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The days of stable natural gas prices are likely to end next September for New York State Electric & Gas customers.

The Binghamton-based utility, which provides natural gas service for the eastern half of Niagara County, much of Orleans County and in the Olean area, is proposing to raise its residential delivery charges by 7 percent and charge its customers market prices for the gas itself.

The plan, which NYSEG has submitted to the state Public Service Commission, would be a significant change from the overall rate freeze -- including both gas costs and delivery charges -- that the company has operated under for the last six years.

By changing to a plan that passes through the price of the gas itself to customers at cost, NYSEG's rate structure would be similar to one now used by National Fuel Gas Co. and most other natural gas utilities in New York.

But the change most likely would mean higher prices for NYSEG's customers, who avoided last winter's sharp price spikes because of the company's fixed rates. Company officials estimate that NYSEG's 250,000 natural gas customers across upstate New York saved almost $90 million last year, compared with the average New York gas customer, because of the fixed rates it charges.

NYSEG's natural gas rates, which now are among the state's lowest, currently average about $7.70 per 1,000 cubic feet. Based on current natural gas prices and the proposed increase in delivery charges, that rate would rise by about 5 percent to $8.10 per 1,000 cubic feet, said Clayton Ellis, a NYSEG spokesman. Under the proposed rate plan, the price that consumers pay would fluctuate each month with changes in the commodity cost of natural gas.

"With gas prices as they are right now, it really wouldn't mean a whole lot," Ellis said.

NYSEG officials noted that the natural gas market has gone through significant changes since its current rate plan took effect in 1995. While NYSEG's rates haven't changed, natural gas commodity costs have increased by nearly 80 percent during that time, said Mike Eastman, the company's vice president for gas operations.

In comparison, National Fuel, which provides gas service to about 500,000 customers in Western New York, currently charges its residential customers $8.97 per 1,000 cubic feet. That's about 16 percent more than NYSEG's current rates and about 10 percent more than they would be today if the NYSEG rate proposal were in effect.

NYSEG's current rate plan runs through September 2002. The latest rate filing is the opening step in what will likely be an 11-month process to negotiate with the PSC a new rate package to take effect when the old agreement expires.

Delivery charges -- the price that customers pay for bringing the gas to their homes or businesses, administrative and maintenance expenses as well as NYSEG's profits -- will rise by 4 percent for non-residential customers, according to the proposal.

Ellis said NYSEG was not backing away from its fixed-rate structure because last winter's price spikes squeezed its profits. At the height of the price spike during the first quarter of this year, the utility's gas costs soared by 78 percent, while its gas revenues rose just 22 percent.

"In the natural gas market, there are thousands of buyers and sellers. It's a market that works extremely well," Ellis said. "We're just confident the market will send the right signals."


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