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NATIONAL FUEL GAS TO BEGIN GENERATING ELECTRICITY
COMPANY SUBSIDIARY HAS ACQUIRED FORMER CO-GENERATING PLANT IN BUFFALO

National Fuel Gas Co. is moving into the electricity generation business.

The Buffalo-based natural gas company's National Fuel Resources subsidiary has bought the former co-generation plant next to the Outokumpu American Brass factory on Military Road in Buffalo for an undisclosed sum.

By purchasing the Encogen Four Partners power plant from Lone Star Energy Co. of Dallas, National Fuel Resources adds its own source for generating some of the electricity it will sell as the company moves forward with plans to offer both electric and natural gas services to its customers.

"The electric market is an important part of our growth strategy," said Kevin D. Cotter, manager of new business development for National Fuel Resources. "It's important for us, down the road, to offer our customers a wide range of energy services."

As the state's electricity and natural gas markets are opened to competition, many energy services companies, like National Fuel Resources, are trying to position themselves so they can be a single source for meeting all their customers' energy needs.

"The acquisition of the Encogen facility fits with our long-term plans to secure low cost and efficient energy supplies to meet the needs of our customers," said Robert J. Kreppel, National Fuel Resources' president.

National Fuel Resources currently buys all of its electricity on the open market. But company officials hope the generating plant will give National Fuel Resources the flexibility to reduce its electricity costs by running the facility when prices on the open market are high, while allowing it to temporarily shut down the facility when market prices are less than its costs of generating the power, Cotter said.

To be able to do that, National Fuel Resources plans to install new generating equipment which will allow the plant to be shut down and turned back on, Cotter said. The 62-megawatt plant's current equipment is designed to run continuously.

Once the new equipment is installed, the plant's generating capacity likely will be reduced to between 40 megawatts and 50 megawatts, or enough to provide electricity to two or three large industrial plants, Cotter said.

"The plant will have the flexibility to respond to market prices," Cotter said. "We plan on running when power prices are high."

Cotter said the plant is expected to employ about 10 people. It is likely to be next summer before the renovations are completed and the plant is up and running, he said.

National Fuel Resources said it plans to sell some of the electricity produced at the plant to Outokumpu American Brass and work with the company to reduce its energy costs.

"We are finding new solutions and strategies to conserve energy by working closely together in an energy management partnership," said Warren E. Bartel, American Brass' president.

The cogeneration plant was built in the 1980s to generate electricity that was sold to Niagara Mohawk Power Corp. at above-market prices mandated by the state Legislature and also to produce steam that was used by American Brass. The generating plant closed two years ago, after Niagara Mohawk reached a $4 billion settlement with a group of independent power producers to buy out most of its costly electricity purchase contracts.

National Fuel Resources has more than 18,000 commercial and industrial customers in New York, Pennsylvania, New Jersey and Massachusetts. The unregulated company, which has been selling natural gas since it was founded in 1990 and began targeting residential gas customers this year, started offering electricity to commercial and industrial customers two years ago.

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