Orion unit to supply New York utility

68 hydroelectric sites will provide power to Niagara Mohawk

March 21, 2001|By Gus G. Sentementes | Gus G. Sentementes,SUN STAFF

Orion Power Holdings Inc. said yesterday that one of its subsidiaries entered into a three-year agreement to supply electricity to an upstate New York utility company in a deal worth about $350 million in revenue.

The Baltimore-based electric power generator's Erie Boulevard Hydropower LP subsidiary will supply Niagara Mohawk Power Corp. with a total of 650 megawatts from 68 hydroelectric facilities in central and northern upstate New York. Niagara Mohawk will pay for the capacity and energy at fixed rates.

Orion's agreement with Niagara Mohawk, one of New York's largest upstate utilities, will expire at the end of September. If approved by the New York Public Service Commission, the new contract will commence in October.

Syracuse, N.Y.-based Niagara Mohawk supplies electricity to 1.5 million customers across 24,000 square miles in western, central and northern upstate New York.

Under New York's deregulation plan, utility companies such as Niagara Mohawk sold their power-generating facilities and agreed to buy their electricity from independent power generators such as Orion.

Niagara Mohawk sold its power-generating facilities and moved into the business of delivering - rather than producing - electricity.

Niagara Mohawk, which is in the process of merging with National Grid Group PLC, a British electricity distributor, filed a proposal with the Public Service Commission in January that outlined plans for a 10-year price freeze and an annual price increase of about 6 percent for its customers, Niagara Mohawk spokesman Ken Tompkins said.

"If we did not go out and extend some of the [wholesale] contracts, we believe customers could have seen an increase of about 12.4 percent," Tompkins said.

"Because of the savings our merger will generate, we can anticipate an average residential bill increase of about 6 percent annually."

New York is a vital market for Orion, said President and Chief Executive Officer Jack Fusco. A majority of Orion's power-generating facilities are in upstate New York, and the company also has the largest electricity-generating capacity in New York City. In all, half of Orion's total electric capacity of 5,400 megawatts is generated in New York.

`Key to our success'

"The key to our success is our ability to lock in earnings by selling a fixed-price contract," Fusco said. "The only companies that will survive are the companies that aren't overly exposed to electric market price volatility," he said.

David Flanagan, a spokesman for New York's Public Service Commission, views the deal as part of an effort to help stabilize commodity costs in the state.

"We do see supplies as being tight, especially downstate," Flanagan said.

"We expect the utilities to manage their supply portfolio prudently through a combination of contracts and purchases in the wholesale market."

By locking into long-term contracts, Tompkins said, Niagara Mohawk is able to offer "substantially hedged" prices to its residential consumers, while its larger consumers - typically commercial enterprises such as factories and plants - pay market rates for electricity.

About 80 percent of Niagara Mohawk's customers pay less than market rates for electricity, Tompkins said.

Shares of Orion, which went public in November, hit a high yesterday, gaining $1.59 to $27.50.

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