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
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
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.