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NIMO PLAN TARGETS RATE CUTS WHERE THEY'LL DO MOST FOR WNY

It doesn't sit well with critics. But the concept behind the deal that would reorganize Niagara Mohawk Power Company while focusing most of its rate cuts on industrial users makes good sense for a state struggling to become more competitive.

The basic story of what's going on at Niagara Mohawk is the tale of a company saving itself from bankruptcy. NiMo is being allowed to buy out suppliers the state had earlier insisted it had to deal with at overly high rates -- that's a huge burden off the company. There will also be a corporate reorganization that will prepare NiMo to defend itself in the world of electrical-supply competition that is around the corner for everyone.

As part of the changes, Niagara Mohawk has been put in a position to make some rate cuts. The idea of how they will be distributed is simple: Save or create jobs by cutting utility prices for the large industries that employ thousands of Western New Yorkers.

Up to now, industries have been paying rates that subsidized residential customers. The change will help keep industries here instead of prompting them to leave in search of cheaper power.

That's the philosophy behind the plan to cut electric rates for large industrial users by about 25 percent over the next three years while residential users would see only an average 3.2 percent reduction.

It is easy to see why homeowners may be unhappy that they're not sharing more of the rate cut. But the reality is that the savings that could be given to small users would amount to only a few dollars a month if spread over such a wide base.

But plants have huge utility bills -- and New York is seen as a poor place to do business partly because industrial electrical rates are so high. If they remain 30 percent to 40 percent above the national average, more plants will have more reason to move way. The impact of that would reverberate across the economy, hurting everyone.

Even if industrial customers didn't leave, but only switched to a cheaper supplier, the effect on Niagara Mohawk's residential customers would be hurtful as the company's costs would be spread over fewer customers.

If the structure of the rate cuts is easily defensible, the short shrift given to environmental concerns is more problematic.

The deal would have Niagara Mohawk sell its older, coal-burning plants in the Town of Tonawanda and Dunkirk without having to upgrade them to higher anti-pollution standards. This even though the company is doing cleanup to provide for lower emissions at an Albany plant it also plans to sell.

Critics like the Sierra Club note that the rate structure in the deal also takes away incentives for conservation. It cuts costs for plants once their energy use exceeds a certain level. That means the cost of using more electricity drops dramatically after a certain point, making energy efficiency less attractive. They contend that utilities in other states -- and even in some cases elsewhere in New York -- are devoting far more money toward conservation.

Those are all factors the Public Service Commission should consider when structuring the final deal.

But the bottom line is that Niagara Mohawk -- which hasn't paid a dividend in two years -- is a company in deep trouble trying to get lean in an era of looming competition.

In selling off its non-nuclear plants, it would transform itself from a power-producing company to one that concentrates much more on distribution and transmission. That would open the way for other power suppliers to sell electricity over NiMo's lines -- much as a variety of telephone companies now use the same phone lines to offer consumers a choice of phone service and prices.

An era is coming when consumers can expect to be bombarded with dinnertime calls for electric service just as they now get calls hawking the best phone rates. This plan helps Niagara Mohawk -- one of this area's largest employers -- get ready for the future and remain viable in Western New York.