NiMo rates will jump 7.9 percent

Buffalo News - 8-30-01

Niagara Mohawk's residential customers will pay 7.9 percent more for their electric service beginning Saturday under a two-year rate plan approved Wednesday by the state Public Service Commission.

The increase will add about $5 a month to the typical Niagara Mohawk residential customer's bill, which is expected to rise to about $75 a month, said Stephen F. Brady, a company spokesman.

Critics blasted the rate increase for driving up power costs that are among the highest in the nation and putting an even greater burden on residents and businesses that already are grappling with a sputtering upstate economy.

"We can ill afford any increase," said Assemblyman Paul D. Tonko, D-Amsterdam, chairman of the Assembly energy committee. "I'm tremendously concerned about the impact this move will have on residential and commercial subscribers."

The rate hike is less than the 13 percent increase that Niagara Mohawk initially had sought, before it revised its estimate downward late last month under a new forecast for wholesale power prices. But it still more than wipes out the 3.2 percent reduction in rates that residents received over the past three years.

Niagara Mohawk and commission officials blamed the rate increase on the rising cost of electricity, which more than offset an average drop of 5.4 percent in the rates that the Syracuse-based utility will charge to deliver the power to homes and businesses under the new rate plan.

"This is all the cost of the electricity itself," Brady said. "This is not money that's going to our bottom line. This is simply going to cover the increased cost of acquiring the supply of electricity we need to provide for our customers."

Maureen O. Helmer, the commission chairwoman, said the higher rates also reflect the increase in the cost of the oil and natural gas used to generate a substantial portion of Niagara Mohawk's electricity over the past three years.

Impact of deregulation

The rate increase also marks a new phase for Niagara Mohawk and the vast majority of its customers in the transition to a deregulated electricity market in which a greater share of rising wholesale power costs are passed through directly to customers. Until now, all but a few hundred big industrial customers have been guaranteed fixed rates.

Rates for the company's 650 biggest industrial customers, who already have seen their rates fall by 25 percent over the past three years, would decline by another 4.5 percent. Those customers, however, also have been stung the worst by spikes in wholesale electricity costs, because most of them buy their power at market-based prices.

"While none of us wants rate increases, it is important to understand what is driving the increases - prices of fuel used to generate electricity," Helmer said. "What we don't want to happen is for the real price of electricity to go unrecognized, risking the credit-worthiness of utilities - as happened in California - and driving electricity prices for consumers even higher."

Rate increases a bad sign

Despite the increased exposure to wholesale power costs, most of Niagara Mohawk's electricity supply is still covered by long-term contracts, Brady said.

But Gerald Norlander, executive director of the Public Utility Law Project, an Albany group that represents low-income consumers, said the rate increase is a sign that deregulation is not working.

"It hasn't turned out well, and the small consumers are suffering under this rate plan," he said. "The notion of rate increases well above the rate of inflation is troubling."

Niagara Mohawk last raised rates in April 1995, when prices rose by 1.1 percent. The utility then reduced rates by 3.25 percent for residential customers under the first three years of its Power Choice rate plan, which began in 1998.

People to feel the pinch

Regulators forced utilities such as Niagara Mohawk to sell their power plants to spur the growth of a wholesale power market, which has turned out to be quite volatile because of tight electricity supplies, especially downstate.

That, in turn, has thwarted initial hopes that new suppliers would step in to offer electric service to residents and business customers, spurring competition that would lead to lower energy bills.

"Residential and small commercial customers will feel the direct pain of this increase, and it is these consumers who are the least prepared to seek and shop for energy alternatives," said Paul Larrabee, a spokesman for Attorney General Eliot L. Spitzer.

Just how long the rate increase that was approved Wednesday will remain in effect is unclear.

New plans are in the works

Niagara Mohawk still is seeking approval from the commission for its proposed merger with the National Grid Group, a British electricity transmission giant.

Under a 10-year rate plan associated with that deal, Niagara Mohawk has proposed cutting its transmission and delivery charges by $132 million, followed by a 10-year rate freeze. That plan also calls for Niagara Mohawk to begin passing along more and more of the changes in wholesale electricity prices to its customers.

"The merger will bring greater savings," Brady said.