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STATE IS SLOW AND DIRECTIONLESS ON ELECTRIC POWER COMPETITION

There's growing concern that New York is falling dangerously behind in the national race to deregulate electric markets.

While some states have completed pilot programs and still others have firm plans in place for competition to begin, New York's utilities are only now putting the finishing touches on a hodgepodge of individual plans to open their markets sometime next year or in 1999.

Meanwhile, California plans to let customers choose their electricity suppliers beginning on Jan. 1. New Jersey plans to open its electric markets to competition by next October. In Pennsylvania, which is beginning a pilot program, competition will be in place by the start of 1999. New Hampshire and Massachusetts all have launched pilot programs.

Meanwhile, Orange & Rockland Utilities is the only New York utility to start a pilot program of its own. A second pilot for farmers and food processors gets under way next month.

"What have I learned from other states? That we're far behind," said Assemblyman Paul Tonko, D-Amsterdam, the chairman of the Assembly's energy committee, during a forum on electric deregulation last week.

Albert J. Budney, Niagara Mohawk Power Corp.'s president and chief operating officer, agrees. "I am concerned that we are behind and that others are getting out ahead of us," he says.

"We're making progress," Budney says. "I think we're going to get there pretty soon with the new settlements, but I think it's a valid concern. We need to run faster."

That's a big problem for New York because the introduction of competition to its electric markets long has been seen as a good way to help bring down the state's staggeringly high electricity rates.

For companies that use a lot of electricity, New York can be a very unfriendly place. One local executive, for instance, says his company's plant in Western New York pays 9.9 cents for each kilowatt of power it uses. The company's plant in Florida pays 6.2 cents for the same amount of electricity, which means that facility has a 60 percent advantage in power costs.

"The rates that are 50 or 60 percent higher than the national average cannot continue," says Eugene W. Zeltmann, the new president and chief operating officer of the New York Power Authority.

As other states, which already enjoy lower rates, get a head start in the move to competition, New York will be fighting an uphill battle simply to keep from falling even further behind. "It's important that we not look at New York's energy costs in a vacuum," Tonko says.

If New York doesn't get its act together, the hopes of using newly lowered electric rates as a powerful economic development tool will be lost. "Other states -- I would point to North Carolina -- already have learned that lesson," Budney says. "I would encourage New York to do the same."

Yet New York, which moved to the forefront of the push toward competition two years ago when Niagara Mohawk became one of the first utilities in the country to come out with a plan to open its service territory to competition, has squandered that early lead.

Niagara Mohawk's recent settlement with the state Public Service Commission still has too many loose ends to allow the details of the agreement to be released. New York State Electric & Gas Corp. reached an agreement this summer to cut industrial rates by 25 percent over the next five years and open its markets to competition by August 1999. And Con Edison has a plan to allow competition in the middle of next year.

Tonko says the piecemeal approach the state has taken, which allows utilities to negotiate their own deals rather than have a statewide policy, has slowed the process. And tough issues like how to handle "stranded costs" and reduce the tax burden on utilities still need to be addressed.

"Let's get on with it," says Tonko, who thinks the State Legislature and the governor need to come up with a comprehensive policy for New York's energy markets. "We've taken two years, 2 1/2 years delaying, making deals. That's not the way to do business.

"We have an energy price crisis in the state of New York," he says. "Time is of the essence."

Tonko says the state's scattershot approach means that Long Island Lighting Co., through its politically motivated $6.1 billion state bailout, will be able to pawn off its 18 percent stake in the costly and uncompetitive Nine Mile Point 2 nuclear power plant to a state agency, the Long Island Power Authority.

But poor Niagara Mohawk, which owns 41 percent of the plant, and NYSEG, which owns an 18 percent stake in it, get no relief from a government bailout. "Why should one policy work in one region of the state, but not apply to me or you?" Tonko asks.

And the negotiations that have led to the settlements that have been hammered out so far have been heavily influenced by interest groups with the money to hire the lawyers and lobbyists it takes to be a player in the talks.

That's how a group like the Multiple Intervenors, which represents big commercial and industrial firms that use a lot of electricity, gets to play such an influential role in the talks and be sure their self-interested agenda is heard.

Not surprisingly, the biggest power users are the ones that are getting the biggest price cuts under the plans that have surfaced so far. And it's no surprise that small commercial firms, which lack the cohesion and the resources to hire slick lobbyists of their own, are getting only minor price cuts.

The Multiple Intervenors want price cuts -- big ones -- and they aren't worried about whether their savings come out of the hides of residential customers, utility shareholders or smaller commercial firms. Their approach is simple: Show me the money.

Consider the sticky question of who should pay for so-called stranded assets -- long-term investments made by utilities years ago because they either made sense then or were mandated by government, yet now are too costly for a competitive environment.

"The utilities have done a great public relations job of turning assets that would be written off in any other business into stranded assets that are everybody's problem," says Barbara Brenner, an attorney for the Multiple Intervenors.

Her solution: Make the utilities and their shareholders eat the costs as much as possible. "The question is, at what point do they bleed hard enough but not die," she says.

Yet the Power Authority's Zeltmann says simply turning to competition can only go so far in reducing New York's uncompetitive electric rates. To bridge the gap even further, the state will have to stop using energy providers as back-door tax collectors through the gross receipts tax.

And something also will have to be done about the inequality in the way power plants are taxed in the state. Older, utility-owned power plants, like the Huntley Station in the Town of Tonawanda, tend to be fully taxed. Niagara Mohawk pays more than $65 million a year in property taxes in Western New York, Budney says. The Huntley station, for instance, accounts for 32 percent of the Town of Tonawanda's non-homestead tax base and pays $14 million a year, in property taxes.

Contrast that with the newer plants built by independent power producers. Nearly all of those facilities pay only a fraction of the property taxes they should because of tax breaks granted through industrial development agencies. And the Power Authority's plants aren't taxed at all.

That's why Tonko says it's so important for the governor and State Legislature to come up with a comprehensive policy that establishes realistic goals and sets deadlines for reaching them.

"There's no policy in this state," he says. "There is no direction here. We don't even acknowledge there's a crisis here. Then there's the piecemeal approach. Obviously, the current system is broken."

The question is whether the new, competitive environment will be enough to fix the state's electricity problems.

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