CMS Scores 10-Year Prepaid Municipal Supply Deal
CMS Marketing, Services and Trading (CMS-MST), has jumped on thebandwagon of offering municipal customers prepaid gas supply totake advantage of low municipal bond interest rates.
The company, a subsidiary of CMS Energy Corp., recentlycompleted a major gas sale to Tennergy Corp., a Jackson, TN-basedenergy acquisition corporation for 17 municipalities in westernTennessee and Kentucky. The contract is for 10 years. Under theagreement, Tennergy has pre-paid CMS-MST for 135 Bcf of gas to bedelivered from May 1, 1999 through April 30, 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 along-term contract to supply 14,418,850 MMBtu over 10 years toLincoln, NE-based Energy America for a prepaid amount of $24.3million. Energy America resells gas obtained from Aquila to themunicipal organizations making up the Nebraska Public Gas Agency(see NGI April 6, 1998).
California is putting together a pre-paid deal for about 35% ofstate facilities’ gas demand (see NGI Dec. 28, 1998). Natural GasServices, a unit of the state’s Department of General Services(DGS), was planning to take supplier bids June 7, but the state raninto trouble arranging financing for the deal.
Now, bids are expected to be sought in the next 100 to 150 days,said Marshall D. Clark, manager of the DGS Natural Gas ServicesProgram. He said the state knows how to fix its financing problemand the delay stems from the fact that putting together the prepaiddeal was interfering with work for the state’s annual gas supplybidding process. California intends to seek about 20 Bcf deliveredat rates of 3 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 andthere were lengthy phone discussions with about another six. “Wealways assumed from the way people were talking we would get atleast three or four [bids].”
California recently released its RFQ for annual gas procurementfor the period July 1, 1999 through June 30, 2000. Bids will be dueJune 9. For information, call Marty Sengo, (916)323-6295. JoeFisher, Houston
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