CH Energy Group, Inc. Q4 2009 Earnings Call Transcript

Executives

Steven Lant – Chairman, President and CEO

Stacey Renner – Treasurer

Kim Wright – VP of Accounting and Controller

Chris Capone – EVP and CFO

Analysts

Dan Fidell – Brean Murray

John Hanson [ph] – Criterion [ph]

James Heckler – Levin Capital Strategies

CH Energy Group, Inc. (CHG) Q4 2009 Earnings Call Transcript February 11, 2010 2:00 PM ET

Operator

Ladies and gentlemen, thank you for standing by and welcome to the CH Energy Group conference call. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session. Those instructions will be given at that time. (Operator instructions) As a reminder today's conference will be recorded.

I’d now like to turn the conference over to Chairman, President and CEO, Steven Lant. Please go ahead, sir.

Steven Lant

Thank you. Good afternoon and welcome to our quarterly conference call. Speaking along with me today will be Chris Capone, Executive Vice President and Chief Financial Officer; Kim Wright, Vice President of Accounting and Controller, and Stacey Renner, our Treasurer.

After my introductory remarks, Kim Wright will cover our 2009 results by business unit and Chris Capone will discuss our business environment and future prospects. We'll then take your questions.

Before we begin, I'd ask Stacey to review our cautionary statements.

Stacey Renner

Thanks, Steve. I’d like to first remind listeners that the presentation slides for this conference call and our supplemental 2009 financial information are available in the Investor Relations section of our website at www.chenergygroup.com.

I refer you now to the paragraph on forward-looking statements at the bottom of this morning's press release. If you are following along with the presentation slides, please reference page three. During this conference call presentation and in the question-and-answer session to follow, CH Energy Group participants may discuss management intentions, belief, expectations, projections, or make other statements that are not historical in nature.

Please note these forward-looking statements are subject to assumptions, risks, and uncertainties that could cause actual results to differ materially from the forward-looking statements. These risks are discussed in more detail in our filing on Form 10-K for the year ended December 31, 2009 under the section labeled risk factors. That filing was made yesterday and is available on the Investor Relations section of our website at the link for SEC filings.

I'll now return the call to Steve Lant.

Steven Lant

Thank you, Stacey. Our earnings per share for the fourth quarter of 2009 were $1.04 versus $0.71 in 2008, an increase of $0.33. For the full calendar year, our earnings per share in 2009 were $2.76 versus $2.22 in 2008, an increase of $0.54 or 24%. Of this increase, a net amount of $0.34 relates to the Griffith partial divestiture. So on a continuing operations basis, earnings per share was up $0.20 or about 9%.

We are very pleased with our quarterly results and our full calendar year results, especially for our two largest operating subsidiaries, Central Hudson and Griffith. In the case of Central Hudson, earnings per share were $0.62 for the quarter versus $0.31 in 2008, an increase of $0.31, and full year earnings per share was $2.02 versus $1.67 in 2008, an increase of $0.35.

The increase in the quarterly earnings per share is primarily due to the rate increase that went into effect in July which corrected a significant mismatch between our revenues and our expenses, which developed during our previous rate settlement and depressed our earnings well below our authorized return on equity. The new rates help address the problem, but we remain challenged to earn the full authorized ROE in the new rate year due to stringent expense allowances in the PSC’s order.

Nevertheless, most of our under-earnings issue has been corrected, hence the pickup in Central Hudson’s earning per share over the second half of 2009. In the case of Griffith, our fourth quarter earnings per share was $0.48 versus $0.35 in 2008, an increase of $0.13, and our full-year earnings per share was $0.76 versus $0.26 in 2008, an increase of $0.50.

The partial divestiture was completed on December 11, 2009 which culminated our strategic review and it was an unqualified success. Our primary objective for the partial divestiture was to reduce our exposure to working capital volatility associated with wholesale oil prices. We achieved that objective, but we're also able to realize the substantial gain for shareholders on the transaction as well.

The price paid by the buyer, superior plus, we have a strategy that's adding value and executing effectively. That strategy, which consists of carefully selecting acquisitions, paying the right price and integrating them effectively as well as quality and value-based marking programs and continuous improvement in operating efficiency is bearing fruit. This strategy will be continued in our historical core market area in the mid-Atlantic region, including our resuming tuck-in acquisitions in 2010.

Also, as part of our strategic review of check, we've narrowed the focus of our business development efforts of renewable energy to win in landfill gas projects. We have two primary reasons for doing this. First, we believe that our shareholders prefer that we focus on investments that are utility-like and that they can be expected to produce reasonable stable and predictable earnings in cash flow.

Second, we want to develop specialized skills that will lead to excellence in execution. As to the first point, we believe wind and landfill gas projects can produce revenue streams through the sale of electricity or natural gas to creditworthy counterparties at known prices over a long-term period.

We also believe that the output levels in capital and operating costs can be predicted and managed, such that year to year volatility and earnings is acceptable. The net result of these attribute is a net income level and cash flow that is sufficiently attractive and sufficiently stable to be of interest to primarily utility shareholder base.

By contrast, we believe that ethanol investments do not possess these same characteristics and cannot be relied upon to produce sufficiently stable and predictable return. As a result, we do not plan to make investments in ethanol going forward. We will continue to manage our ethanol holdings to maximize returns but if an opportunity to divest our holdings at a reasonable price became available, we'd be inclined to do so. We intend to patiently pursue such opportunities. As to biomass, we continue to consider whether initial investments can meet our criteria.

Our other businesses and investments contributed a loss of $0.02 in 2009, versus a gain of $0.29 in 2008, a decline of $0.31. This was due to a number of factors, including taxes on the Griffith transaction, lower interest income due to the gradual depletion of our cash balances as we invested in our core businesses and paid dividends to our shareholders. Interest on the new holding company debt we took on the finance our unregulated investments and a reserve we took for development loan on the buckeye ethanol project.

I am pleased to note that consistent with our strategy to reduce the size of our Griffith subsidiary and concentrate check's focus in renewable energy; we announced almost immediately thereafter our investment in a 20 megawatt wind project in Shirley, Wisconsin. This project after an approximately one-year construction period will sell us out to Wisconsin Public Service for a 20-year period at a predetermined set of fixed prices which escalate over time.

We believe this project fits our strategy very well and represents an excellent use of proceeds from the Griffith transaction. We see it producing attractive returns for many years beginning in 2011. On the operations side, I would note that Central Hudson was able to achieve the performance targets in our regulatory order and continue to serve its customers efficiently and well. All in all, it was a very good quarter and a very good year for CH Energy Group and we are well positioned entering 2010.

Almost immediately after year end on January 4, central Hudson reached an agreement in principle regarding a comprehensive settlement of our electric and gas rate cases. This agreement has since been fully documented as a joint proposal, which has been entered into by the company, the staff of the public service commission, and multiple interveners, and will be presented to the commission for their approval in June.

The agreement covers a three-year term and is predicated on a 10% allowed return on equity, which is equal to the return on equity in our current rate order and the return that we requested in this proceeding. The agreement also contains the number of productivity goals and cost-sharing mechanisms which will make it a challenge for to us earn the authorized rate of return but we believe it is an agreement that balances the interest of the parties and is a better alternative and continued litigation would produce. We are keenly aware of the austere regulatory environment that we faced due to the challenging economic climate and agreed to the settlement in that spirit. The joint proposal will now go through a hearing phase and come before the commission in the second quarter of the year.

Now I'd like to turn the call over to Kim Wright.

Kim Wright

Thanks, Steve. Good afternoon, everyone. As Steve mentioned, I'll be reviewing our results for the year and will be covering pages 5 through 8 of the power point presentation for those of you following along on line.

Beginning with our consolidated results you see on page 5 that we earn $2.76 in 2009, a $0.54 increase from 2008's earnings of $2.22. As Steve noted, this increase was primarily due to the gain from Griffith partial divestiture and Central Hudson's new rate order which includes revenue decoupling mechanisms or RDM, which results in this alignment we had between our revenue and our costs under the prior rate agreement.

Moving on to page 6, Central Hudson’s earnings of $2.02 were $0.35 higher than 2008. The primary driver of our higher earnings was the implementation of the new rate order I just mentioned. As we’ve discussed on prior calls, the new rate order, which was effective July 1, 2009, should prevent significant revenue shortfalls such as those we experienced during the three years’ settlement.

Looking at some of the details provided on the bottom half of the page, during 2009, rate increases improved earnings by $0.66 per share and RDMs increased earnings by $0.22 per share. These increases were sufficient to cover the $0.21 impact of lower sales volumes relative to 2008, $0.04 of which was due to cooler weather in 2009, and leaving $0.67 to cover higher operating expenses.

You can see that the impact of rate increases in the RDMs were sufficient to cover the increases in the normal costs of our business such as depreciation, tree trimming, taxes and interest charges. In total, we saw an increase of $0.35 in these costs over the same period a year ago. Absent other increases in our costs, this would have left $0.32 in higher earnings. However, as we discussed throughout 2009, uncollectible expenses have increased significantly over historic levels.

The continuing weak economy and high levels of unemployment have made it difficult for an increasing number of our customers to pay their bills, despite reductions in the electric and gas supply portions of their bills. This increase on collectible accounts, reducing earnings by $0.18 for the year, while our new rates do reflect an increased recovery for these costs, given the continued impacts of the weak economy, particularly the increase in unemployment rates, we expect that these costs will continue to exceed the amounts recovered through our rates.

During 2009, we implemented a variety of measures to reduce the impact of these costs on earnings and we continue to closely monitor these measures as well as the level of write-offs and past-due accounts. You can see the results of one of these measures by looking at the top half of the page where you see a favorable offset of $0.2 of these costs.

During the third quarter 2009, the public service commission, PSC, approved our condition to defer the bad debt write-off our gas business experienced in 2008 that were in excess of the amount recovered through rates. The PSC found that the electric write-off did not meet all of its criteria for recovery.

During the fourth quarter 2009, we filed a second petition to defer our incremental bad debt write-off. This time for $2.8 million for the rate year ended June 30th, 2009. We believe we have met the criteria established by the PSC for deferral of these costs and therefore we recorded a regulatory asset for this amount. Decreasing our bad debt expense for 2009 and increasing earnings by $0.11 per share you see on the top half of the page. If the PSC denies any portion of the request, that portion will increase our expense and reduce earnings.

Moving on to page 7. You see that Griffith's contribution to CH Energy Group's earnings of $0.76 was $0.50 higher than 2008. As I mentioned earlier, the primary driver Griffith's improved earnings was the gain on its partial divestiture, which added $0. 40 per share to the amount Griffith contributed to CH Energy Group's earnings. After taking into account the additional $0.06 of income taxes, the holding company owes as a result of the higher earnings it received from its investment in Griffith, the sale increased consolidated earnings by $0.34 per share.

As Steve noted, we are very pleased with these results and Griffith's ability to add value for our shareholders. The remaining $0.10 increase in Griffith’s earnings consists of $0.14 year-over-year improvement for the portion of the business Griffith retained the portion of the business that we sold and $0.04 less in 2009 than in 2008. The $0.14 increase for the retained business is largely due to reduction in operating expenses to ensure the company's cost structure is in line with the lower sales volumes driven by customer conservation and management's ability to control bad debt during these challenging economic times.

Wrapping up on page 8, with our other businesses and investments, our earnings were $0.31 lower than 2008. As I mentioned during my discussion of Griffith’s result, the holding company's tax liability increased in 2009 over 2008 due to the higher earnings it receives from its investment in Griffith. The slower year-over-year earnings by $0.06.

The costs we incurred to continue to pursue additional investment opportunities are also included in this business unit, an increase in 2009 reducing earnings relative to 2008. These costs were $0.03 higher in 2009 and reflect costs we incurred associated with our investment in the Shirley Wind Project which we expect to continue to earnings in 2011.

As a result of accounting rules that took effect in 2009, some of the costs that were expensed previously would have been included as part of the costs of the investment. We have previously discussed the other drivers of the $0.31 reduction in 2008 during our quarterly calls. Reviewing those items in the first quarter of 2009, we've established a reserve for a loan to the developer of the potential ethanol facility and this reduced earnings by $0.05.

In the second quarter, we issued external long-term debt to finance our unregulated investment. The increased interest expense in 2009 over 2008 from this debt totaled $0.07. Finally, Lyonsdale contribution to earnings was $0.03 lower as a result of taking the plant down approximately seven weeks in the second quarter 2009 to make certain repairs to the facility.

Now I'll turn the call over to Chris Capone for a discussion of the outlook for our businesses and investment.

Chris Capone

Thanks, Kim. Good afternoon everyone. The fourth quarter of 2009 represented another quarter of significant progress for CH Energy Group. As Steve mentioned in our press release announced last year, we closed on the divestiture of the Griffith Northeast assets, and we did commit a significant portion of the after tax proceeds to the Shirley wind project. When this project is operational, it should produce greater earnings per equity dollar invested over the life of the project and deliver more stable earnings and cash flow compared to the divested asset.

As Steve mentioned also we made significant progress on a regulatory front for Central Hudson the result of which was a three-year joint proposal or JP that was filed last week. As mentioned in our two previous earnings calls at Central Hudson, the primary issue that negatively impacted our earnings in the first half of 2009 was resolved when new rates went into effect on July 1, 2009. The sales forecast used to set rates into three year agreement that expired in June of last year, assumed increase energy usage per customer in each rate year, but actually usage came in well below those levels.

To give you an understanding of the earnings impact, the difference between the actual usage and the forecasted usage resulted in an estimated $0.46 per share earnings drag in just the first half of 2009, the period of January 1 through June 30, again, before the new rates went into effect, which included a revenue decoupling mechanism.

Our earned ROE in the rate year ending June of last year was 5.74%, almost 400 basis points below the authorized ROE. That sales disconnect certainly was a significant element. Our current rate agreement continues to be RDM or Revenue Decoupling Mechanism which allows us to focus on helping customers manage their energies without producing a financial – a negative financial impact on us. And Kim described the financial impact of the RDM and the other increases in cost recovery under our agreement.

We filed a one year rate case in last July for new rates to go into effect on July 1 of this year, and while our original intent was for a one-year rate agreement, we recognize the potential benefits for all parties of a multi-year agreement and pursued this path concurrent with a one-year litigated track. After the extensive negotiations with the PSC and other interested parties, we determined that a three-year agreement would actually be in the best interest of our customers, our company and our shareholders. The three-year joint proposal contains many of the elements of our current rate agreement, such as the electric and gas RDMs and full cost recovery for purchased gas and electricity.

The JP also updates the amount for collective rates for two very critical items, namely uncollectibles and property taxes. Regarding uncollectibles, the amount we’ll collect from customers beginning in July of this year is based on our actual trailing 12-month experience for the period ending November 30 of 2009. Now while we still have exposure, should our uncollectible experience deteriorate further, the amount we expect to collect in rates under the JP is much more closely aligned with recent experience. However to the extent the situation continues to deteriorate, we would seek deferral treatment should the amounts exceed certain thresholds similar to the deferral filing we made in October of 2009 that Kim alluded to in her earlier comments.

We continue to monitor the uncollectible situation closely and continue to make efforts to dampen the impact of this issue. The JP also addresses the significant undercollection for the second item that I mentioned, property taxes. It does so by updating the rate allowance based on our latest actual experience with sharing of any differences 90% and 10% between customers and the company, and also includes a cap on the impact of the company of approximately $700,000.

In addition to addressing the two key elements of cost, the JP also contains a multiyear CapEx program designed to maintain improved system reliability and service quality. These investments which are at level similar to recent years will result in additions to rate base but our opportunity to earn on these investments depends on our ability to earn the authorized ROE, which in turn depends on our ability to manage expenses over the term of the agreement.

One way to estimate the earnings power of a utility like Central Hudson is to multiply the average rate base for a given year by the equity component and then multiply that by the expected return on equity. In 2010, the average rate base is projected to be approximately 866 million. The allowed equity ratio is 48% and the authorized ROE is 10%. This would yield in earnings per share estimate of $2.63.

While the JP contains many beneficial elements, it will still be a challenge to earn the 10% authorized ROE. As I previously mentioned, uncollectibles will continue to be a risk under the JP, we still have exposure to property taxes, as I mentioned, and there are certain elements of cost for which we will not receive full recovery. Also productivity imputations of 1.5% to 2% have been included as well. However, management will take all reasonable steps to earn the authorized ROE. We’re also focusing on improving customer satisfaction and system reliability and meeting a number of the performance targets that are included in that joint proposal.

Overall, we feel a three-year term is proposed will allow us to focus our efforts on helping our customers managed their energy usage and improve operations and service quality for our customers. We certainly hope the joint proposal as filed will be approved by the PSE in June of this year.

Turning to Griffith, 2009 was a transformational year. The sale in December of the Northeast field distribution assets was a result of the strategic review begun in late 2008. As we indicated all throughout 2009, we were reviewing Griffith operations across geographies, product lines and customer types.

As Steve mentioned earlier, this partial divestiture addressed our concerns about working capital and cash flow volatility by significantly reducing Griffith product volumes. Griffith as it currently stands represents those customers and markets where we can pursue our strategy for adding value most effectively.

Given the attractiveness of the Mid-Atlantic area, we have begun to look for acquisition candidates. Tuck-ins will allow us to fully utilize our existing infrastructure and we will be disciplined in the types of the companies we consider and the prices we will pay. We will look for customers who value full service and we're willing to pay an appropriate price for such service. We fill a track record overall, tuck-in acquisitions was validated by the gain realized last December, and feel that growing Griffith and it measured in disciplined fashion can create shareholder value.

From an operational standpoint, 2009 had two very distinct periods for Griffith. In the early part of the year as energy prices continued to decline from the 2008 highs, margins expanded significantly resulting in stronger returns. But as energy prices rose steadily later in the year margins declined. For the year, margins were generally in line with our expectations and the margin expansion resulted in a $0.02 per share increase in net income year-over-year. However, continued conservation by our residential customers coupled with modest attrition and a sizable reduction in our delivered motor fuel volumes had a significant impact on earnings. These items combined represent a $0.21 per share described in our presentation as weather normalized sales.

During the difficult economic environment of 2009, residential customers continue to actively manage their usage and our delivered motor fuel customers were directly impacted by the falloff in economic activity. The strong focus on cost management did partially offset the volume declines. These efforts resulted in $0.11 reduction in operating expenses in 2009 compared to 2008.

Our other business and investment unit, many of the actions taken in this area were designed to add future earnings with utility like earnings and cash flow volatility. We closed down a CH-Greentree landfill gas investment in the third quarter and Shirley Wind investment as we mentioned a few times in late December. CH-Greentree is currently operating under a lease agreement and should provide steady and predictable earnings and cash flow albeit at modest levels. Shirley Wind is expected to be operational by the end of 2010, and as Kim mentioned begin contributing to earnings in 2011. The Greentree and Shirley Wind investments, the reduction in the side of Griffith along with the elements of the joint proposal should result in an attractive earnings and cash flow risk profile.

We continue to look for additional investment that can produce a return on greater than Central Hudson, yet still match that type of a profile. Depending on the pace and size of future acquisitions, we may decide to issue equity to fund a portion of any new investments. Liquidity and financial integrity are always key focal points for us. Liquidity remains strong with approximately $50 million in cash reserves, no short-term debt as of year-end and $275 million of committed credit.

At this point, I would like to turn it back over to Nick to open up the question and answer period.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) Our first question today will come from the line of Dan Fidell with Brean Murray. Your line is open.

Dan Fidell – Brean Murray

Good afternoon.

Steven Lant

Good afternoon.

Dan Fidell – Brean Murray

Just a couple of quick questions, I suppose. Thanks for the level of detail in the presentation material. Specifically, you have mentioned that you had taken some measures to reduce bad debt, certainly has shown up a bit. Can you give us a little bit more color on exactly what it is you’ve been able to do to bring that number down a bit?

Steven Lant

We have done a couple of things. We’ve increased the resources we have in our call center primarily to help people, many of whom for the first time are behind on their utility bills, and to direct them to public assistance if it’s available or home energy dollars that are available to help defray their amounts outstanding. And we’ve also increased our field collections to try to make sure that customers do recognize that our bill is as important as any other bill that they may have to pay. So it's really been a combination of those two things primarily.

Dan Fidell – Brean Murray

Okay great. And then maybe if could you just talk a little bit about how we should be considering the tuck-in acquisitions that you're talking about for Griffith, sort of specifically the mid-Atlantic region focus, but should we be expecting a sort of a few year or is it just sort of more opportunistic?

Steven Lant

Well it's always difficult to predict the pace of acquisitions because it involves negotiations with other parties, and their expectations are sometimes difficult to gauge. We're looking to make as many acquisitions as we can find that meet our criteria and then we can integrate effectively. We're very careful to make sure that we're not trying to digest too many increased operations too quickly.

So it is difficult to predict. We haven't done it for a year or so as we conducted the strategic review. So it may take us a little while to gain momentum. And frankly, at this time of year, most oil companies are very focused on delivering oil, particularly in the mid-Atlantic region right now, which has been hit by two huge snowstorms, and so the operational challenges are uppermost in everyone's mind. But we would expect that as spring comes that we'll be in contact with some potential sellers.

Dan Fidell – Brean Murray

Okay, great. And then maybe one final question, I'll let someone else ask question. It goes to other business and investments category in terms of current asset mix in there, certainly like the focus on landfill and wind, I think that does make a lot of sense. I'm just wondering in terms of size what we should be expecting going forward. Is it about right-sized for the next several years? And I think any color on the future direction of that segment additional acquisitions, etc.?

And then secondly, you talked about looking for assets with a return greater than what you have obviously earned on the utility. And so I just wonder if there was a threshold ROE? Has it got to be several hundred basis points above or just slightly above? Any kind of color you can give us on that threshold ROE that you sort of look for?

Chris Capone

Thanks. And this is Chris Capone.

Dan Fidell – Brean Murray

Hi, Chris.

Chris Capone

In terms of the size and direction, really the comments Steve made are very similar on this part of our business as well. Certainly when we’re looking across that landscape, we’re looking at those assets that are going to be available on the market, and that is somewhat sporadic. We have a fairly robust effort internally and we continue to go out and look. But again they have to be the right size, the right place, and really the right types of technology for us.

And then the risk profile. And in terms of the return profile overall, as I said, should it – or as the question was, phrase, does it have to be a few hundred basis points or more? We're looking at it generally on a risk adjusted return basis. Certainly the utility has a risk profile that allows us to observe really what kind of return we can earn and look at that on a fairly detailed fashion. These other types of investments certainly have to be in excess but it's really going to be dependent upon the risk profile.

We’re going to limit ourselves in terms of what we can map out for the earnings and cash flow volatility so that will limit the upside. So I would expect that, yes, it will have to be a few hundred basis points, really in the range of low to mid-teens. Certainly if we could find higher returns, that would be beneficial, but typically in the marketplace they're reasonably efficient. And you have to take on the kind of risks that we don't want in order to achieve higher returns.

Dan Fidell – Brean Murray

Great. Thank you very much. Very helpful.

Chris Capone

You're welcome.

Operator

Our next question is from the line of John Hanson [ph] with Criterion [ph]. Your line is open.

John Hanson – Criterion

Good afternoon.

Steven Lant

Good afternoon.

John Hanson – Criterion

Just a couple of your – as we look at the rate case settlement that you guys are involved with, you said you have staff in, who's not in, who is the big players that are not in? And do you think you can able to get them in the next few weeks or months?

Steven Lant

Well, there's really four generally active parties. Three are in, one isn't. But we think that one that isn't namely the Consumer Protection Board was able to negotiate some favorable elements to our low-income program that they were seeking, and I think they should be well pleased with the inclusion of those in the joint proposal. Multiple interveners that represents industrial customers is the signatory, as is the staff of the public service commission. There are a number of other parties that typically are not as active; they are more kind of observers in the process. So we really feel we've got the bulk of the usual participants, as signatories or as certainly having gotten something that they were seeking in the negotiations.

John Hanson – Criterion

And again, what was the original filed increase amount?

Chris Capone

The original requested increases were $15.2 million for electric increase and almost $4 million of the gas rate increase.

John Hanson – Criterion

You've not talked about what this amount is. Yes, you said it’s 10% but it – I presume that it's at least positive and there's not any big depreciation kind of adjustments you got in there?

Chris Capone

Yes. I think the amount that was agreed for year one is approximately 11 million – 11.8 million, and so the 10% we are referring to was not the rate increase, that was the allowed ROE that was embedded in the joint proposal.

John Hanson – Criterion

Good, good. As we look to work that later in the year against the backdrop of the economy in the area, can you comment at all in terms of any trends you are seeing there?

Steven Lant

The economy in our area has generally been better than neighboring regions. We’ve had more job growth over the last decade, and more population growth than pretty much any other part of New York State, and most of the Northeast. Like everywhere else, we have seen a dramatic slowdown in new business. We have seen an increase in the unemployment rate, but it’s still well below the national average.

The most recent data we have for our service territory indicates rates between 8% and 8.5% in the counties that we serve. Because the local data isn’t quite as current as the national data, we haven’t seen the peaking that appears to have occurred with the national data which went up about 10% briefly and now it has come back below 10%, and hopefully we’ll continue to decline. So we don’t know whether the local unemployment has peaked yet. We certainly hope it has, and that the data that flows in over the next couple of months will confirm that.

John Hanson – Criterion

If you don’t mind, let me just follow-up, I missed a little part of the tuck-in acquisition discussion, just to make sure I understand. We sold a part of the Griffith and then now we are buying some other pieces and what’s the strategy there that we are doing?

Steven Lant

Okay. Let me just briefly describe. Again we decided that due to the exposure we had to wholesale oil prices that we were uncomfortable with the size that Griffith was formally within our portfolio, so we decided to reduce it, and we divested approximately 40% of the business. We aren't looking to grow it back to that level in the near term. So we're looking to make some smaller and hopefully incrementally profitable acquisitions, which will probably cause Griffith to grow at about the rate of Central Hudson or maybe a little bit faster, such that its percentage or proportion of CH Energy Group remains about where it is now or maybe a little bit higher, but at the reduced level post the divestiture of December.

Operator

Thank you. (Operator instructions) Our next question comes from the line of James Heckler with Levin Capital Strategies. Your line is open.