CMS Energy Corp.’s energy marketing business, CMS Marketing,Services and Trading (CMS-MST), has jumped on the bandwagon ofoffering municipal customers prepaid gas supply to take advantageof low municipal bond interest rates.

The company recently completed a major gas sale to TennergyCorp., a Jackson, TN-based energy acquisition corporation for 17municipalities in western Tennessee and Kentucky. The contract isfor 10 years. Under the agreement, Tennergy has pre-paid CMS-MSTfor 135 Bcf of gas to be delivered from May 1, 1999 through April30, 2009.

“This transaction locks in ten-year supplies of natural gas atfavorable market pricing for the benefit of the people andbusinesses in the 17 different municipalities served by TennergyCorp.,” said William W. Schivley, executive vice president ofCMS-MST of Dearborn, MI. “By utilizing tax-exempt municipal bondfinancing and today’s low interest rates, Tennergy has received andwill provide to its customers a firm supply of natural gas, with asingle up-front payment to CMS.” The gas supplies will be deliveredto Tennergy via several interstate pipelines out of the U.S. gulfcoast production area.

Schivley said CMS has done other prepaid supply deals but nonefor terms as long as this one with Tennergy. “Because of the lengthof the contract, individually it’s probably one of the largestcontracts we’ve done.” He said CMS is looking to do more deals ofthis type. The company works with about 51 individual municipalcustomers. Schivley said CMS has looked for opportunities toaggregate some of these municipals for a supply deal, butgeographic and other concerns make that difficult.

Tennergy completed a $234 million tax-exempt municipal bondtransaction with Bank of America to finance the gas purchase. “Thisdeal is one of the most complex transactions that we have handled,but it will provide our 17 customers a reliable,competitively-priced gas supply for ten years,” said TennergyPresident John W. Williams. Tennergy evaluated several competitivebids received as a result of a request for proposals.

As energy buying becomes more complicated in a deregulatedenvironment, Schivley said innovative deals that bring gassuppliers behind the city or plant gate will become more popular.Clearly, prepaid deals have been of interest to several playersover the last year.

Last year UtiliCorp United’s Aquila Energy was awarded a long-termcontract to supply 14,418,850 MMBtu over 10 years to Lincoln, NE-basedEnergy America for a prepaid amount of $24.3 million. Energy Americaresells gas obtained from Aquila to the municipal organizations makingup the Nebraska Public Gas Agency (see DailyGPI April 1, 1998).

California is putting together a pre-paid deal for about 35% ofstate facilities’ gas demand (see Daily GPIDec. 23, 1998). Natural Gas Services, a unit of the state’sDepartment of General Services (DGS), was planning to take supplierbids June 7, but the state ran into trouble arranging financing forthe deal. Now, bids are expected to be sought in the next 100 to 150days, said Marshall D. Clark, manager of the DGS Natural Gas ServicesProgram. He said the state knows how to fix its financing problem andthe delay stems from the fact that putting together the prepaid dealwas interfering with work for the state’s annual gas supply biddingprocess. California intends to seek about 20 Bcf delivered at rates of3 to 5 Bcf/year over five years in its prepaid deal.

“We were very encouraged by the interest of the gas industry,”Clark said. “We had a number of gas suppliers come and talk to usand make suggestions about how to structure the deal, which weappreciate.” Clark said about 10 companies visited his office andlengthy phone discussion was had with about another six. “We alwaysassumed from the way people were talking we would get at leastthree or four [bids].”

By Wednesday, California should have its RFQ out for annual gasprocurement for the period July 1, 1999 through June 30, 2000. Bidswill be due June 9. For information, call Marty Sengo,(916)323-6295.

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