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National Fuel seeks 6.4 percent rate hike

National Fuel Gas Co. is seeking a 6.4 percent rate hike from state regulators that would drive up delivery charges for the average Western New Yorker by nearly $8 a month beginning next year.

The rate increase, the third that National Fuel has sought since 1995 and the second in 2 1/2 years, also would make significant changes in the way that the natural gas utility bills its customers to insulate the company from the steady decline in natural gas use.

National Fuel also is proposing to spend up to $12 million a year on a new energy conservation program that would offer rebates to customers who buy energy-efficient furnaces and other natural gas equipment, along with other initiatives to help low-income consumers reduce their energy consumption.

The proposed rate increase, which must be approved by the state Public Service Commission, would raise National Fuel's delivery charges by a total of $52 million. National Fuel's rates cover only its delivery service, which includes the profits the company earns. The other component is the actual cost of the natural gas used, which National Fuel passes on at its cost and accounts for about 70 percent of a customer's total bill.

The PSC is expected to hold hearings on the rate-hike proposal later this year, and the commission could reduce or restructure the rate plan. National Fuel's last rate hike came in July 2005, when the utility was granted a $21 million increase, which was about half of the revenue increase that it originally requested.

"Basically, it's a combination of . . . costs that are fairly level, and decreasing throughput," said Ronald J. Tanski, the president of National Fuel's utility business.

While National Fuel has reduced its work force by 34 percent since 1996 through attrition and early retirements, the company spends about $40 million a year to maintain and upgrade its 14,809-mile system of pipelines in the region.

At the same time, the combination of the region's declining population and conservation measures that its customers have taken since the first energy crisis in the early 1970s have reduced the amount of natural gas that local consumers are using. The average National Fuel residential customer has reduced their natural gas consumption by more than 40 percent over the last 30 years.

To insulate the utility from that declining consumption, National Fuel is proposing to add a mechanism to its rate structure that would adjust rates up or down annually, based on whether gas use during the previous year exceeded or fell short of a target consumption level per customer, based on historic data.

Utilities in nine other states use similar rate plans that insulate the companies from fluctuations in gas consumption, which is known in the industry as decoupling, Tanski said.

"I'm a little skeptical of decoupling, but I'd have to take more of a look at it," said Gerald Norlander, the executive director of the Public Utility Law Project, an Albany-based advocacy group for low-income residents.

The other new aspect in National Fuel's rate filing is the creation of a series of programs designed to encourage customers to use less natural gas. "What we will introduce to customers is conservation programming, the likes of which they've never seen before," said Julie Coppola Cox, a National Fuel spokeswoman.

The program would offer customers rebates of up to $400 if they buy new, energy-efficient natural gas equipment, such as furnaces. Smaller rebates would be available for less-costly equipment, such as programmable thermostats that can reduce gas use by as much as 10 percent, Cox said.

Customers who replace a low-efficiency furnace with a new high-efficiency model can save more than $500 a year in energy costs, National Fuel said.

National Fuel also is proposing to offer special programs to help low-income residents reduce their natural gas use. That initiative, modeled after a program that the company uses in its western Pennsylvania service territory, would provide qualified consumers with a variety of free services. Those no-cost services include energy audits, conservation starter kits that include plastic window coverings, wall and attic insulation and the replacement of heating equipment for eligible customers.

The company also is proposing a year-long initiative to tout the benefits of energy conservation to residents in the Buffalo Niagara region.

e-mail: drobinson@buffnews.com

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