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SUDDENLY IT'S A COMPETITIVE MARKET

Get ready: Your electric company is about to get some competition.

In short, the stodgy world of electric utilities will be turned upside down by the end of this year.

Niagara Mohawk Power Corp. and New York State Electric & Gas Corp. will open their service territories to competition for all of their customers by the end of this year.

"It's a pivotal year, not only for us, but for all of the state's utilities," says Stephen F. Brady, a Niagara Mohawk spokesman.

Exactly what the coming of competition will mean to residential customers and small commercial users is unclear, with the utilities promising 3 percent rate cuts spread over five years.

But the wild card is how independent electricity suppliers will react to the new markets and whether they will be willing to offer more significant savings to low-volume customers.

"Who's going to do business in New York, and at what level are they going to do business in New York?" are the key questions, said Brady.

Time will tell, but competition already is here for the region's biggest and most power-hungry industrial companies, and for them it means savings of 25 percent or more on their power bills over the next five years.

Residents and small businesses can't expect that kind of savings, mainly because of the comparatively low volume of power they use and the cost of servicing small accounts, but they should start having a choice as the year winds down.

So-called stranded costs are another factor. Because New York and most other states are allowing utilities to recover the investments they made in the past that are worth just a fraction of their cost in a competitive environment, the amount of leeway that competitors have to cut electricity costs for smaller volume customers is severely limited.

Niagara Mohawk hopes to take a big chunk out of its share of the stranded costs by paying off over the next five to seven years the $4 billion it borrowed to buy out costly contracts to purchase electricity at above-market rates from independent power producers, Brady said.

In the interim, though, many electricity experts say the best chance for residents and small business customers to achieve greater savings on their power bills is to band together, perhaps through a community or civic organization or even a government agency, and form a buying group.

Without substantial savings, early deregulation programs in Massachusetts and California have found that customers are reluctant to switch suppliers for savings that amount to a couple of dollars per month. That's why some utilities, including NYSEG's pilot program in Lockport, are offering customers $50 if they change suppliers.

Still, the onset of deregulation, which will kick in for all NYSEG customers in August and for all NiMo customers by year's end, will mean big changes for everyone who uses electricity.

Utilities, marketers and state officials are preparing a major blitz to help customers learn how the open electricity markets will work and understand the main questions they'll need to ask to be able to evaluate an offer from an independent supplier.

Buffalo city officials are exploring another possible route that they think could cut electricity rates: forming the city's own electric utility.

Delaware District Common Council member Alfred T. Coppola said a municipal utility could produce substantial savings for city businesses and residents, but much of those price cuts would come from leaving the Niagara Mohawk system and avoiding the city's share of the utility's $8 billion in stranded costs.

NiMo argues that the city can't avoid the stranded costs and estimates that it would cost Buffalo more than $900 million to form its own utility, which would make the project prohibitively expensive.

In the natural gas business, which already allows customers of all sizes to choose a supplier other than their local utility, competition has been slow to develop, although the pace picked up a bit last year.

Among National Fuel's more than 480,000 residential customers, only a little more than 1 percent, or 5,800, now buy gas from one of the nine suppliers serving the home-heating market in its Western New York service territory, said Donna L. DeCarolis, a company spokeswoman. But that's a nearly sixfold increase from the 959 residential customers who bought their gas from an independent supplier in January 1998.

"It's still small, but it's growing very quickly," Ms. DeCarolis said.

Most suppliers, however, concentrate on customers who use much more gas than the typical resident. Only Iroquois Energy in Hamburg has launched a highly visible push to lure residential customers away from National Fuel.

But independent suppliers also have been showing much more interest in small commercial customers, many of which are more attractive customers than residents because they tend to use sizable quantities of gas throughout the year.

During the last year, the number of small commercial customers buying their gas from an independent supplier more than tripled to 6,200 this month from 1,900 in January 1998. That means that 19 percent of National Fuel's 32,000 small commercial customers now are buying their gas from an independent supplier, up from 6 percent a year ago.

"They're targeting the customer group where they can get more margin for themselves," Ms. DeCarolis said. "The residential group is a higher cost market."

But nearly all Western New Yorkers are enjoying lower gas costs this winter, either from the savings promised by independent suppliers or the lower gas prices that National Fuel is charging this winter because of lower prices in the commodities market.

National Fuel, which passes along its natural gas to customers at its cost, said its average gas prices this winter are 8.6 percent less than they were a year ago and 16.2 percent lower than two years ago.

Because a relatively small number of consumers have a wide range of choices, the state Public Service Commission last fall moved forward with a policy that would try to stimulate competition by forcing all of New York's natural gas utilities to get out of the business of buying gas for their customers.

Both National Fuel and New York State Electric and Gas Corp. have objected to the PSC plan, arguing that they should continue to be one of the options that consumers can consider.

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