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A new three-year rate agreement for National Fuel Gas Co. customers should take a little bit of the sting that consumers will feel this winter from soaring natural gas costs.

The Buffalo-based energy company said Monday it has agreed to reduce its rates by about 3.2 percent during the upcoming winter heating season -- a move that will save the average residential customer about $26.31 over the five-month period.

But the drop in rates, which amounts to $5.26 per month, won't come close to offsetting the pain that Western New Yorkers are likely to feel this winter from natural gas prices that have roughly doubled during the last year.

National Fuel's rates this month are running 21 percent above what they were a year ago and company officials estimate that the typical residential customer will pay about $1,265 a year for natural gas, assuming gas costs remain at their current levels.

"That's just based on the commodity increase alone," said Donna L. DeCarolis, a National Fuel spokeswoman.

And those estimates are fairly conservative. If this winter is significantly colder than normal, prices could be much higher.

"This settlement will help ease the burden of the anticipated increase in commodity prices," said Debra Martinez, the chairwoman and executive director of the state Consumer Protection Board, which participated in the negotiations.

"While this settlement is certainly good news from an overall costs standpoint, every gas customer in New York state should expect to pay more for gas service this winter because of higher wholesale gas commodity prices."

Natural gas costs account for about half of a National Fuel customer's total bill. The company does not make any money on the natural gas portion of the bill, passing the fuel on to customers at cost.

The other half of the bill covers the company's profits, along with the costs of bringing the gas to Western New York and delivering it to customers, as well as maintaining the company's distribution system.

The settlement, which still must be approved by the state Public Service Commission, was reached after negotiations with the PSC's staff, the Consumer Protection Board and the Multiple Intervenors, a group that represents big industrial customers.

The settlement essentially extends the rates under National Fuel's current rate agreement, which expires at the end of this month. But it includes $17.6 million in credits that will be paid to customers during the winter heating season.

The agreement comes three weeks after the PSC began pressing National Fuel to trim its rates by $17.2 million by tapping into a variety of reserve funds and accelerating the use of several credits that had been scheduled to be returned to customers in the next 16 months.

The company and state regulators agreed to apply the credits during the winter months in order to concentrate the savings during the months when consumers are saddled with the highest monthly bills.

"We are very pleased to be able to offer customers a credit on their bills, particularly during the winter months," said David F. Smith, the president of National Fuel's utility business.

A portion of the credits come from a provision in previous rate agreements that call for National Fuel to share with its customers half of its earnings above a 12 percent rate of return. The new agreement reduces that target to an 11.5 percent rate of return.

The agreement also includes $5 million in credits that will be applied between November 2001 and April 2002 and another $5 million during the same period the next winter. The $5 million in credits will reduce rates by about 0.8 percent, DeCarolis said.

National Fuel's rates have averaged $9.97 per 1,000 cubic feet of gas this month, which is up from $8.01 per 1,000 last September.

"Customers need to prepare themselves for higher commodity prices," DeCarolis said.

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