................... 11,991 11,699
Taxes, other than income tax ........................... 14,505 16,294
Federal income tax ..................................... 7,875 7,151
--------- ---------
135,422 116,223
--------- ---------
Operating Income ......................................... 18,944 18,100
--------- ---------
Other Income and (Deductions)
Allowance for equity funds used during construction .... -- 41
Federal income tax ..................................... (69) (260)
Other - net ............................................ 2,544 3,893
--------- ---------
2,475 3,674
--------- ---------
Income before Interest Charges ........................... 21,419 21,774
--------- ---------
Interest Charges
Interest on mortgage bonds ............................. 2,570 3,205
Interest on other long-term debt ....................... 3,591 3,392
Other interest ......................................... 1,665 1,350
Allowance for borrowed funds used during construction .. (202) (44)
--------- ---------
7,624 7,903
--------- ---------
Net Income ............................................... 13,795 13,871
Dividends Declared on Cumulative Preferred Stock ......... 807 807
--------- ---------
Income Available for Common Stock ........................ $ 12,988 $ 13,064
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
- 1 -
<PAGE>
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the 9 Months Ended September 30,
2000 1999
-------- --------
(Thousands of Dollars)
<S> <C> <C>
Operating Revenues
Electric ................................................. $ 341,727 $ 305,889
Gas ...................................................... 72,683 69,877
--------- ---------
Total - own territory .................................. 414,410 375,766
Electric Sales to other utilities ........................ 41,222 21,887
Gas Sales to other utilities ............................. 3,850 176
--------- ---------
459,482 397,829
--------- ---------
Operating Expenses
Operation:
Fuel used in electric generation ....................... 64,339 68,720
Purchased electricity .................................. 90,078 32,885
Purchased natural gas .................................. 42,171 37,971
Other expenses of operation ............................ 78,685 71,975
Maintenance .............................................. 23,058 21,375
Depreciation and amortization ............................ 35,989 35,100
Taxes, other than income tax ............................. 45,424 48,353
Federal income tax ....................................... 21,870 23,880
--------- ---------
401,614 340,259
--------- ---------
Operating Income ........................................... 57,868 57,570
--------- ---------
Other Income and (Deductions)
Allowance for equity funds used during construction ...... -- 152
Federal income tax ....................................... (216) (159)
Other - net .............................................. 7,560 6,790
--------- ---------
7,344 6,783
--------- ---------
Income before Interest Charges ............................. 65,212 64,353
--------- ---------
Interest Charges
Interest on mortgage bonds ............................... 8,772 9,852
Interest on other long-term debt ......................... 9,267 8,309
Other interest ........................................... 5,447 3,947
Allowance for borrowed funds used during construction .... (527) (167)
--------- ---------
22,959 21,941
--------- ---------
Net Income ................................................. 42,253 42,412
Dividends Declared on Cumulative Preferred Stock ........... 2,422 2,422
--------- ---------
Income Available for Common Stock .......................... 39,831 39,990
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
ASSETS (Unaudited) (Audited)
----------- ---------
(Thousands of Dollars)
<S> <C> <C>
Utility Plant
Electric ....................................... $1,259,678 $1,250,456
Gas ............................................ 169,345 164,767
Common ......................................... 98,659 100,659
Nuclear fuel ................................... 46,663 42,847
---------- ----------
1,574,345 1,558,729
Less: Accumulated depreciation ................ 661,987 638,910
Nuclear fuel amortization ........... 40,071 38,354
---------- ----------
872,287 881,465
Construction work in progress .................. 52,465 39,951
---------- ----------
Net Utility Plant ...................... 924,752 921,416
---------- ----------
Other Property and Plant .............................. 973 975
---------- ----------
Investments and Other Assets
Prefunded Pension Costs ....................... 59,052 46,038
Other ......................................... 19,212 17,611
---------- ----------
Total Investments and Other Assets .... 78,264 63,649
---------- ----------
Current Assets
Cash and cash equivalents ...................... 3,998 11,756
Accounts receivable from customers-net of
allowance for doubtful accounts .......... 50,763 46,483
Accrued unbilled utility revenues .............. 10,169 16,327
Other receivables .............................. 2,582 4,123
Fuel, materials and supplies, at average cost .. 28,497 30,285
Special deposits and prepayments ............... 23,457 14,574
---------- ----------
Total Current Assets .................. 119,466 123,548
---------- ----------
Deferred Charges
Regulatory assets .............................. 142,794 137,487
Unamortized debt expense ....................... 4,939 5,016
Other .......................................... 5,458 7,299
---------- ----------
Total Deferred Charges ................ 153,191 149,802
---------- ----------
TOTAL ASSETS ................ $1,276,646 $1,259,390
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
CAPITALIZATION AND LIABILITIES (Unaudited) (Audited)
----------- ---------
(Thousands of Dollars)
<S> <C> <C>
Capitalization
Common Stock Equity:
Common stock, 30,000,000 shares authorized; shares
issued ($5 par value):
2000 - 16,862,087
1999 - 16,862,087 ............................. $ 84,311 $ 84,311
Paid-in capital ........................................ 273,238 273,238
Retained earnings ...................................... 114,211 69,281
Capital stock expense .................................. (5,883) (5,939)
----------- -----------
Total Common Stock Equity ...................... 465,877 420,891
----------- -----------
Cumulative Preferred Stock
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 ......................................... 320,362 335,451
----------- -----------
Total Capitalization ........................... 842,269 812,372
----------- -----------
Current Liabilities
Current maturities of long-term debt ................... 62,610 35,100
Notes payable .......................................... 5,000 50,000
Accounts payable ....................................... 31,806 28,026
Accrued interest ....................................... 7,464 4,405
Dividends payable ...................................... 807 7,808
Accrued vacation ....................................... 4,472 4,344
Customer deposits ...................................... 4,478 4,471
Other .................................................. 2,636 1,939
----------- -----------
Total Current Liabilities ...................... 119,273 136,093
----------- -----------
Deferred Credits and Other Liabilities
Regulatory liabilities ................................. 99,388 87,039
Operating reserves ..................................... 3,173 6,294
Other .................................................. 18,696 18,351
----------- -----------
Total Deferred Credits and Other Liabilities ... 121,257 111,684
----------- -----------
Accumulated Deferred Income Tax ................................ 193,847 199,241
----------- -----------
TOTAL CAPITALIZATION AND LIABILITIES .. $ 1,276,646 $ 1,259,390
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the 9 Months Ended
September 30,
2000 1999
-------- ---------
OPERATING ACTIVITIES: (Thousands of Dollars)
<S> <C> <C>
Net Income ..................................................... $ 42,253 $ 42,412
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization & nuclear fuel amortization ... 38,770 38,165
Deferred income taxes, net ............................... 4,457 5,902
Allowance for equity funds used during construction ...... -- (152)
Nine Mile 2 Plant deferred finance charges, net .......... (3,572) (3,642)
Provision for uncollectibles ............................. 1,725 1,950
Net accrued/deferred pension costs ...................... (10,302) (8,471)
Deferred gas costs ....................................... (1,338) 3,285
Deferred gas refunds ..................................... (96) (95)
Other, net ............................................... (2,289) 715
Changes in current assets and liabilities, net:
Accounts receivable and unbilled revenues ............... 1,695 (7,086)
Fuel, materials and supplies ............................ 1,787 (2,771)
Special deposits and prepayments ........................ (8,882) (96,906)
Accounts payable ........................................ 3,780 9,374
Accrued taxes and interest .............................. 5,750 (18)
Other current liabilities ............................... (1,861) 4,654
-------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES .......... 71,877 (12,684)
-------- ---------
INVESTING ACTIVITIES:
Additions to plant ........................................... (41,198) (31,163)
Allowance for equity funds used during construction .......... -- 152
-------- ---------
Net additions to plant ..................................... (41,198) (31,011)
Net return of equity from affiliate .......................... 23,500 --
Subsidiaries fixed asset additions ........................... -- (7,290)
Nine Mile 2 Plant decommissioning trust fund ................. (651) (651)
Other, net ................................................... (551) (666)
-------- ---------
NET CASH USED IN INVESTING ACTIVITIES ........................ (18,900) (39,618)
-------- ---------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt ..................... 47,500 177,300
Net borrowings (repayments) of short-term debt ............... (45,000) (13,700)
Retirement and redemption of long-term debt .................. (35,100) (81,877)
Dividends paid on cumulative preferred and common stock ...... (27,822) (29,739)
Issuance and Redemption Costs ................................ (313) (3,004)
-------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES .......... (60,735) 48,980
-------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS .......................... (7,758) (3,322)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR .................... 11,756 10,499
-------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD ........................ $ 3,998 $ 7,177
======== =========
Supplemental Disclosure of Cash Flow Information
Interest paid (net of amounts capitalized) ................... $ 15,656 $ 14,490
Federal income tax paid ...................................... $ 17,800 $ 22,825
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The accompanying Consolidated Financial Statements of Central Hudson Gas &
Electric Corporation (herein Central Hudson) are unaudited but, in the opinion
of management, reflect adjustments (which include normal recurring adjustments)
necessary for a fair statement of the results for the interim periods presented.
These condensed unaudited quarterly Consolidated Financial Statements do not
contain the detail or footnote disclosures concerning accounting policies and
other matters which would be included in annual Consolidated Financial
Statements and, accordingly, should be read in conjunction with the audited
Consolidated Financial Statements (including the notes thereto) included in
Central Hudson's Annual Report, on Form 10-K, as amended by Amendment No. 1, on
Form 10K-A, for the year ended December 31, 1999, (Central Hudson's 10-K
Report).
Due to the seasonal nature of Central Hudson's operations, financial
results for interim periods are not necessarily indicative of trends for a
twelve-month period.
NOTE 2 - REGULATORY MATTERS
Reference is made to the caption "Competitive Opportunities Proceeding," of
Note 2 - Regulatory Matters, to the Consolidated Financial Statements of Central
Hudson's 10-K Report and to the Amended and Restated Settlement Agreement, dated
January 2, 1998, (Settlement Agreement) as described in said Note 2.
At September 30, 2000, net regulatory assets associated with Central
Hudson's fossil-fueled generating assets were not material.
REGULATORY FILING
The Settlement Agreement, as approved by the New York State Public Service
Commission (PSC) in June 1998, required Central Hudson to divest itself of its
fossil-fueled generating plants and to establish rates for electric service
based on the cost of delivering electricity to its customers. On August 1, 2000,
as reported in Note 2 to the Notes to Consolidated Financial Statements
contained in Central Hudson's 10-Q report for the quarterly period ended June
30, 2000, Central Hudson filed a Competitive Transition Filing (Filing) with the
PSC to unbundle its rates for electric service to provide for delivery of
electricity separately from electricity supply, effective July 1, 2001, and to
reflect the contemplated sale of its interests in its fossil-fueled generating
plants, the Roseton Electric Generating Station (Roseton Plant) and the
Danskammer Point Steam Electric Generating Station (Danskammer Plant).
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<PAGE>
On October 6, 2000, Central Hudson made a supplemental filing with the PSC
to reflect the then known results of the proposed sale of its fossil-fueled
generating plants to Dynegy Power Corp. (Dynegy), which sale is subject to
approval by the PSC. Central Hudson's Filing, as supplemented, requests that the
portion of its current rates for electric service attributable to the costs of
delivering electric service be increased by approximately $7.7 million, or 4.2%.
Along with establishing rates for delivery service, the Filing includes
proposals to recover the full cost of electric energy purchases made by Central
Hudson to supply such energy to its full service customers and to use the net
cash proceeds and gains from the sale of its fossil-fueled generating plants to
reduce outstanding debt; recover its investment in the Nine Mile Point Unit No.
2 generating station (Nine Mile 2 Plant); accelerate the rebuilding of portions
of its electric delivery network to provide customers with greater levels of
reliability than achieved to date; offset various regulatory assets; enhance
earnings by increasing the PSC's allowed return on equity, specifically removing
the current hard cap on such allowed return and by providing incentives to
improve reliability and customer service; and to establish a fund for use in
providing benefits to its customers as may be directed by the PSC. The Filing
also addresses the unbundling of gas prices into delivery and natural gas supply
components. The Filing requests that Central Hudson's rates for natural gas
delivery to its customers be increased by approximately $2.6 million, or 6.7%,
and that the full commodity cost of purchased gas for delivery to customers be
recovered through a charge separate from its delivery service rates. New
electric and gas delivery prices would go into effect on July 1, 2001 at the
expiration of the Settlement Agreement.
HOLDING COMPANY RESTRUCTURING
As reported under the caption "Competitive Opportunities Proceeding
Settlement Agreement" in Note 2 to the Consolidated Financial Statements
included in Central Hudson's 10-K Report, Central Hudson received approval from
its shareholders and regulators to form a holding company, which restructuring
occurred on December 15, 1999. At that time, Central Hudson became the
wholly-owned affiliate of CH Energy Group, Inc. (Energy Group). By Order issued
and effective March 7, 2000, the PSC amended the Settlement Agreement with
respect to an extension of the time by which Central Hudson can transfer up to
$100 million, through its holding company parent corporation, Energy Group, to
one or more of its competitive business affiliates. Transfers can be made until
the earlier of (i) receipt of the proceeds by Central Hudson from the auction of
the Danskammer and Roseton Plants or (ii) June 30, 2001, the expiration date of
the Settlement Agreement. As of September 30, 2000, $28 million of the $100
million authorized by the PSC under the Settlement Agreement has been
transferred from Central Hudson to
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<PAGE>
subsidiaries of Central Hudson Energy Services, Inc. (Services), Services being
a wholly-owned subsidiary of Energy Group.
NEW YORK STATE INDEPENDENT SYSTEM OPERATOR (NY ISO)
As reported under the caption "Independent System Operator" in Note 2 to
the Consolidated Financial Statements included in Central Hudson's 10-K Report,
the newly established NY ISO, successor to the New York Power Pool, began
operations in November 1999. The combination of a tight market for generating
capacity in New York State and increasing fuel costs has caused prices for
electricity on the wholesale market to increase. Continued ownership of the
Danskammer and Roseton Plants helped Central Hudson to moderate price increases
to its customers this past summer and may continue to do so for the balance of
the year. When the proposed sale of these fossil-fueled generating plants to
Dynegy (see aforementioned caption Regulatory Filing) is consummated, Central
Hudson customers will benefit from a Transition Power Agreement with Dynegy that
will enable Central Hudson to purchase varying amounts of electricity from these
plants for three to four years and, thereby continue to have the capability to
moderate price increases for full-service electric energy supply.
NOTE 3 - SEGMENTS AND RELATED INFORMATION
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was adopted by Central Hudson during the fourth quarter of 1998
(see Note 10 to the Consolidated Financial Statements included in Central
Hudson's 10-K Report).
Central Hudson's reportable operating segments are its electric and gas
operations. All of the segments currently operate in New York State.
Certain additional information regarding these segments is set forth in the
following table. In the determination of income available for common stock by
segment, general corporate expenses, property common to both segments and
depreciation of such common property have been allocated to the segments in
accordance with practices established for regulatory purposes.
-8-
<PAGE>
Central Hudson Gas & Electric Segment Disclosure - FAS 131
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, 2000 September 30, 2000
----------------------------------- ---------------------------------
ELECTRIC GAS TOTAL ELECTRIC GAS TOTAL
-------- --- ----- -------- --- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues from external
customers ......................... $140,612 $ 13,294 $153,906 $382,884 $75,159 $458,043
Intersegment revenues ............... 14 446 460 65 1,374 1,439
-------- -------- -------- -------- ------- --------
Total revenues .............. $140,626 $ 13,740 $154,366 $382,949 $76,533 $459,482
Income Available for Common Stock ... $ 14,284 $ (1,296) $ 12,988 $ 33,498 $ 6,333 $ 39,831
<CAPTION>
Quarter Ended Nine Months Ended
September 30, 1999 September 30, 1999
----------------------------------- ---------------------------------
ELECTRIC GAS TOTAL ELECTRIC GAS TOTAL
-------- --- ----- -------- --- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues from external
customers ......................... $121,842 $ 12,142 $133,984 $327,715 $69,287 $397,002
Intersegment revenues ............... 23 316 339 61 766 827
-------- -------- -------- -------- ------- --------
Total revenues .............. $121,865 $ 12,458 $134,323 $327,776 $70,053 $397,829
Income Available for Common Stock ... $ 14,844 $ (1,780) $ 13,064 $ 34,520 $ 5,470 $ 39,990
</TABLE>
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<PAGE>
NOTE 4 - NEW ACCOUNTING STANDARDS
DERIVATIVE AND HEDGING ACCOUNTING: Reference is made to the caption "New
Accounting Standards and Other FASB Projects" of Note 1 - Summary of Significant
Accounting Policies, to the Consolidated Financial Statements of Central
Hudson's 10-K Report. In June 2000, the Financial Accounting Standards Board
(FASB) issued Statement No. 138 which amends FASB Statement No.133, "Accounting
for Derivative Instruments and Hedging Activities," (FASB 133). Amendment
provisions potentially affecting Central Hudson relate to the normal purchases
and sales exception from FASB 133 applicability and interest rate risk as it
relates to the hedging of same. The normal purchases and sales exception may now
be applied to contracts that implicitly or explicitly permit net settlement and
contracts that have a market mechanism to facilitate net settlement. Contracts
which qualify for the normal purchases and normal sales exception from FASB 133
are those that provide for the purchase or sale of something other than a
financial or derivative instrument (e.g., fuel, electric and gas purchases) 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.
The implementation of FASB 133 for Central Hudson is required by January 1,
2001 or sooner with the option of earlier implementation. Efforts are underway
by Central Hudson to establish procedures to satisfy the extensive accounting,
disclosure and documentation requirements specified by the provisions of FASB
133 and it is expected that the necessary actions to implement this Statement
will be taken by December 31, 2000 for implementation effective January 1, 2001.
Central Hudson, on the basis of a preliminary review of its contracts, is of the
opinion that the majority of its contracts will qualify for the normal purchases
and sales exception. Central Hudson believes that the implementation of FASB
133, as amended by FASB 137 which amended the effective date to fiscal years
beginning after June 15, 1999 and FASB 138, will not have a material impact on
its financial position or results of operations. This belief is based on Central
Hudson's conservjative risk management policy currently in effect regarding the
use of derivative instruments and hedging activities; the present as well as the
expected future use of derivatives; and the fact that with respect to its
operations, all gains and losses arising from the use of derivatives along with
the related fuel or purchased electricity costs, flow through its electric and
gas fuel adjustment clauses, further minimizing Central Hudson's exposure to
off-balance sheet risk.
PLANT DECOMMISSIONING: Reference is made to the caption "New Accounting
Standards and Other FASB Projects" of Note 1 - Summary of Significant Accounting
Policies, to the Consolidated Financial Statements of Central Hudson's 10-K
Report. On February 17, 2000, the FASB issued an exposure draft proposing to
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<PAGE>
amend the initial FASB exposure draft entitled "Accounting for Certain
Liabilities Related to Closure and Removal of Long-lived Assets." The February
17, 2000 exposure draft, "Accounting for Obligations Associated with the
Retirement of Long-Lived Assets," is proposed to be effective for financial
statements for fiscal years beginning after June 15, 2001. In the fourth quarter
of 2000, FASB will redeliberate issues raised in the comment letters received to
date and a Final Statement is now expected to be issued in the second quarter of
2001. Central Hudson can make no prediction at this time as to the ultimate form
of this 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 Central Hudson.
Reference is made to the caption "New Accounting Standards and Other FASB
Projects" of Note 1 - Summary of Significant Accounting Policies, to the
Consolidated Financial Statements of Central Hudson's 10-K Report. On June 30,
2000, FASB issued a proposed statement entitled Accounting for the Impairment or
Disposal of Long-Lived Assets and for Obligations Associated with Disposal
Activities that would supersede Statement 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The proposed
statement would establish accounting standards for the impairment of long-lived
assets to be held and used and for the long-lived assets to be disposed of,
including segments of a business previously covered by Accounting Principles
Board (APB) Opinion No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." Comments were due back to FASB
by October 13, 2000 which proposes the statement be effective for financial
statements for fiscal years beginning after December 15, 2001. Central Hudson
can make no prediction at this time as to the ultimate form of such 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 Central Hudson.
NOTE 5 - NEW YORK STATE TAX CHANGES
On May 15, 2000 changes to the New York State Tax Law were signed into
law, effective January 1, 2000. These changes 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 both with an income-based tax under Article 9-A of
such Law. The tax under Section 186-a of such Law, on the furnishing of utility
services, was also restructured and reduced. Preliminary estimates indicate that
the new tax law will increase state tax expense to Central Hudson by $1.4
million in the year 2000 and $.7 million in 2001, with a reduction of $.7
million in 2002, and a cumulative reduction in 2003. The net effect of all these
tax changes will be deferred for future rate treatment.
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NOTE 6 - COMMITMENTS AND CONTINGENCIES
Central Hudson faces a number of contingencies which arise during the
normal course of business and which have been discussed in Note 9 - Commitments
and Contingencies, to the Consolidated Financial Statements included in Central
Hudson's 10-K Report. Except for what is disclosed in Part II of this Quarterly
Report, on Form 10-Q, for the quarterly period ended September 30, 2000 and all
documents previously filed with the Securities and Exchange Commission in 2000,
there have been no material changes in the subject matters discussed in said
Note 9.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
For the nine months ended September 30, 2000, cash expenditures related to
the construction program of Central Hudson amounted to $41.2 million.
Construction expenditures during the nine months ended September 30, 2000, were
primarily for normal extensions and improvements of Central Hudson's electric
and natural gas systems. The cash requirements for such expenditures were funded
from internal sources.
On June 13, 2000, Central Hudson issued $40 million of unsecured Medium
Term Notes, bearing a coupon of 7.32% and maturing on June 13, 2001. The
proceeds from the sale of these Notes was used to finance maturing First
Mortgage Bonds and for general corporate purposes.
Central Hudson has $50 million of committed short-term credit facilities
available, and has also entered into a revolving credit agreement with several
commercial banks. Authorization from the PSC limits the short-term borrowing
amount Central Hudson may have outstanding, at any time, to $52 million in the
aggregate.
At September 30, 2000, Central Hudson had $5.0 million of short-term debt
outstanding. The balance of cash and cash equivalents was $4.0 million at the
end of September 2000.
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RESULTS OF OPERATIONS
The following table reports the variation in the results of operations
for the three months and nine months ended September 30, 2000 compared to the
same periods in 1999:
3 MONTHS ENDED SEPTEMBER 30,
-------------------------------------
INCREASE
2000 1999 (DECREASE)
---- ---- ----------
(Thousands of Dollars)
Operating Revenues ................. $154,366 $134,323 $ 20,043
Operating Expenses ................. 135,422 116,223 19,199
-------- -------- --------
Operating Income ................... 18,944 18,100 844
Other Income ....................... 2,475 3,674 (1,199)
-------- -------- --------
Income before Interest
Charges ........................... 21,419 21,774 (355)
Interest Charges ................... 7,624 7,903 (279)
-------- -------- --------
Net Income ......................... 13,795 13,871 (76)
Dividends Declared on Cumulative
Preferred Stock ................... 807 807 --
-------- -------- --------
Income Available for Common
Stock ............................. $ 12,988 $ 13,064 $ (76)
======== ======== ========
9 MONTHS ENDED SEPTEMBER 30,
-------------------------------------
INCREASE
2000 1999 (DECREASE)
---- ---- ----------
(Thousands of Dollars)
Operating Revenues ................. $459,482 $397,829 $ 61,653
Operating Expenses ................. 401,614 340,259 61,355
-------- -------- --------
Operating Income ................... 57,868 57,570 298
Other Income ....................... 7,344 6,783 561
-------- -------- --------
Income before Interest
Charges ........................... 65,212 64,353 859
Interest Charges ................... 22,959 21,941 1,018
-------- -------- --------
Net Income ......................... 42,253 42,412 (159)
Dividends Declared on Cumulative
Preferred Stock ................... 2,422 2,422 --
-------- -------- --------
Income Available for Common
Stock ............................. $ 39,831 $ 39,990 $ (159)
======== ======== ========
As reported under the caption "Regulatory Matters" in Note 2 to the
Consolidated Financial Statements of this report, Central Hudson filed a
Competitive Transition Filing with the PSC on August 1, 2000 to succeed the
Settlement Agreement and a supplemental filing on October 6, 2000 to reflect the
results of the auction of the Danskammer Electric Generating Plant and the
Roseton Steam Electric Generating Plant to Dynegy, as described in Item 5 to
Central Hudson's Form 8-K Current Report, dated
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August 8, 2000. As a result of the sale of these generating plants (expected to
close in December 2000 or early 2001), the related electric operating revenues,
operating expenses and asset and liability balances will be eliminated from
Central Hudson's financial results. In addition, as reflected in the Filing
supplement, Central Hudson proposes to use a portion of the proceeds from the
sale of these plants to write down its investment in the Nine Mile 2 Plant,
which would result in a further reduction of its operating revenues, operating
expenses, and asset and liability balances related to this plant.
Central Hudson is unable to estimate the net impact of the foregoing on its
financial results because it cannot predict (i) the action the PSC will take on
the Filing, as supplemented, (ii) the action the PSC will take on Central
Hudson's petition for approval of the sale of its fossil-fueled generating
plants to Dynegy, and (iii) the return on investment that may be realized by the
redeployment of a part of the proceeds of such sale into new investments.
OPERATING REVENUES
Operating revenues increased $20.0 million (15%) for the third quarter of
2000 as compared to the third quarter of 1999 and increased $61.7 million (16%)
for the nine months ended September 30, 2000. Details of these revenue changes
by electric and gas departments are as follows:
INCREASE (DECREASE) FROM PRIOR PERIOD
-------------------------------------
THIRD QUARTER
-------------------------------------
Electric Gas
-------- ---
(Thousands of Dollars)
Customer Sales* ...... $ (3,162) $(1,386)**
Sales to Other
Utilities ........... 5,163 1,726
Fuel and Gas Cost
Adjustment .......... 11,834 1,143
Deferred Revenues .... 5,046*** 217
Miscellaneous ........ (120) (418)
-------- -------
$ 18,761 $ 1,282
======== =======
INCREASE (DECREASE) FROM PRIOR PERIOD
--------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 2000
--------------------------------------
Electric Gas
-------- ---
(Thousands of Dollars)
Customer Sales* ...... $ 2,660 $ 2,699**
Sales to Other
Utilities ........... 18,775 3,675
Fuel and Gas Cost
Adjustment .......... 24,610 200
Deferred Revenues .... 9,668*** 153
Miscellaneous ........ (541) (246)
-------- -------
$ 55,172 $ 6,481
======== =======
*Includes electricity and gas supplied by others.
**Both firm and interruptible revenues.
***Includes the deferral and restoration of revenues related to
Central Hudson's Retail Access Program and earnings in excess of rate of
return cap under the Settlement Agreement.
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SALES
Central Hudson's sales vary seasonally in response to weather conditions.
Generally electric sales peak in the summer and gas sales peak in the winter.
Total kilowatthour sales of electricity within Central Hudson's service
territory decreased 5% and firm sales of natural gas increased 13% in the third
quarter of 2000 as compared to the third quarter of 1999. For the first nine
months ended September 30, 2000, electric sales increased 1% and gas sales to
firm customers increased 6% compared to the same period last year. Changes in
sales from last year by major customer classifications, including energy
supplied by others, are set forth below.
INCREASE (DECREASE) FROM PRIOR PERIOD
-------------------------------------
NINE MONTHS ENDED
THIRD QUARTER SEPTEMBER 30, 2000
---------------- ------------------
Electric Gas Electric Gas
-------- --- -------- ---
Residential................ (9)% 15% (1)% 5%
Commercial................. (3) 12 2 6
Industrial................. (1) (1) 2 2
Interruptible.............. N/A (50) N/A (29)
Billing heating degree days were 56% higher for the quarter ended September
30, 2000 and 1% higher for the nine months ended September 30, 2000 when
compared to the same period in 1999, but during the first nine months of 2000
were 5% below normal. Cooling degree days were 44% lower for the quarter and 35%
lower for the nine months ended September 30, 2000 when compared to the same
periods in 1999, and were 23% below normal for the quarter and 13% below normal
for the nine months ended September 30, 2000.
Interruptible gas sales for the third quarter and the first nine months of
2000, as compared to the same periods in 1999, decreased by 50% and 29%,
respectively, due largely to a reduction in gas sales for electric generation.
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OPERATING EXPENSES
The following table reports the variation in the operating expenses for the
three and nine months ended September 30, 2000 compared to the same periods in
the prior year:
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INCREASE (DECREASE) FROM PRIOR PERIOD
-------------------------------------
NINE MONTHS ENDED
THIRD QUARTER SEPTEMBER 30, 2000
------------- ------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Thousands of Dollars)
Operating Expenses
Fuel and Purchased
Electricity .............. $ 19,498 47% $ 52,812 52%
Purchased Natural
Gas ....................... 261 3 4,200 11
Other Expenses of
Operation ................. (87) -- 6,710 9
Maintenance ................ 300 5 1,683 8
Depreciation and
Amortization .............. 292 3 889 3
Taxes, Other than Income
Tax ....................... (1,789) (11) (2,929) (6)
Federal Income tax ......... 724 10 (2,010) (8)
-------- --- -------- ---
Total ....... $ 19,199 17% $ 61,355 18%
======== ========
Total operating expenses for the third quarter in 2000 increased $19.2
million or 17%. The increase was largely driven by an increase in the cost of
fuel and purchased electricity due to increased sales to other utilities and
marketers and the price of fuel. A reduction in taxes other than income taxes
partially offset the increase and was due to property tax refunds received as
the result of a reassessment settlement.
Operating expenses for the nine months ended September 30, 2000 as compared
to the nine months ended September 30, 1999 increased $61.4 million or 18%. As
with the results for the quarter, the increase is largely due to an increase in
the cost of fuel and purchased electricity due to increased sales, primarily
sales to other utilities and marketers, and increased fuel prices. Increases in
the cost of purchased natural gas are due to increased sales and gas prices
while the increase in other expenses of operation reflects $3.8 million of storm
restoration costs for damages inflicted by severe storms occurring from mid-May
to early June. These increases were partially offset by a reduction in taxes
other than income taxes primarily due to the receipt of property tax refunds
related to the aforementioned reassessment settlement and a reduction in federal
income taxes due to increased tax benefits for increased tax depreciation.
DIVIDENDS TO CH ENERGY GROUP
Reference is made to the caption "Common Stock Dividends and Price Ranges"
of Part II, Item 7 of Central Hudson's 10-K Report, for a discussion of Central
Hudson's dividend payments. In October 2000, the Board of Directors of Central
Hudson declared a dividend of $9.2 million, payable November 1, 2000 to Energy
Group, its sole shareholder.
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OTHER MATTERS
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q and the documents incorporated by
reference contain statements which, to the extent they are not recitations of
historical fact, constitute "forward-looking statements" within the meaning of
the Securities Litigation Reform Act of 1995 (Reform Act). The statements will
contain words such as "believes," "expects," "intends," "plans," and other
similar words or expressions. All such forward-looking statements are intended
to be subject to the safe harbor protection provided by the Reform Act. These
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions which are difficult to predict. A number of
important factors affecting Central Hudson's business and financial results
could cause actual results to differ materially from those stated in the
forward-looking statements. Those factors include weather, energy supply and
demand, developments in the legislative, regulatory and competitive environment,
electric and gas industry restructuring and cost recovery and certain
environmental matters as well as such other factors as set forth in Central
Hudson's 10-K Report and all documents subsequently filed with the Securities
and Exchange Commission. Central Hudson undertakes no obligation to update
publicly any forward-looking statements, as a result of new information, future
events or otherwise.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Reference is made to Part II, Item 7A of Central Hudson's 10-K Report
for a discussion of market risk. Central Hudson's balance sheet at September 30,
2000 reflects amounts for the change in the fair value of derivative financial
instruments which were used to hedge commodity transactions. The amounts
recorded are not material to Central Hudson's financial position or results of
operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
(a) Asbestos Litigation. For a discussion of lawsuits against Central
Hudson involving asbestos, see Note 9 - Commitments and Contingencies, under the
caption "Asbestos Litigation," in Part II, Item 8 of Central Hudson's 10-K
Report.
As of September 30, 2000, 338 new cases involving asbestos have been
brought against Central Hudson of the type described under such caption and
subject to the insurance coverage described under such caption (which insurance
does not extend to punitive damages). As of that date, of the 2,310 cases
brought
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against Central Hudson, 761 remain pending. Of the 1,549 cases no longer pending
against Central Hudson, 1,412 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 the cost to be incurred in connection with the remaining lawsuits
will not have a material adverse effect on Central Hudson's financial position
or results of operations.
Item 5. Other Information
(a) Nine Mile 2 Plant. Reference is made to Note 3 - Nine Mile 2 Plant
under the caption "General" to the Consolidated Financial Statements included in
Central Hudson's 10-K Report, and to Part II Item 5(b) of Central Hudson's
Quarterly Report, on Form 10-Q, for the quarterly period ended March 31, 2000,
and to Part II Item 5(a) of Central Hudson's Quarterly Report, on Form 10-Q, for
the quarterly period ended June 30, 2000, for a discussion of the possible sale
of the interests of some of the cotenant owners in the Nine Mile 2 Plant.
On September 28, 2000, Central Hudson, Niagara Mohawk Power Corporation
and Rochester Gas and Electric Corporation publicly solicited bids for the sale
of their interests in the Nine Mile 2 Plant. Thereafter, New York State Electric
and Gas Corporation determined to include the sale of its interest in the Nine
Mile 2 Plant in such solicitation. The initial bids are to be returned in
November 2000. Long Island Lighting Company did not participate in such
solicitation. If a bidder were selected, Central Hudson can make no prediction
when the Nine Mile 2 Plant would be sold.
(b) Environmental Regulation. Reference is made to the caption
"Environmental Quality Regulation - Toxic Substance and Hazardous Wastes" in
Item 1 of Central Hudson's 10-K Report for a discussion of the regulations to
which Central Hudson is subject with respect to the disposal of industrial,
hazardous and toxic wastes and to Item 5(c) of Part II of Central Hudson's
Quarterly Report on Form 10-Q, for the quarterly period ended June 30, 2000, for
a discussion of the June 2, 2000 letter to Central Hudson from the New York
Department of Environmental Conservation ("DEC"), Division of Environmental
Enforcement.
By that letter, Central Hudson was requested to provide information
regarding the Orange County Landfill (Site) located in the Township of Goshen,
New York. The Site is listed on the New York State's Inactive Hazardous Waste
Disposal site Registry and the DEC is obtaining information about disposal of
wastes at the Site.
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The DEC, in its letter, states that its records indicate that 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.
Central Hudson responded to the request for information on June 30, 2000.
Documents submitted with that response indicate that at least three (3)
shipments of waste 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
rubble.
Item 6. Exhibits and Reports of Form 8-K
(a) The following exhibits are furnished in accordance with the provisions
of Item 601 of Regulation S-K:
Exhibit No.
Regulation S-K
Item 601
Designation Exhibit Description
------------------ -------------------
(10) (i) 92 - - Asset Purchase and Sales Agreement, dated August 7,
2000, among Central Hudson, Consolidated Edison
Company of New York, Inc., Niagara Mohawk Power
Corporation and Dynegy Power Corp. for the sale of
the Roseton Electric Generating Station and related
assets.(1)
(10) (i) 93 - - Asset Purchase and Sales Agreement, dated August 7,
2000, by and between Central Hudson and Dynegy
Power Corp. for the sale of the Danskammer Point
Steam Electric Generating Station and related
assets.(1)
(10) (i) 94 - - 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. relating to the sale of the
Roseton Electric Generating Station and the
Danskammer Point Steam Electric Generating
Station.(1)
(10) (i) 95 - - Guarantee Agreement, dated August 7, 2000, among
Central Hudson, Consolidated Edison Company of New
York, Inc., Niagara Mohawk Power Corporation and
Dynegy Holdings, Inc., relating to the sale of the
Roseton Electric Generating Station and the
Danskammer Point Steam Generating Station.(1)
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(10) (iii) 30 - - Amendment Number One to the Central Hudson Savings
Incentive Plan.
(12) - - Statement Showing Computation of the Ratio of
Earnings to Fixed Charges and the Ratio of Earnings
to Combined Fixed Charges and Preferred Stock
Dividends.
(27) - - Financial Data Schedule, pursuant to Item 601(c) of
Regulation S-K.
(1) Incorporated herein by reference to the Exhibits furnished with the
Quarterly Report Form 10-Q, for the quarterly period ended September 30, 2000,
of CH Energy Group, Inc. (SEC File No. 30512), which Exhibits are designated,
respectively, (10)(i) 93, (10)(i) 94, (10)(i) 95 and (10)(i) 96.
(b) Reports on Form 8-K. During the period covered by this Report on Form
10-Q, Central Hudson filed the following Current Report on Form 8-K:
(i) A Report, dated August 8, 2000, containing a copy of the press release
announcing that Central Hudson, along with Roseton Plant cotenants, Consolidated
Edison Company of New York, Inc. and Niagara Mohawk Power Corporation, had
agreed to sell their respective interests in the Danskammer and Roseton Plants
to Dynegy Power Corp.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Central Hudson has duly caused this report to be signed on its behalf by the
undersigned hereunder duly authorized.
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
(Registrant)
By: /s/ Donna S. Doyle
------------------------------------------
Donna S. Doyle
Vice President - Accounting and Controller
Dated: November 13, 2000
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EXHIBIT INDEX
Exhibit No.
Regulation S-K
Item 601
Designation Exhibit Description
-------------- -------------------
(10) (i) 92 - - Asset Purchase and Sales Agreement, dated August 7,
2000, among Central Hudson, Consolidated Edison
Company of New York, Inc., Niagara Mohawk Power
Corporation and Dynegy Power Corp. for the sale of
the Roseton Electric Generating Station and related
assets.(1)
(10) (i) 93 - - Asset Purchase and Sales Agreement, dated August 7,
2000, by and between Central Hudson and Dynegy
Power Corp. for the sale of the Danskammer Point
Steam Electric Generating Station and related
assets.(1)
(10) (i) 94 - - 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. relating to the sale of the
Roseton Electric Generating Station and the
Danskammer Point Steam Electric Generating
Station.(1)
(10) (i) 95 - - Guarantee Agreement, dated August 7, 2000, among
Central Hudson, Consolidated Edison Company of New
York, Inc., Niagara Mohawk Power Corporation and
Dynegy Holdings, Inc., relating to the sale of the
Roseton Electric Generating Station and the
Danskammer Point Steam Generating Station.(1)
(10) (iii) 30 - - Amendment Number One to the Central Hudson Savings
Incentive Plan.
(12) - - Statement Showing Computation of the Ratio of
Earnings to Fixed Charges and the Ratio of Earnings
to Combined Fixed Charges and Preferred Stock
Dividends.
(27) - - Financial Data Schedule, pursuant to Item 601(c) of
Regulation S-K.
(1) Incorporated herein by reference to the Exhibits furnished with the
Quarterly Report Form 10-Q, for the quarterly period ended September 30, 2000,
of CH Energy Group, Inc. (SEC File No. 30512), which Exhibits are designated,
respectively, (10)(i) 93, (10)(i) 94, (10)(i) 95 and (10)(i) 96.
