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

Under the three-year agreement, customers will receive a $17.6million bill credit for the 12-month period starting Oct. 1, whichwill include $7.6 million relating to customers’ share of earningsaccumulated on the balance sheet from 1996 to 2000. After theinitial 12-month period, the credit will be reduced to $5 millionfor the next two years, and subsequent years there after unlessNational Fuel can establish that it is no longer justified. Thecompany can still file for rate increases, except during year one.

Due to this agreement, the company announced that it expects itsfiscal year 2001 earnings will be reduced by about 15 cents pershare. National Fuel said the agreement will also provokediscussions to resume in the near future with other interestedparties to address the commission’s competition initiatives,including changes to customer choice transportation services.

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

“This review of the company’s derivative positions which beganduring July 2000 has been a very substantial, time-consumingundertaking,” said Philip C. Ackerman, president of National Fuel.”We have taken the necessary steps to assure the appropriateness ofour risk management activities.”

The company also said that it would be filing an amendment toits third quarter report to reflect a $5.4 million decrease inincome reported due to the reclassification of “derivativeinstruments from hedges to mark-to-market instruments.” Net incomefor the third quarter will now show $9,070,000 instead of thepreviously reported $14,468,000.

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

“While this fiscal year’s results will be lower than ourexpectations, we will nevertheless achieve record earnings inFiscal 2000,” said Ackerman. “The fundamentals of National Fuelremain strong, and we have a solid foundation to deliver betterresults next year. We expect basic earnings per share for fiscalyear 2001 to be in the $4.25 to $4.35 range. Further, we have madecertain management changes at NFR and have put in place additionalcontrols to monitor the daily level and type of derivativeactivity. We are now putting this matter behind us, and lookforward to concentrating on our new fiscal year.”

Alex Steis

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