Fitch Upgrs Ratings of CHG&E; Rating Outlook Revised to Positive.

Business Editors

NEW YORK--(BUSINESS WIRE)--Jan. 18, 2002

Fitch has upgraded Central Hudson Gas and Electric Corporation's (CHG&E) senior unsecured obligations and preferred securities to reflect the legal defeasance of its $35 million first mortgage bonds on Nov. 6, 2001. Funds for the first mortgage bonds are invested in a U.S. Treasury money market fund in a trust account at The Bank of New York and are restricted for corporate uses. The rating for the first mortgage bonds is upgraded to `AAA' from `A,' senior unsecured debt to `A' from `A-' and preferred stocks to `A-' from `BBB+'; short term obligations remain unchanged at `F1'. Fitch has also changed CHG&E's Rating Outlook to Positive from Stable.

The Positive Rating Outlook reflects an improved business risk profile following the divestiture of its fossil and nuclear generation assets, a recent constructive ruling by the New York Public Service Commission (PSC) on electric and gas tariffs and the company's competitive business position in New York State. CHE&G sold its fossil generating assets in early 2001 at a price that is four times book value and its 9% ownership interest in Nine Miles Point 2 Nuclear Plant in late 2001. Consequently, the company has evolved to become a transmission and distribution electric company with low business risk and stable cash flow. The company has recovered more than all its stranded costs and used proceeds from the asset sales to pay down debt. Reduced interest expenses will result in a projected EBITDA/Interest ratio that ranges from 5.0 times (x) to 6.0x in the next three years, compared to past five years' 4.9x to 5.7x. The company's Debt/EBITDA ratio is projected to increase to about 4.0x in 2004 from about 3.0x in 2002. The Oct. 24, 2001 PSC ruling will enable the company to eliminate commodity price exposure with the continuation of full pass-through of electric and gas supply costs for the period of 7/1/2001- 6/30/2004. The supply cost adjustment will be done monthly, minimizing CHG&E's cash flow exposure to regulatory lag. Also, CHG&E is the lowest electric provider among all investor-owned utilities in New York State for all customer classes and its gas rates are competitive.

The rating also considers several credit concerns, centered on potential impact of economic slowdown on the service area, regulatory uncertainty after the settlement period and parent company CH Energy Group (CH Energy)'s plans to increase its nonregulated businesses. CHG&E's service territory is relatively small and there is some customer concentration; IBM alone accounts for almost 10% of total electric revenues. Also, the regulatory environment for CHG&E is an unknown when the current settlement period expires on 6/30/2004.

Currently CH Energy has no debt but significant amount of cash ready to be deployed into new investments. CH Energy will not rule out debt financing if it sees an attractive investment opportunity. CH Energy's current investment strategy focuses on growing through the purchase of existing energy businesses that are immediately accretive to earnings. In the past two years, the company has invested over $150MM into nonregulated businesses, which provide electricity, heating oil, motor fuels, natural gas and propane and other value-added energy services to customers in eleven States in the Northeast and Mid- Atlantic regions.

CHG&E, a wholly owned subsidiary of CH Energy Group, is a regulated operating utility, providing electric and gas service to 271,300 and 62,400 customers, respectively, in the central Hudson River region of New York State. It purchases, sells at wholesales and distributes electricity, and purchases and distributes gas in New York State. The electric operations account for the majority of CHG&E's earnings. Natural gas service is provided in the cities of Poughkeepsie, Beacon, Newburgh and Kingston, New York. The parent holding company was formed on 12/15/1999.