Con Ed produces steam plan.

Con Edison has proposed a four-year, 8.7 percent rate hike for steam customers that still must be approved by the Public Service Commission. While it starts with a 3.5 percent bang in April 2000 and ends in 2004 with a 3.5 percent whimper, it's the alternate one-year plan that has owners steamed.

"If the PSC doesn't approve the four-year plan' it would revert to a one-year increase of 13.9 percent," said Peter DiCapua, president of the Owners Committee on Electric Rates. "It would be very harmful and would start to begin a process of people seriously looking to get off the steam system.

OCER has hired a consultant who has identified other areas of concern, and plans to formally intervene and object to the plan.

Under energy deregulation, starting next year, steam use will no longer be subsidized by electrical customers, so the less steam is used and the fewer the customers, the more they will have to pay.

But Con Edison claims it wants to keep the steam customers, and has made commitments to the steam system by fixing leaks and proceeding with plans to modernize steam generation systems and mitigate the costs of creating the steam.

"While they say they are committed to owning and operating the steam system and providing a sound product at reasonable rates, it doesn't say that with a 13.9 percent increase," said DiCapua. "On face value, the four-year rate plan is quite acceptable, and to get there, there are a series of mitigating processes that are all quite good."

As part of the four-year steam plan, Con Ed has asked permission to sell the nine-acres encompassing their Waterside plant along First Avenue and the East River to a development team and replace its steam generation capacity with more energy-efficient equipment that will also add electrical capacity at the East River Plant. That equipment is currently in the planning phases and is expected to come on-line during 2002.

According to Andrew Jacobs, who moved up through the Con Ed ranks to become vice president of steam operations in August, they also plan to add duel fuel capacity to the steam generation equipment at the 60th Street plant at Eleventh Avenue on the West Side.

Revenue from the retirement and sale of Waterside and the less costly production of steam by the new equipment at East River, as well as more efficient equipment at 60th Street, would be allocated across the four-year plan.

"It would back-reflect savings in the plan," Jacobs said.

Rates would thus increase 3.5 percent on October 2000, the first year; 2.5 percent in the second; 2 percent in the third; and finally only a .5 percent increase in the year that continues through September 2004.

By contrast, the one-year plan hike was based on a "traditional way" of calculating revenue, based on costs to produce the steam and a "reasonable rate of return and recovery of costs."

The utility is not pushing the one-year plan, Jacobs insists, but must include it with its filing as a back-up if the PSC does not approve the four-year plan.

The proposals include a new rate for those that have co-gen or other electrical generation equipment and need Con Ed for backup or supplementary steam service if their own generation equipment is out of service.

While it would be lower than regular steam charges, the customers would be paying a "reliability charge" that can be equated to paying the bill for having a telephone ready for service but never using it.

In order to raise more money directed towards steam use, Con Ed is asking for permission to repair customers' equipment on the "other side of the meter.' That proposal will not sit well with plumbers and other service personnel who now conduct that work for owners.

To encourage even more steam use, Con Edison is actually lowering its rates for summer chiller operations, and is asking the PSC to allow it to negotiate individual rates for new customers, such as those building new high-rises or planning new creative uses for steam, such as for a Times Square spectacular.

"I would be willing to sit down with customers to talk about and review their specific needs, and see if we can arrange terms that are somewhat outside of the existing tariff," said Jacobs of the proposal.

That could become a controversial issue for the PSC, which traditionally has never approved back-room, individual bargaining. But with electric deregulation here, and many real estate companies conducting individual electrical bargaining based on usage, the regulator may not be able to stop Con Ed from doing the same with steam.

While Con Ed will leave the summer rate for steam unchanged, for new air-conditioning users or to retain existing air conditioning use, the company is proposing a $2 discount per thousand pounds of steam off the step rate.

"This is in lieu of an equipment rebate," said Jacobs, who said they will not be reestablishing that previous discount. "There are no certainties in rates nor costs of electric as we go out in time. The four-year plan gives some certainty on the costs and reliability of steam services."

It's the weather normalization clause, based on the last 30 years, that is also worrying owners, because Con Ed would get more if the weather is milder and less in colder weather by adjusting its revenues for the differences between the actual weather and the weather used to forecast future sales.

"If the weather is more severe and colder, the revenues would increase, but the weatherization would require us to pass back savings to the customers," Jacobs explained. "If it's milder and sales are lower, that would require customers to be billed in addition to correct for the normal weather."

DiCapua says OCER was instrumental in defeating a proposal for weather normalization the last two times it was proposed.

"Depending on the severity of the winter or summer, it protects Con Ed to always make the right rate of return. The fuel adjustment clause is becoming a dumping ground for other areas," DiCapua warned. "We have to intercede and intervene in a full-blown way."

While he praised Jacobs' appointment as head of steam and his treatment of the owners during meetings while the utility was preparing its final rate case submission as a "breath of fresh air," DiCapua nevertheless expects OCER to form an alliance with the New Energy Buyers Forum, an organization of owners' groups that purchases energy in bulk for its members, and intervene through a cooperative effort.

"It's the reality of the way they put the numbers together," DiCapua observed.