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Niagara Mohawk Power Corp.'s rate settlement, although heavily weighted in favor of industrial power consumers, will save smaller customers money in the long run by keeping factories from abandoning the system, company chairman and CEO William E. Davis said.

The "PowerChoice" settlement, unveiled last week, includes an average rate cut of 3.2 percent for residential users in the first three years. Industrial customers would see savings of up to 25 percent.

The rate plan addresses "the types of customers who can pull up and relocate to South Carolina and have been doing that," he said. "We think it makes more sense to concentrate the benefits on customers most at risk." NiMo's industrial rates are 30 percent to 40 percent above the national average, he said.

PowerChoice would move the state's energy market toward open competition, in which buyers could order from low-cost generators. NiMo would sell its non-nuclear generating plants and become a distributor of other companies' power. State utility regulators and big industrial customers negotiated with NiMo on the plan for months.

Davis predicted opposition to the deal will center on residential costs, as the plan runs a gantlet of public hearings before a vote by the state Public Service Commission in December or January. He made the remarks Monday at a meeting with editors of The Buffalo News.

Although average residential rates will fall, 40 percent of accounts will see an increase in their bills, as monthly connection charges rise from under $10 to $17, the power company said. Customers using less than 400 kilowatt-hours per month would see increases.

Most of the increases would be on the order of $1 or $2, and many residential "accounts" aren't individual customers, but such things as a garage workshop on a separate meter, the company said.

After the first three years of the five-year agreement, overall rates could rise again within a 1 percent annual cap, the plan says. In addition, the company could begin to bill for surcharges deferred in the first three years of the agreement. The total of the surcharges plus the new rates would be limited to the rate of inflation.

Residential customers could see higher savings if the state Legislature acts on measures to cut utility taxes and reduce NiMo's borrowing costs, Davis said.

A measure to "securitize," or give a state guarantee for bonds issued to cancel expensive power contracts, could save $250 million in interest costs over five years, he said. That could boost the residential rate cut to about 6 percent.

Davis lashed out at legislators for criticizing residential rates under the settlement while failing to act on the securitization bill.

Assembly Speaker Sheldon Silver (D-Manhattan), responded that the securitization plan is being held up because it bills ratepayers for NiMo's past mistakes, including "intangible assets" carried on the utility's books.

"They're saying, 'you can have competition, but you have to pay us anyway,' " he said. "This guarantees that we would continue to have the highest rates in the country." NiMo's stockholders and its officers' salaries should bear a greater burden for escaping the utility's high costs, Silver said.

Wall Street took a shine to the PowerChoice proposal. Gruntal & Co. reversed its recommendation on NiMo from "sell" to a "strong buy" on Monday.

Last week, Lintz Glover White & Co. also issued a "strong buy" recommendation, predicting NiMo's stock will reach $13.75 a share. NiMo rose 18 3/4 cents Monday to $9.75 on the New York Stock Exchange.

"This takes a huge black cloud of financial uncertainty off our horizon," Davis said.

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