New York's Senator
CHARLES E. SCHUMER

FOR IMMEDIATE RELEASE January 25, 2001

SCHUMER TO PSC: DON'T LET NIMO MOVE FORWARD WITH PLANNED RATE HIKE

In letter, Senator calls NiMo's plans to raise consumer prices unjustified since competition does not yet exist in utility's service area

Other Upstate utilities can't pass along wholesale price increases to consumers

US Senator Charles E. Schumer today criticized a provision in the New York Public Service Commission's deregulation agreement with Niagara Mohawk (NiMo) that allows the utility to pass along increases in wholesale power prices to consumers.

NiMo was given this ability under the assumption that a competitive retail market would be in place in its service area by 2001. With NiMo planning to raise its rates in September and a competitive market not yet fully developed, any increase passed to local customers will leave them with higher bills but no other retail options. New Yorkers already pay some of the highest electricity rates in the country.

"With the goal of the PSC's deregulation agreement not yet reached, there is no justification for allowing NiMo to pass along these wholesale price increases to its customers. NYSEG, RG&E, and the other Upstate utilities are not allowed to pass along these charges, and as a result, are forced to actively manage wholesale price risk through the use of financial hedging mechanisms. NiMo, on the other hand, has no market incentive to manage its risk appropriately because it is guaranteed a customer base and a rate of return regardless of its performance," Schumer wrote in a letter to PSC Commissioner Maureen Helmer.

Currently, customers can choose whether to purchase the commodity of electricity through NiMo or another energy supply company, both of whom must purchase this power on the wholesale market. The competing companies base their selling price on the actual price of the power and the overhead fees associated with its purchase. NiMo, on the other hand, folds its overhead costs into the fees it charges for transmission and distribution. Like the other six utilities in New York State, NiMo delivers all of the power in its particular service area.

In effect, a customer who chooses to purchase energy from an alternative supplier pays twice for a supplier's overhead costs associated with acquiring energy on the wholesale market. Only 3% of NiMo customers purchase power from alternate suppliers.

"Alternative energy supply companies have not found it economically viable to sign up new customers in the NiMo service area, due to these low backout rates and insufficient incentives for switching. In fact, many alternate energy supply companies in the NiMo area are no longer enrolling new customers," Schumer wrote.

Schumer wants the PSC to delay NiMo's plans to pass along its costs to consumers, just as it has done for NYSEG and RG&E until a competitive retail market exists. With New York's growing need for power generating capacity threatening to send wholesale power rates skyrocketing, Schumer said that NiMo must be held responsible for managing its risk and that customers should not be forced to bear the burden of rising power costs.

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