STATE OF NEW YORK
PUBLIC SERVICE COMMISSION

Case 01-E-0965

Proceeding on Motion of the Commission as to the Rates,
Charges, Rules and Regulations of the Village of Freeport for Electric Service.

STATEMENT IN SUPPORT OF JOINT PROPOSAL

The Incorporated Village of Freeport, New York ("Freeport" or "Village") submits this statement in support of the Joint Proposal, entered into on November 30, 2001. The Joint Proposal is in the public interest, would produce just and reasonable rates and resolves all issues. The only Parties to this proceeding are the Village and the Staff of the Department of Public Service. The Village believes the Joint Proposal is fair to the ratepayer owners of the municipal electric utility.

On July 12, 2001, the Village filed with the Commission proposed tariff leaves for P.S.C. No. 8, designed to increase annual revenue by $1,470,703 or 7.67%, for the forecast rate year ending February 28, 2002. As noted in the Joint Proposal, Notice of Pending Negotiations was delivered to the State Consumer Protection Board and others. A negotiating session was held by telephone conference call on November 21, 2001. Three Village residents participated in the telephone conference.

The Joint Proposal recommends a revenue increase of $1,385,100 or 7.1%, to be recovered on a pro-rata basis for all customer classes. The Joint Proposal also: 1) recommends minor tariff revisions to account for the existence of the New York Independent System Operator ("NYISO"); 2) establishes a new low-income residential program; and 3) supports the Village’s efforts to encourage energy efficiency programs.

The Village’s last rate increase filing occurred on July 28, 1995 (Case 95-E-0676), over six years ago. The earlier case resulted in a settlement approved by the Commission in Opinion No. 96-10 (May 15, 1996). The 1995 case was settled with a three-year phase-in at a level below the request of 9.94%. Prior to the 1995 rate case, the Village had not applied for rate relief for nine years.

The revenue increase set forth in the Joint Proposal is necessary for a variety of reasons. The debt service for the 138 kV interconnecting substation was 55.7% higher than the projections included in supplemental testimony filed in connection with the 1995 Case (95-E-0676). This led to an increase from the projected $240,870 increase to $544,151. At that time the Village was experiencing severe financial hardship. Increased costs have been incurred by the Village associated with the addition of new personnel to handle all matters relating to the NYISO. This work includes the establishment of energy schedules, load forecasting, etc. In short, the NYISO has instilled a new degree of complexity into the operation of Freeport’s small municipally-owned electric utility. In the 1994-95 time period the Village Electric Department employed 62 people. Employment has grown to 70, with an additional six employees expected this year. Significant salary and benefit increases, especially a 41.8% increase in benefit costs driven by health care, has eroded the Village’s financial position. Also associated with the NYISO, the Village has dramatically expanded training and education costs. Increases in payments in lieu of taxes ("PILOT"), without a change in methodology, has also increased costs. The rate per 100 has increased from $19.98 in 1997-98 to $26.26 in 2000-2001. As noted above, the phase-in of the 1995 rate increase request reduced revenue by $1,000,000 during the relevant period.

The Village is also in the midst of proposed capital projects including a distribution system improvement plan to ensure reliability, replacement of lead-coated cable, a cooling tower replacement, replacement of obsolete vacuum breakers, implementation of automated meter reading, etc.

Freeport is also planning new gas-fired generation, at the Village’s Power Plant No. 2 site, in order to replace older diesel units. As noted in the Joint Proposal, no subsequent rate request shall be made until after development, interconnection and purchase power agreements are executed. New cleaner generation in the Village would be financed in the most cost-effective manner, in order to mitigate any impacts on consumers/ratepayers. Freeport is attempting to mitigate potential Installed Capacity ("ICAP") penalties which were established in 2001 by the NYISO. The NYISO decided not to consider the Village’s approximate 38 megawatt capacity contract from the New York Power Authority from the Niagara Falls hydroelectric project as eligible for a new Long Island-only capacity requirement. This low-cost hydroelectric power and energy is the backbone of the Freeport system. The NYISO’s decision has necessitated rapid action by the Village to protect the ratepayers.

Finally, as a municipally-owned electric utility, the ratepayers and taxpayers own the utility. There are no distant investors who receive compensation in any form from the Village Electric Department. The prevailing electric rates in Freeport are still far below the rates charged by the Long Island Power Authority or Consolidated Edison Company of New York, Inc.

For all the foregoing reasons, the Village urges the Commission to adopt the Joint Proposal, in its entirety, in this proceeding.

Dated: January 2, 2002
Washington, D.C.

Respectfully submitted,

Jeffrey C. Genzer, Esq.

Duncan, Weinberg, Genzer & Pembroke, P.C.
1615 M Street, N.W., Suite 800
Washington, D.C. 20036
(202-467-6370)