By Jim Balow

Natural gas customers of Allegheny Power/Mountaineer Gas Co. got some good news and some bad news Tuesday morning: Rates will probably go up in November after a three-year freeze, but by 16 percent, not the 39 percent the company originally requested.

In a proposed settlement reached Tuesday evening, residential rates would rise by $1 per thousand cubic feet (MCF), said Billy Jack Gregg, head of the state Public Service Commission's Consumer Advocate Division. Customers would also pay a flat $1 a month more for the nongas part of the bill.

For a typical family that uses 13 MCF of gas a month, the monthly bill would rise $14, from $83.91 to $97.91, Gregg said. That works out to a 16.7 percent increase.

Gregg said he would type up terms of the verbal agreement Tuesday night and get Mountaineer Gas owner Allegheny Power and PSC staff to sign it before the PSC reconvenes its hearing into the rate hike case at 9:30 a.m. today.

On Tuesday, Gregg announced at the start of what was expected to be a lengthy formal public hearing that the parties had reached a tentative agreement on some of the issues on Allegheny's rate hike request. The three parties, in meetings during the weekend and Monday, settled the base rate portion of Allegheny's request.

When Allegheny first asked for its 39 percent increase in January, it divided the $67 million request into two parts: $45 million a year for increased cost of gas; and $22 million a year for base rates, which includes office expenses, the cost of building and maintaining its distribution system - everything but the cost of the gas itself.

Although PSC staff recommended that Allegheny's base rates be cut by $6 million, the parties settled on a $5 million increase. Gregg said the monthly residential customer charge will go from $5 to $6 under the tentative settlement.

Commissioners Charlotte Lane and Martha Walker agreed to suspend Tuesday's hearing until today to let the parties work.

Under the agreement reached at about 6:30 p.m. Tuesday, Allegheny would receive about $23 million more a year for purchased gas, compared to its original request for $45 million. All told, the company would get $28 million more a year, down from the $67 million it requested, or a 16 percent increase.

The Allegheny/Mountaineer case is among the most important cases the PSC will consider this year. Mountaineer, with more than 200,000 customers, is the largest distributor of natural gas in the state.

Those customers have been somewhat spoiled by the rate freeze that protected them from the escalating price of natural gas last winter, when spot prices soared above $10 a MCF.

Since then, prices have dropped to below $5 a MCF, but they remain much higher than they were three years ago when the current rate freeze went into effect.

Allegheny has little public support for a rate increase.

At a series of public hearings the PSC held across the state in the past couple of weeks, hundreds of gas customers spoke out against the proposed increase.

An estimated crowd of 1,500 people crammed into the Raleigh County Armory in Beckley last week to protest.

"We are very concerned about rates being increased and the effect on people," Lane said Tuesday afternoon. "But on the other hand, we have to understand that utilities, in order to stay in business, have to charge reasonable rates."

The PSC will later take up a rate hike request for Dominion Hope, which serves about 115,000 customers, mainly in the northern part of the state. Dominion Hope asked for an even larger 53 percent increase to go into effect Jan. 1, after its three-year freeze expires. Formal hearings for that case are scheduled to start Oct. 2.

Newly appointed Commissioner James D. Williams did not attend. He is to be sworn in Monday.

Lane said she and Walker would wait until Williams is sworn in before making any decisions in the Allegheny case. She said no decisions are likely until October.

She declined comment on the proposed settlement, but said the commission could accept, reject or modify any proposed settlement.

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