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GAS COMPETITION MEANS MUNI UTILITIES MAY BE UNNEEDED

Now that we're finished digging out and starting to defrost, it's a good time to check the natural gas heating scoreboard from this winter:

Free market: 1. Municipal utilities: 0.

In fact, it was no contest because the two villages that had hoped to form municipal gas utilities to help their residents and businesses tap into the competitive market and buy gas at reducedprices haven't been able to get off the ground this winter.

And officials from the villages of Hamburg and Sloan now say they won't be ready to start selling gas before the current heating season is all but over, although their consultant still is hopeful.

For the most part, officials blame the disappointing delay on lingering issues over what taxes the municipal utility will have to pay and delays settling contracts with the company that won the bidding last July to supply its natural gas, Wixx Energy Inc. of Rockville Center.

In addition, Wixx was working on a similar deal with the village of Lynbrook on Long Island, which was farther along in the process than Hamburg and Sloan were. "That took all their attention away from us," says David Fountaine, the Hamburg village administrator.

"We were hoping we would have gas before the heating season was over," says Kenneth Pokorski, the mayor of Sloan, which already has signed up more than 850 residents to buy gas through its municipal utility.

For those residents, along with others in Sloan and Hamburg who had hoped to cash in on some of the savings of as much as 25 percent that Wixx had promised on natural gas costs, all they can do now is wait 'til next winter.

Of course, the folks in Hamburg and Sloan, along with the rest of us who buy our gas from National Fuel Gas Co. haven't had it so bad this winter.

Thanks to the warm weather late last year and above-average supplies, natural gas prices have been on the low side during the current heating season. National Fuel's average gas prices through mid-January averaged 8.6 percent lower than a year ago and are 16.2 percent less than they were two years ago, says Donna L. DeCarolis, a company spokeswoman.

But for the residential customers who want to tap into the competitive gas market, just about the only choice they've had is to go through Iroquois Energy Corp., the Hamburg marketer that has forged a tie with the Town of Tonawanda and is advertising heavily on the radio.

Iroquois now is supplying gas to about 8,800 homes throughout Western New York, says John Howe, Iroquois' executive vice president. He says Village of Hamburg residents who decided not to wait for the municipal gas utility to get off the ground and signed on with Iroquois are saving between 8 percent and 14 percent.

"They're a year ahead of the curve," Howe says. "The choice is there right now."

That brings us back to the debate over whether it's even necessary for cities and towns and villages to go through all of the effort to form a municipal utility, when they can simply sit back and let other gas suppliers move in as competition develops for residential and small business customers.

Howe and other marketers say forming a municipal utility isn't necessary because the residential gas market slowly is attracting independent suppliers who can offer significant savings to customers without a new layer of government involvement.

The state Public Service Commission also is looking at ways to spur competition, including a proposal opposed by both National Fuel and New York State Electric & Gas Corp. to force utilities out of the business of buying and selling natural gas to residential and small commercial customers.

"From my understanding, the muni was going to act just like a broker," Howe says.

But municipal utility advocates say their path is the best way to go because it offers the biggest potential for savings, since the utility will pass the gas along at cost and possibly could avoid some of the taxes that others have to pay.

"We still think we can save our residents more money," Fountaine says. "In the long term, I still think it's better for us."

The typical residential customer, whose annual heating bill runs about $900 and uses about 110,000 to 120,000 cubic feet of gas, could save $50 to $100, says Gary Marchiori, manager of the northeast regional office of Texaco Natural Gas in Williamsville, which is interested in providing some services to the utility.

The biggest unresolved tax issue is whether the municipal utility will have to pay a state import tax, which would trim gas costs by about 9 cents per 1,000 cubic feet, Howe says.

As the state's tax laws now are structured, companies can avoid paying the gross receipts tax by taking possession of the natural gas outside New York and then transporting it into the state.

To partially close that loophole, the state then imposes an import tax on that gas, but that levy typically is several cents less than what the gross receipts tax would be, Howe says. In Hamburg, which imposes its own 1 percent gross receipts tax on top of the state levy, the gross receipts tax amounts to 6.5 percent of the gas costs, Howe says.

Fountaine says Hamburg and Sloan, along with their Long Island consultant, Power Alternatives Inc., are awaiting a ruling from the state Department of Taxation and Finance on whether their municipal utilities should be exempt from the import tax.

"If we get out of that, that would be a big savings," Fountaine says.

Still, competition has been slow to take hold in Western New York's natural gas markets, where less than 2 percent of National Fuel's residential and small business customers are buying their gas from an independent supplier.

Howe says he expects more independent suppliers to move into the residential and small business markets that they thus far have shunned during the next year or two as growth prospects dim in the more coveted commercial and industrial markets that now command most of their attention.

Even Joseph Prokop, a Power Alternatives attorney, says more suppliers are showing interest in providing gas to the municipal utilities, after Wixx was the only company to bid to manage the gas system.

"Things are moving along. There's a lot of interest in supplying gas to the villages now," Prokop says.

"You have a concept that's going to have to be grown into," Marchiori says. "People are very wary of making the change. They want to be guaranteed some savings and they're reluctant to leave the utility."

That's where education comes in to teach consumers how to pick an independent supplier and help them understand that the gas will still come into their homes or businesses through the same pipes that their current utility now uses.

"It's catching on, but it's a slow process that requires education by the marketers, the utilities and the PSC," Howe says.

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