Just days after Rochester Gas and Electric Corp. (RG&E) predicted that proposed rate reductions recommended by the staff of the New York Public Service Commission would harm the company if approved, Standard & Poor’s Ratings Services affirmed the company’s fears.

S&P said the PSC staff proposal to lower electricity and natural gas rates by 9.4% ($59.7 million) and 1.4% ($4 million) for RG&E, the second largest operating subsidiary of Energy East Corp. (BBB+/Negative/–), if implemented, would be a “negative event” for the credit quality of RG&E.

“This is because the proposed rate reductions, if implemented, could adversely affect Rochester Gas & Electric’s financial profile as well as the consolidated financial profile of the parent, which is currently weak for the rating,” S&P’s Dimitri Nikas in a company release. “However, Standard & Poor’s notes that the current recommendation by the staff could be modified by the commission itself, providing for a more favorable outcome.” S&P said it will study the effect of any final agreement to determine the ultimate effect on the credit quality of Energy East and RG&E.

Earlier in the week, RG&E said if the rate reductions recommended by the PSC staff are adopted, the company would become “financially crippled” and layoffs would become necessary (see Power Market Today, Oct. 2).

The company noted that it has been reducing electric rates for six years and has held gas rates flat for eight years. “In that time, our costs of providing service to the community have gone up considerably,” said RG&E President Paul Wilkens. “Reasonable people will understand that as costs go up, it takes more revenue to continue providing dependable supplies of gas and electricity.”

Wilkens said earlier in the week that if the PSC staff’s recommendations were adopted, “it would be another economic setback to the region because of additional lost jobs and a financially weakened utility. The rate case as presented by the PSC staff would not provide for continued reliable service. Upstate would not be well served by a utility that is forced into financial hardship.”

In a rebuttal to the PSC staff action, RG&E is seeking average rate increases of 6.4% for electricity ($40 million) and 6.8% ($19 million) for natural gas delivery. The PSC staff is proposing annual rate decreases of 9.4% ($59.7 million) for electricity and 1.4% ($4 million) for gas.

“These decreases, coupled with $50 million in synergy savings required by the PSC as a condition of its approval of our merger with Energy East, would put the company in financial peril and cost many RG&E jobs,” Wilkens said. “We are already facing the necessity of some job reductions. Laying off even more employees would be bad for the company and bad for the community.”

RG&E said its common stock earnings for the first six months of last year were $52 million. Earnings for the first six months of this year were $2 million. RG&E stock is no longer traded since the company was acquired by Energy East Corp. in June.

“Our submittal to the PSC explains these necessary increases after several years of declining or flat rates,” Wilkens said. “Our customers have told us in public opinion polling that energy reliability is the most important facet of our service to them. The only way we can assure that is by securing adequate cost recovery.”

©Copyright 2002 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.