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National Fuel Rate Settlement Lowers Earnings

National Fuel Rate Settlement Lowers Earnings

National Fuel Gas Co. announced last week that it has reached a rate settlement agreement with the staff of the Department of Public Service, the Consumer Protection Board and multiple other interveners. The New York Public Service Commission approved the agreement at its regular session on Oct. 11.

Under the three-year agreement, customers will receive a $17.6 million bill credit for the 12-month period starting Oct. 1, which will include $7.6 million relating to customers' share of earnings accumulated on the balance sheet from 1996 to 2000. After the initial 12-month period, the credit will be reduced to $5 million for the next two years, and subsequent years there after unless National Fuel can establish that it is no longer justified. The company can still file for rate increases, except during year one.

Due to this agreement, the company announced that it expects its fiscal year 2001 earnings will be reduced by about 15 cents per share. National Fuel said the agreement will also provoke discussions to resume in the near future with other interested parties to address the commission's competition initiatives, including changes to customer choice transportation services.

In other National Fuel news, the company said its fiscal 2000 fourth quarter earnings will be lower than expected due to derivative activity. After completing a full review of its derivative positions, the company said it will report a $3.5 million after-tax gain from its derivative activity of its retail marketing subsidiary, National Fuel Resources (NFR) for the fourth quarter of fiscal 2000 that ended Sept. 30. The company also took a $1.6 million after-tax loss due to the unhedged portion of fixed priced sales contracts entered into by NFR for natural gas sales to customers in fiscal year 2001.

"This review of the company's derivative positions which began during July 2000 has been a very substantial, time-consuming undertaking," said Philip C. Ackerman, president of National Fuel. "We have taken the necessary steps to assure the appropriateness of our risk management activities."

The company also said that it would be filing an amendment to its third quarter report to reflect a $5.4 million decrease in income reported due to the reclassification of "derivative instruments from hedges to mark-to-market instruments." Net income for the third quarter will now show $9,070,000 instead of the previously reported $14,468,000.

National Fuel expects earnings per share for fiscal 2000 to be between $3.20 to $3.30 per share, or $125 to $129 million. Fourth quarter and fiscal 2000 earnings will be released on Oct. 25 after the market closes the company said.

"While this fiscal year's results will be lower than our expectations, we will nevertheless achieve record earnings in Fiscal 2000," said Ackerman. "The fundamentals of National Fuel remain strong, and we have a solid foundation to deliver better results next year. We expect basic earnings per share for fiscal year 2001 to be in the $4.25 to $4.35 range. Further, we have made certain management changes at NFR and have put in place additional controls to monitor the daily level and type of derivative activity. We are now putting this matter behind us, and look forward to concentrating on our new fiscal year."

Alex Steis

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