Fitch IBCA Affs CHG&E Sec Rtg `A'/Pref Stock Lwrd To `BBB+'.

Business Editors

NEW YORK--(BUSINESS WIRE)--May 4, 2000

Fitch IBCA affirms the following Central Hudson Gas & Electric Corp.'s (NYSE:CHG) ratings: $155.2 million first mortgage bonds and secured medium term notes/pollution control bonds at 'A'; $216.0 million unsecured medium term notes/pollution control bonds at 'A-'; and commercial paper at 'F1'.

CHG's preferred stock rating is downgraded from 'A-' to 'BBB+' reflecting Fitch IBCA's view that preferred stock should be notched below unsecured debt for companies in this rating category.

CHG's credit rating is supported by competitive electric and gas rates in the northeast region, historically solid financial performance, a growing service area economy, a favorable electric restructuring agreement providing adequate stranded cost recovery, and the utility's impending generation asset sale -- which will reduce CHG's business risk in the competitive generation market. Additionally, unlike its counterparts in New York State, CHG is not burdened with above market long-term purchased power agreements with independent power producers.

Pursuant to the electric restructuring agreement, CHG froze its residential and small commercial rates, and reduced industrial rates by 5% through the end of the transition period, June 30, 2001. Retail access, phased-in since 1998, must be offered to 100% of customer load by June 30, 2001. Stranded costs related primarily to CHG's minority interest in Nine Mile Point 2 nuclear facility are estimated at $285 million, and will be substantially offset via deferred earnings set aside during the transition period, the premium on the fossil generation asset sales, and the current market value of the nuclear asset. With the sale of the Roseton and Danskammer generation facilities, required to be completed by June 30, 2001, CHG will transition into a primarily transmission and distribution supplier, with modest owned power supply resources (10% of total power requirements). Consequently, earnings and cashflow are projected to remain stable, with pretax income and cash from operations providing in excess of 3.5 times (x) and 4.0x interest coverage, respectively, through 2004. CHG's equity capitalization will average roughly 50% -- a strong balance sheet for what will be a primarily `wires and pipes' company.

Credit concerns include continued nuclear asset exposure (9% ownership interest in Nine Mile Point Unit 2), regulatory uncertainties regarding an upcoming electric rate case later this year, and declining but still notable (electric) industrial customer concentration (IBM). Positively, a competitive auction of the Nine Mile nuclear plants is anticipated to occur shortly, which should yield a higher bid than AmerGen's original proposal. A higher sales price and favorable regulatory treatment would likely influence CHG to sell its ownership interest in Nine Mile 2. Meanwhile, CHG is required to submit its electric rate filing, which is expected to include a performance based rate plan, to the New York Public Service Commission (PSC) by Aug. 1, 2000. A key concern is whether the PSC will allow the utility to continue to use a fuel adjustment charge or other mechanism to mitigate commodity price exposure stemming from CHG's provider of last resort status.

Additionally, in Dec. 1999, CHG created a new holding company structure, with CH Energy Group, Inc. as its parent. The holding company has segregated its regulated (CHG) business lines from its unregulated activities (Central Hudson Energy Services, Inc.). However, CH Energy Group plans to rapidly expand the unregulated businesses, to contribute up to 50% of the consolidated company's earnings by 2005. The holding company's business risk will increase with the growth in unregulated activities, although Fitch IBCA believes this risk is moderated by management's historically conservative investment philosophy. For CHG, regulatory constraints limiting the subsidiary's upstream dividends to the parent further insulate it from potential difficulties at the unregulated subsidiaries.