WATERFALL OF RULES HOBBLES HYDRO SITE.(BUSINESS)

Byline: KENNETH AARON Business writer

Stephen Formel had a swell idea -- downright American in its ingenuity, he'll tell you -- to harness the waterfall by his house for electricity.

He's got the dam.

He's got the turbine.

He's got the generator.

He's got a headache.

Though the state is in the midst of what experts consider a power crisis, with the number of megawatts in demand this summer dangerously close to the number of megawatts that can be produced, Formel can't get his 40 kilowatts online because of state rules that he says are tilted to the big players.

``It's all feasible, from every point of view,'' Formel said, sitting in an Adirondack chair and watching a stream burble by his back yard. ``Except regulatory.''

A change in those regulations, proposed by the state Public Service Commission in late June, would prove Formel's pain-reliever. For now, though, his $150,000 investment is idle because he can't get the insurance necessary to turn the generator on. And even if he could, the premiums would be double the savings of producing his own power.

State regulations say that people who both generate electricity and tie into the local utility's power grid need to insure the utility against damage the home system could do to its equipment.

Insuring New York State Electric & Gas Corp., by definition, makes Formel a commercial operator.

But he doesn't want to sell NYSEG any electricity.

That, by definition, makes him not a commercial operator.

So, as a commercial operator who sells nothing, there are no actuarial tables to cover him. And he can't get the policy. And even if he did, it would cost twice the amount he'd save by going to NYSEG in the first place.

He estimates he'd need to generate at least 100 kilowatts to turn a profit. But he doesn't want to be that big, and is convinced that his project should be embraced, not hamstrung.

Typically, generators who tie into the grid sell some electricity back to the power companies, which legally are obligated to buy it. Formel doesn't want to sell. He wants some of the power to heat his house; the rest he'd like to use for a wood-drying kiln.

Formel would cut his wood with a sawmill turned by mechanics driven by the same water that is generating his electricity.

A mill has been on the site since at least 1763, and maybe as far back as a century before, Formel said. Long drawn to water -- he owned and operated his own shipping company in San Juan -- Formel saw the spare-time project as a natural.

He built the dam in 1996. Now, the turbine is set up, as is the power generator. He's concentrating on getting the mechanical systems going, though, as long as the electricity is blacked out.

But why?

``There's a great myopia in this country when it comes to water power,'' Formel said, standing outside the hulking structure, tucked next to the waterfall, itself built over a gigantic rock outcropping that shares space with the cider press on the mill's lowest level.

A machine shop and sawmill, each driven with a system of interconnected belts and rods lacing the walls and ceilings and trailing back to the turbine, round out the shop.

Formel, who is president of the local board of education, wants to use the mill as a field-trip destination.

``Our children do not have a clue about anything if it's not connected by a computer,'' he said, making his way through the mill. ``Electricity doesn't come from that little white switch on the wall.''

Of course, right now it's not coming from the waterfall, either. Turns out that he's alone in his travails.

``I knew it was an oddball project, but not one of a kind,'' he said.

The Public Service Commission action, though, gives him a light bulb at the end of the tunnel. Amendments to the regulations that would strike the need to name a utility as an additional insured party are under way.

It's suggested, though, that Formel could just turn the switch on his turbine and never tell NYSEG. How would it know?

The utility wouldn't. But he won't.

``I'm a law-abiding citizen. I'm an honest person,'' he says, still watching the stream. ``How would it look, for the school board president?''

CAPTION(S):

PHOTOS BY SKIP DICKSTEIN/TIMES UNION A TURBINE is idled as Stephen Formel awaits approval to make electricity from his falls in Philmont.