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KN's Nebraska Choice Program is Challenged

KN's Nebraska Choice Program is Challenged

Depending on who you ask, KN Energy's (KN) choice gas program in Nebraska was either a raving success or a seriously flawed operation. Results indicate 100,000 people participated in the two-year program, which concluded last month. While KN was pleased with the turn-out, other involved parties have joined together in a lawsuit accusing the Colorado-based company of breaking antitrust laws and creating a monopoly by setting up unfair market advantages for itself and its affiliate, KN Gas Services.

"KN opened its service area to competition among natural gas suppliers, believing that competition would create lower prices and improved services for customers - and that has proven to be true," said Dan Watson, general manager of KN's distribution operations. "The $1.6 million customers will save this year is in addition to nearly $5 million saved last year by our Nebraska customers following the first year of [the program.]"

Midwest United Energy, a competing marketer in the program, and Consumer Services Association (a Midwest United affiliate), disagree with Watson's assessment, and have gone to court to prove their point. The lawsuit originally was filed in the U.S. District Court of Colorado last April. It seeks over $30 million in total damages and costs.

The lawsuit accuses KN of unfair practices throughout the program. The local distribution company, a KN affiliate called KN Retail, assigned third-party shippers capacity but did not do so for KN Gas Services, the KN marketing arm competing in the program. Third-party shippers were also required to post a $5 million bank letter of credit to assure the utility they would not default on their obligations. The plaintiffs also took issue with the fact that KN Retail took care of all customer billing and that all default customers went to KN Energy.

"The gas choice program has a lot of merit, but it is also flawed in serious ways. Overall it's a good concept, but it doesn't translate into success unless everybody's playing at the same level," Lar Voss, CEO of Midwest United Energy said. "We feel that KN opened up the market, but then used the unregulated rates to get more customers. We are satisfied with the number of customers we accumulated, but it would have been more if all things were even." Voss said he could not go into more detail.

KN Energy denied the charges. "We're confident that the U.S. district court will rule in our favor," said Sara Hansen, a KN Energy spokesperson. "We opened up the market for competition so breaking antitrust laws doesn't add up."

The results prove KN's dominance in the market. KN and KN Gas Services accrued 80% of the residential and commercial customers eligible to select a supplier in Nebraska. KN Gas Services received 44%, KN received 36%, the Public Alliance for Community Energy (PACE) received 20%, Midwest United Energy received 1% and Kansas Gas Marketing received less than 1%. About 71% of participants chose to retain their current supplier, and 29% selected a supplier by mailing in a selection form.

The first hearings are scheduled for August. KN Energy has yet to file a formal response.

John Norris

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