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Mountain Energy to Stop Supplying Midwest Customers

Mountain Energy to Stop Supplying Midwest Customers

Mountain Energy Corp., the Midwest gas marketer that has been besieged by lawsuits and a petition seeking to force it into bankruptcy, last week notified its customers in Kansas and Missouri that it will stop supplying them with natural gas after Oct. 31.

In a letter sent to "at least 600 customers" last Monday, Mountain Energy of Kansas City, MO, informed its mostly industrial and commercial customer base that a petition for involuntary bankruptcy filed against the company two weeks ago has left it unable to secure gas supplies. "They have a credit problem relative to being able to continue to purchase gas supplies," said Bob Rosene, president of Seminole Energy Services L.L.C., a Tulsa, OK-based gatherer and marketer.

Seminole had been close to a deal with Mountain Energy last week to purchase the company's customer accounts, but it fell through, Rosene noted. "They advised us that they were not going to go forward with it. They told me they were unable to get a satisfactory release from a party that had a secured interest in the contract accounts."

That makes Mountain Energy's customers fair game for "us [Seminole] and a lot of other marketing companies," such as Oneok Gas Marketing and EnergyOne, Rosene said.

The marketer's inability to purchase gas supplies in the market was not surprising, given the number of lawsuits and other legal actions that have been brought against Mountain Energy by suppliers and customers in recent weeks. At last count, there were at least three lawsuits; a petition for a permanent injunction; and a petition for involuntary bankruptcy pending against the marketer. Also, a temporary restraining order had been issued against an associated storage facility, where Mountain Energy stored gas for clients.

Customers and suppliers claim they have suffered huge losses as a result of their dealings with the Midwest marketer --- possibly as much as $75 million when everything is tallied. They have accused Mountain Energy of failing to pay for delivered gas, converting for its own use gas that it was storing on behalf of other companies, and failing to supply natural gas at the agreed-upon prices. Mountain Energy officials would not return telephone calls last week.

Four companies --- TransCanada Energy Marketing USA Inc., Tenaska Marketing Ventures, Farmland Industries and DuCoa LP --- have petitioned the U.S. Bankruptcy Court for the Western District of Missouri to force Mountain Energy into bankruptcy. They claim they are out a total of $24.6 million because of their business dealings with Mountain Energy. A hearing has been scheduled for Nov. 13 during which Bankruptcy Judge Frank Koger is expected to rule on whether to grant the companies' petition for involuntary bankruptcy. More companies are expected to join the case.

TransCanada Energy signed onto the bankruptcy petition after Mountain Energy allegedly diverted for its own use gas that it was storing on behalf of TransCanada. Delivery was scheduled to begin in October and run through January 2001. "TransCanada was informed by Mountain that they could not fulfill their contract obligations in regard to the gas in storage," said Glenn Herchak, a spokesman for parent TransCanada Pipelines. The company has estimated it has lost $11.2 million.

Similarly, Tenaska Marketing said its dispute with the marketer arose earlier this month when Mountain Energy indicated it wouldn't be able to deliver Tenaska-owned gas that it was supposed to be holding in a storage facility in Oklahoma, according to Tenaska spokeswoman Jana Martin. It claims it has lost $7.7 million as a result.

DuCoa, an animal feed and nutrition company with a plant in Verona, MO, "was forced to find alternative sources of natural gas at much higher prices" after Mountain Energy allegedly failed to provide it with gas under its long-term, fixed-price contract, said an attorney for the company. It estimated this will cost the company an additional $1.1 million for the remaining year of its contract.

In related action, the Circuit Court of Jackson County, MO, has awarded Aquila Energy Marketing Corp. a temporary retraining order (TRO) enjoining Manchester Gas Storage Inc. from removing any gas from its storage facility in Grant County, OK. Manchester Gas owns and operates the facility; Mountain Energy is Manchester's agent for contracting and administering gas storage.

Aquila had sought a TRO against Mountain Energy as well, but the state court rejected it because the marketer by that time had become embroiled in bankruptcy proceedings. All legal actions against Mountain Energy in state court were stayed once the petition for involuntary bankruptcy was submitted in federal court nearly two weeks ago, said Benjamin Mann, outside counsel for Aquila.

A hearing has been scheduled for Oct. 31 to determine whether the TRO against Manchester Gas should be continued, he noted. Also pending is a petition seeking a permanent injunction specifically enjoining Mountain Energy and Manchester from transferring Aquila gas from the storage facility without the company's consent.

According to court documents, Mountain Energy had sent Aquila monthly reports through August confirming that it had 3.43 Bcf of gas stored in the Manchester facility. "Thereafter, no further reports were received and both Mountain Energy and Manchester refused to confirm the amount of Aquila's gas stored in the Manchester gas storage facility."

However, sources at Mountain Energy and Manchester "have advised Aquila recently that Mountain Energy has transferred natural gas from the Manchester gas storage facility, including some of Aquila's 3,432,000 MMBtu, to one or more third parties."

Likewise, Tenaska Marketing reported it is seeking injunctive relief against Mountain Energy and "other associated parties" as part of legal action brought in Grant County, OK, where the Manchester storage facility is located. A hearing on this request has been scheduled for Oct. 31, according to the company.

The involuntary bankruptcy petition and other legal action were initiated this month after Anadarko Energy Services filed a civil lawsuit in the District Court of Harris County, TX, accusing Mountain Energy of failing to pay for $17.8 million worth of gas that was delivered to it in July and August, and of converting for its own use 3 Bcf of Anadarko gas that was supposed to be in the Oklahoma storage facility (See NGI, Oct. 23, 2000).

In the lawsuit, Houston-based Anadarko Energy accused Michael Eichenberg and Rodrick Donovan, co-owners and sole shareholders and officers of the marketing company, of using Mountain Energy to "perpetrate a fraud against Anadarko."

In addition to Anadarko Energy and the slate of other companies, Columbia Energy Services Corp. of Houston has brought a lawsuit in Harris County, TX, seeking payment for $192,000 for gas it sold to Mountain Energy.

Susan Parker

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