Mountain Energy Corp., a gas marketer in Kansas City, MO, saidlast week it has had to ask about 10% of its customers to converttheir fixed-priced supply contracts to index-based arrangements forthe remainder of their contract terms due to a “major dispute” withAnadarko Energy Services over the “hedging of our accounts.”

“At the end of that term, I will settle with them [customers]financially the difference between index and whatever the fixedprice they might have had in their contract…..Many of thecustomers are probably going to owe me,” said Rodrick Donovan,executive vice president and co-owner of Mountain Energy. Thecompany, he added, also has offered to let the affected customerskeep their September payments toward any settlement.

Donovan estimated that 62 of the company’s 700 industrial andcommercial supply accounts, which are primarily located in Missouriand Kansas, will be affected by the change in the supply contractterms. Anadarko Energy, the marketing arm of Houston-based AnadarkoPetroleum, supplies Mountain Energy with about 1 Bcf/month ofnatural gas, he noted, adding that the 62 customers account forabout 250 MMcf/month of that.

Both Mountain Energy and Anadarko declined to go into detailsabout the flap. “As a matter of policy, we just don’t discuss thedetails of our relationships with our customers,” said Anadarkospokesman Tony Canino. “They [Mountain Energy] are a customer ofours,” he confirmed, adding that the marketer receives serviceunder a month-to-month arrangement rather than under a long-termcontract.

As a result of the hedging dispute, Mountain Energy has alertedthe 62 customers that effective Oct. 1 the contract price wouldchange from the fixed price or cap price to “WNG index plus $0.02per MMBtu.”

Mountain Energy has given the affected customers the option toswitch to other suppliers. In a Sept. 29 letter, the companysuggested that utilities “may be a reasonable viable option formany customers, given the current market price of natural gas andconsidering the fact that the utility has been injecting lowerpriced gas for winter re-delivery.” Donovan said about 10%, or 6-8accounts, have elected to change suppliers, while the remainder ofthe 62 have chosen to stay with Mountain Energy.

“Given the higher prices going into the winter, the summerinjection period allowed the opportunity for these utilities toinject $2.75, $3, and $3.25 gas. For the first time in a long timeif ever, the cost of natural gas sales service [from utilities]will be very competitive” with the gas service provided bymarketers, Donovan noted.

It “will require some time to bring closure” to the hedgingdispute, the company said. In the meantime, Donovan said MountainEnergy is in the process of entertaining bids from other suppliers,and expects to make a change in supplier this month. Susan Parker

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