CH Energy Group Inc. (CHG, Financial) filed Quarterly Report for the period ended 2012-06-30.
Ch Energy Group Inc has a market cap of $972 million; its shares were traded at around $65.08 with a P/E ratio of 27.7 and P/S ratio of 1. The dividend yield of Ch Energy Group Inc stocks is 3.4%. Ch Energy Group Inc had an annual average earning growth of 11.2% over the past 10 years.
Griffith's earnings increased $0.01 per share in the three months ended June 30, 2012 compared to the same period in 2011. Griffith's weather-normalized core earnings for the second quarter were $0.04 per share favorable due to higher margins and effective cost management. For the six months ended June 30, 2012, compared to the same period in 2011, Griffith's earnings were $0.10 lower primarily due to lower volumes which were principally driven by the unusually warm weather. In addition, Griffith's 2011 earnings benefited from reducing the environmental reserve associated with the 2009 divestiture. Excluding the impact of these items, Griffith's weather-normalized core earnings through June were $0.03 higher than the same period last year. This increase reflects higher margins and effective cost management as well as lower weather-normalized sales volumes. The lower volumes were primarily due to customer conservation in response to high commodity prices. - 63 - Table of Contents
In addition to the required adjustment to match revenues collected from customers, the lower levels of purchased electricity and purchased natural gas for the three and six months ended June 30, 2012 compared to the same periods in the prior year was driven primarily by lower wholesale prices and lower revenues collected for the recovery of previously deferred purchased electric and gas costs. The variations in purchased gas for the six months ended June 30, 2012 was also driven by lower purchased volumes. Variations in NYS energy programs, Pension, Temporary State Assessment and other matched expenses were due to a change in the level of expenses recorded with a corresponding change in revenues resulting from the change in the amounts included in delivery rates as authorized in the 2010 Rate Order. - 71 - Table of Contents Weather related service restoration costs can fluctuate from year to year based on changes in the number and severity of storms each year. On April 24, 2012, Central Hudson filed a petition with the PSC to defer for future recovery with carrying charges $8.6 million of total incremental electric storm restoration expense. The Company believes that it is entitled to fully recover all of these incremental expenses and has filed its petition with the PSC to reflect that position. Central Hudson recorded a $1.1 million reversal in March 2012 and $2.1 million reversal in June 2012 of deferred storm costs associated with the October 2011 SnowFall event so that the return on common equity for the twelve months ending June 30, 2012 would not exceed the authorized rate of return of 10%. Absent these adjustments, weather related storm restoration costs decreased for both the three and six months ended June 30, 2012 as compared to the same periods in 2011. In 2011, a severe ice storm affecting portions of the electric service territory, as well as weather related gas emergencies as a result of other severe weather experienced early in 2011, resulted in higher than normal storm restoration costs, however, these events did not individually meet the PSC criteria for deferral accounting and therefore, the incremental costs were not deferred. The lack of significant storm activity in the first six months of 2012 increased the year-over-year variation. The decrease in expenses associated with tree-trimming in the three and six month periods ended June 30, 2012 is a result of accelerated trimming performed in 2011 to take advantage of crew availability, as well as favorable trimming conditions and pricing. Other Income Other income and deductions for Central Hudson for the three and six months ended June 30, 2012, increased $0.2 million and $0.7 million, compared to the same periods in 2011, respectively. This is the result of an increase in regulatory carrying charges from customers related to the deferred storm costs and the reserve balance for pension costs. The first six months of 2012 also included expenses with respect to the total return swap entered into in connection with the Directors and Officers Deferred Compensation Plan. Interest Charges Central Hudson's interest charges were relatively unchanged during the three months ended June 30, 2012 compared to the same period in 2011 and decreased $0.1 million for the six months ended June 30, 2012 compared to the same period in 2011. The year-over-year variation was the result of several factors. Central Hudson effectively reduced interest charges by refinancing its 1999 Series A NYSERDA Bonds bearing interest at 5.45% and the 2002 Series D Medium Term Note bearing interest at 6.64% with Series G Medium Term Notes bearing an average interest rate of 4.37%. Lower interest rates were partially offset by an overall higher outstanding debt balance during the three and six months ended June 30, 2012 as compared to the prior periods as a result of an additional $12.0 million borrowed during 2012 to fund the redemption of two of Central Hudson's outstanding series of preferred stock. Net increases in carrying charges due to customers was primarily due to an increase in the underlying reserve balance for OPEB costs, which was partially offset by a decrease in the net regulatory electric liability set aside for customer benefit. - 72 - Table of Contents Income Taxes Income taxes for Central Hudson decreased $0.5 million and increased $2.0 million, respectively, for the three and six months ended June 30, 2012 when compared to the same periods in 2011 primarily due to the change in pre-tax book income. CH Energy Group
Operating expenses of other businesses and investments increased during the three and six months ended June 30, 2012 as compared to the same period in 2011 by $3.1 million and $8.4 million, respectively, as a result of costs incurred related to the agreement and plan of merger entered into with Fortis. These costs relate to professional services of approximately $3.2 million and $7.5 million for the three and six months ended June 30, 2012 and the impact of the increase in CH Energy Group's stock price immediately following the announcement of the proposed acquisition by Fortis on the outstanding performance share awards under CH Energy Group's equity-based compensation plans of $0.9 million, which has been recognized at the holding company as a merger-related transaction cost and not allocated to its subsidiaries. The equity based compensation expense recognized at the holding company for the three months ended June 30, 2012 was not material. Other income and deductions for the balance of CH Energy Group, primarily the holding company and CHEC's investments in partnerships and other investments (other than Griffith) increased by approximately $0.2 million for the three months ended June 30, 2012 and were relatively unchanged for the six month period compared to the same period in the prior year. The increase for the three month period was the result of a decrease in business development costs in 2012 as compared to the prior year. For the six months ended June 30, 2012, the unfavorable results of CHEC's partnerships offset the favorable impacts of lower business development costs. Interest charges for the balance of CH Energy Group, primarily the holding company, decreased by $0.3 million and $0.6 million during the three and six months ended June 30, 2012 as compared to the prior periods primarily due to the lower total outstanding debt at the holding company following the third quarter 2011 pay down of $20 million of debt. CH Energy Group - Income Taxes Income taxes on income from continuing operations for CH Energy Group increased $0.1 million and $1.2 million for three and six months ended June 30, 2012 compared to the same periods in 2011. This increase was primarily due to costs incurred by CH Energy Group related to the proposed acquisition of CH Energy Group by Fortis. Acquisition costs incurred to date of $7.5 million relating to professional fees are being treated as non-deductible for tax purposes, which resulted in higher tax expense as well as higher Federal and NY State effective tax rates for the three and six months ended June 30, 2012. CAPITAL RESOURCES AND LIQUIDITY CH Energy Group's book value per share of its Common Stock decreased from $33.72 at December 31, 2011, to $33.60 at June 30, 2012. Common equity comprised 49.4% of total capital (including short-term debt) at June 30, 2012, a decrease from 49.6% at December 31, 2011. The changes in book value per share of Common Stock and the common equity ratio reflect the net impact of retained earnings and the timing of short-term borrowings. Book value per share at June 30, 2011 was $34.02 and the common equity ratio was 49.5%. - 79 - Table of Contents
Central Hudson's net cash provided by operations was $65.2 million and $82.1 million for the six months ended June 30, 2012 and 2011, respectively. Cash provided by sales exceeded the period's expenses and working capital needs in the first half of both 2012 and 2011. In 2011, recovery of previously deferred electric and natural gas costs had a significant favorable impact on net cash provided by operations. In 2012, the warmer winter weather in the first quarter and lower wholesale prices compared to the first half of 2011 resulted in a reduction of working capital needs for both Central Hudson and Griffith. Contributions to Central Hudson's pension plans significantly impacted both years' cash with $28.3 million in the first half of 2012 and $32.3 million in the first half of 2011. CH Energy Group's net cash provided by operating activities was also negatively impacted during the six months ended June 30, 2012 due to merger related transaction costs. While the full impact of the merger related transaction costs is $8.5 million, including amounts recorded in liabilities, $4.6 million of merger related transaction costs have been paid as of June 30, 2012.
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Ch Energy Group Inc has a market cap of $972 million; its shares were traded at around $65.08 with a P/E ratio of 27.7 and P/S ratio of 1. The dividend yield of Ch Energy Group Inc stocks is 3.4%. Ch Energy Group Inc had an annual average earning growth of 11.2% over the past 10 years.
Highlight of Business Operations:
Earnings from Central Hudson's electric and natural gas operations decreased in the three months and increased for the six months ended June 30, 2012 compared to the same periods in 2011. Central Hudson reduced its deferred storm costs associated with the significant snow storm event in late October 2011 ("SnowFall") by $0.04 in March 2012 and $0.08 in June 2012 so that the return on common equity for the twelve months ending June 30, 2012 does not exceed the authorized rate of return of 10%. After adjusting Central Hudson's earnings per share for incremental weather related restoration costs, earnings were $0.03 per share higher in the second quarter of 2012 and $0.26 per share higher in the first six months of 2012, year over year. Both periods were favorably impacted by higher delivery revenues which reflect the rate increase that went into effect in July 2011 and was needed to address the cost of capital as we continued to make significant investments in our system as well as higher operating costs. Both periods were also favorably impacted by lower tree trimming costs and share accretion. The lower trimming cost was due to the acceleration in the first half of 2011 due to more favorable crew availability and contract pricing. Favorable share accretion is attributable to CH Energy Group's repurchase of nearly $49 million of common stock during 2011.Griffith's earnings increased $0.01 per share in the three months ended June 30, 2012 compared to the same period in 2011. Griffith's weather-normalized core earnings for the second quarter were $0.04 per share favorable due to higher margins and effective cost management. For the six months ended June 30, 2012, compared to the same period in 2011, Griffith's earnings were $0.10 lower primarily due to lower volumes which were principally driven by the unusually warm weather. In addition, Griffith's 2011 earnings benefited from reducing the environmental reserve associated with the 2009 divestiture. Excluding the impact of these items, Griffith's weather-normalized core earnings through June were $0.03 higher than the same period last year. This increase reflects higher margins and effective cost management as well as lower weather-normalized sales volumes. The lower volumes were primarily due to customer conservation in response to high commodity prices. - 63 - Table of Contents
In addition to the required adjustment to match revenues collected from customers, the lower levels of purchased electricity and purchased natural gas for the three and six months ended June 30, 2012 compared to the same periods in the prior year was driven primarily by lower wholesale prices and lower revenues collected for the recovery of previously deferred purchased electric and gas costs. The variations in purchased gas for the six months ended June 30, 2012 was also driven by lower purchased volumes. Variations in NYS energy programs, Pension, Temporary State Assessment and other matched expenses were due to a change in the level of expenses recorded with a corresponding change in revenues resulting from the change in the amounts included in delivery rates as authorized in the 2010 Rate Order. - 71 - Table of Contents Weather related service restoration costs can fluctuate from year to year based on changes in the number and severity of storms each year. On April 24, 2012, Central Hudson filed a petition with the PSC to defer for future recovery with carrying charges $8.6 million of total incremental electric storm restoration expense. The Company believes that it is entitled to fully recover all of these incremental expenses and has filed its petition with the PSC to reflect that position. Central Hudson recorded a $1.1 million reversal in March 2012 and $2.1 million reversal in June 2012 of deferred storm costs associated with the October 2011 SnowFall event so that the return on common equity for the twelve months ending June 30, 2012 would not exceed the authorized rate of return of 10%. Absent these adjustments, weather related storm restoration costs decreased for both the three and six months ended June 30, 2012 as compared to the same periods in 2011. In 2011, a severe ice storm affecting portions of the electric service territory, as well as weather related gas emergencies as a result of other severe weather experienced early in 2011, resulted in higher than normal storm restoration costs, however, these events did not individually meet the PSC criteria for deferral accounting and therefore, the incremental costs were not deferred. The lack of significant storm activity in the first six months of 2012 increased the year-over-year variation. The decrease in expenses associated with tree-trimming in the three and six month periods ended June 30, 2012 is a result of accelerated trimming performed in 2011 to take advantage of crew availability, as well as favorable trimming conditions and pricing. Other Income Other income and deductions for Central Hudson for the three and six months ended June 30, 2012, increased $0.2 million and $0.7 million, compared to the same periods in 2011, respectively. This is the result of an increase in regulatory carrying charges from customers related to the deferred storm costs and the reserve balance for pension costs. The first six months of 2012 also included expenses with respect to the total return swap entered into in connection with the Directors and Officers Deferred Compensation Plan. Interest Charges Central Hudson's interest charges were relatively unchanged during the three months ended June 30, 2012 compared to the same period in 2011 and decreased $0.1 million for the six months ended June 30, 2012 compared to the same period in 2011. The year-over-year variation was the result of several factors. Central Hudson effectively reduced interest charges by refinancing its 1999 Series A NYSERDA Bonds bearing interest at 5.45% and the 2002 Series D Medium Term Note bearing interest at 6.64% with Series G Medium Term Notes bearing an average interest rate of 4.37%. Lower interest rates were partially offset by an overall higher outstanding debt balance during the three and six months ended June 30, 2012 as compared to the prior periods as a result of an additional $12.0 million borrowed during 2012 to fund the redemption of two of Central Hudson's outstanding series of preferred stock. Net increases in carrying charges due to customers was primarily due to an increase in the underlying reserve balance for OPEB costs, which was partially offset by a decrease in the net regulatory electric liability set aside for customer benefit. - 72 - Table of Contents Income Taxes Income taxes for Central Hudson decreased $0.5 million and increased $2.0 million, respectively, for the three and six months ended June 30, 2012 when compared to the same periods in 2011 primarily due to the change in pre-tax book income. CH Energy Group
Operating expenses of other businesses and investments increased during the three and six months ended June 30, 2012 as compared to the same period in 2011 by $3.1 million and $8.4 million, respectively, as a result of costs incurred related to the agreement and plan of merger entered into with Fortis. These costs relate to professional services of approximately $3.2 million and $7.5 million for the three and six months ended June 30, 2012 and the impact of the increase in CH Energy Group's stock price immediately following the announcement of the proposed acquisition by Fortis on the outstanding performance share awards under CH Energy Group's equity-based compensation plans of $0.9 million, which has been recognized at the holding company as a merger-related transaction cost and not allocated to its subsidiaries. The equity based compensation expense recognized at the holding company for the three months ended June 30, 2012 was not material. Other income and deductions for the balance of CH Energy Group, primarily the holding company and CHEC's investments in partnerships and other investments (other than Griffith) increased by approximately $0.2 million for the three months ended June 30, 2012 and were relatively unchanged for the six month period compared to the same period in the prior year. The increase for the three month period was the result of a decrease in business development costs in 2012 as compared to the prior year. For the six months ended June 30, 2012, the unfavorable results of CHEC's partnerships offset the favorable impacts of lower business development costs. Interest charges for the balance of CH Energy Group, primarily the holding company, decreased by $0.3 million and $0.6 million during the three and six months ended June 30, 2012 as compared to the prior periods primarily due to the lower total outstanding debt at the holding company following the third quarter 2011 pay down of $20 million of debt. CH Energy Group - Income Taxes Income taxes on income from continuing operations for CH Energy Group increased $0.1 million and $1.2 million for three and six months ended June 30, 2012 compared to the same periods in 2011. This increase was primarily due to costs incurred by CH Energy Group related to the proposed acquisition of CH Energy Group by Fortis. Acquisition costs incurred to date of $7.5 million relating to professional fees are being treated as non-deductible for tax purposes, which resulted in higher tax expense as well as higher Federal and NY State effective tax rates for the three and six months ended June 30, 2012. CAPITAL RESOURCES AND LIQUIDITY CH Energy Group's book value per share of its Common Stock decreased from $33.72 at December 31, 2011, to $33.60 at June 30, 2012. Common equity comprised 49.4% of total capital (including short-term debt) at June 30, 2012, a decrease from 49.6% at December 31, 2011. The changes in book value per share of Common Stock and the common equity ratio reflect the net impact of retained earnings and the timing of short-term borrowings. Book value per share at June 30, 2011 was $34.02 and the common equity ratio was 49.5%. - 79 - Table of Contents
Central Hudson's net cash provided by operations was $65.2 million and $82.1 million for the six months ended June 30, 2012 and 2011, respectively. Cash provided by sales exceeded the period's expenses and working capital needs in the first half of both 2012 and 2011. In 2011, recovery of previously deferred electric and natural gas costs had a significant favorable impact on net cash provided by operations. In 2012, the warmer winter weather in the first quarter and lower wholesale prices compared to the first half of 2011 resulted in a reduction of working capital needs for both Central Hudson and Griffith. Contributions to Central Hudson's pension plans significantly impacted both years' cash with $28.3 million in the first half of 2012 and $32.3 million in the first half of 2011. CH Energy Group's net cash provided by operating activities was also negatively impacted during the six months ended June 30, 2012 due to merger related transaction costs. While the full impact of the merger related transaction costs is $8.5 million, including amounts recorded in liabilities, $4.6 million of merger related transaction costs have been paid as of June 30, 2012.
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