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NYSEG fighting PSC proposal Utility says PSC's one-year rate agreement would slash its revenues by $80 million

New York State Electric & Gas Corp. is going on the offensive against a state Public Service Commission staff rate proposal that the utility's chief executive said Thursday could lead to "massive layoffs" and jeopardize customer safety.

The Binghamton-based electricity and natural gas provider is launching a media campaign beginning today against a PSC staff proposal for a one-year rate agreement that NYSEG chief executive James Laurito said would slash its revenues from delivering power to its customers by $80 million.

"$80 million would result in massive layoffs," Laurito said, although he declined to estimate how many jobs could be cut. "By taking ($80 million) out of the delivery business, we would not have the revenues to provide safe and reliable service to our customers."

NYSEG, which serves large portions of the suburban and rural areas in the Buffalo Niagara region, is pushing its own six-year rate plan, unveiled last September, that would reduce rates by 9.5 percent, or $71.5 million.

The ongoing case to replace a rate agreement that expires at the end of this year, illustrates the yawning differences in the approach to a competitive power market between the utility and state regulators.

NYSEG's rate proposal would allow the utility to offer its customers their choice of four options for purchasing their electricity, ranging from a variable price plan to one that charges a fixed price, along with two alternatives to buy power from an energy services company.

The PSC staff, in contrast, is pushing a one-year plan that would allow the utility to offer its customer a variable pricing plan but would bar it from providing a fixed-price alternative that the commission staff, in a report, said hurts competition and "enriches NYSEG shareholders at the expense of ratepayers."

Anne Dalton, a PSC spokeswoman, said the commission is not bound by staff recommendations and noted that safety and fair rates are top concerns.

"We're under a statutory requirement that we set rates that are just and reasonable for safe and reliable service," she said. The commission "is free to accept, reject or modify the proposal" from the PSC staff.

Laurito said the staff proposal would end a union apprenticeship program needed to train field workers who will be needed to replace retiring employees, as well as cut funding for tree trimming work and eliminate much of the money needed to begin a PSC-mandated program to prevent stray voltage accidents.

"I don't think that anyone anticipated that staff would be so punitive about cutting the heart out of the delivery part of the business," he said.

The PSC's Dalton criticized the utility's tactics. "We also think it's outrageous that NYSEG would try to scare its customers and employees," she said. "They have ample opportunity to prove their case" through the ongoing rate-setting process.

Behind the competing rate plans is the differing approaches of NYSEG and the PSC staff over the role that the utility should play in selling electricity to its customers. Most utilities in New York sell electricity to their customers at rates that fluctuate as the commodity price of power rises and falls.

NYSEG's current rate plan, however, gives the company the added option of selling electricity at a fixed rate -- an option used by 86 percent of the utility's customers. About 5 percent of NYSEG's customers have chosen to pay variable rates -- a selection that the PSC staff said proved to be cheaper than the fixed price from 2003-05 -- while 9 percent purchase their power from an energy services company (ESCO).

NYSEG officials said the fact that the overwhelming majority of its customers are on a fixed rate plan shows that consumers want utilities to offer stable-priced service. "If the other energy services companies want to offer fixed prices and can do it for less, they're free to do that," Laurito said. "The real issue in the ESCO argument is that they cannot meet the price."

The commission's staff, in a report issued in February, said energy services companies cannot duplicate NYSEG's fixed-pricing strategy because they lack the future revenue stream generated by the utility's delivery service and are less able to predict how much electricity they would need to secure for their shifting customer base.

"Essentially, with its fixed price offer, NYSEG can use its current market dominance for commodity supply to assure that it will continue as the dominant supplier indefinitely," the report said.

The commission's staff also said NYSEG's fixed price, which includes a 35 percent markup, is a significant moneymaker for the utility, generating $43 million in earnings in 2004 and $31 million in 2003.

Laurito said half of the 35 percent markup covers the costs of the hedging used to lock in power supplies at a predictable price. Between 4 percent and 5 percent of the markup goes to NYSEG shareholders, while an equal amount is shared with ratepayers under an earnings sharing agreement.

The rate case, at times, has turned acrimonious. NYSEG, last October, sought to have PSC Chairman William Flynn withdraw from the rate case because of what the utility said was his bias against NYSEG and its rate plans. Flynn refused.


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