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Illinois Retail Gas Marketer Santanna Files for Ch. 11, Sued by Attorney General

Escalating natural gas prices forced Illinois retail gas marketer Santanna Energy to file for Chapter 11 bankruptcy protection last Monday just a few days after Illinois Attorney General Lisa Madigan filed a lawsuit in Cook County Circuit Court against the company because it reneged on its fixed-rate contract offerings to about 15,000 northern Illinois residential customers.

Santanna had switched the customers earlier this month to a higher-cost variable rate for the winter, but according to Madigan's lawsuit there was no modification clause in their contracts that allowed the company to change the fixed-price arrangements.

"Consumers looking for certainty in natural gas prices this winter who signed up for Santanna's program were told very clearly in scripted telemarketing calls that they would be locked into a fixed rate," Madigan said in a statement. "Now the company is saying that the recent hurricanes have changed that script. We expect home heating costs to increase dramatically this season. Consumers who have tried to protect themselves by locking in a price for their heating bills have been arbitrarily told that their contracts are no good and they are at the mercy of any increases in home heating costs."

Austin, TX-based Santanna has 25 employees in Hinsdale, IL, and sells gas to a total of about 35,000 residential and commercial customers participating in the Nicor "Customer Select" program and the Peoples "Energy Choices for You" program. The company started offering customers a fixed-rate winter supply option last summer in a telemarketing program. Interested consumers orally agreed to participate and then were contacted by a third-party verifier and enrolled in the program. Finally, the interested consumers received a letter that set forth the terms and conditions of their agreement.

Madigan's lawsuit filed last week charges Santanna with violations of the Illinois Consumer Fraud and Deceptive Business Practices Act for allegedly misrepresenting its fixed-rate offer. It also asks the court to prohibit the company from advertising or offering an advanced payment and storage-based natural gas supply program and from further violating Illinois' consumer protection laws. The lawsuit also seeks a civil penalty of $50,000 and additional penalties of $50,000 per violation found to have been committed with the intent to defraud.

It is unclear what impact the company's Chapter 11 filing will have on the attorney general's legal action. Santanna CEO Wayne Gatlin said the company will "continue to operate as usual" under the bankruptcy filing and its "operations, deliveries and payments will be normal.

"We will continue to serve all of our customers during this period, and we expect to emerge from the reorganization successfully as a more solid and stronger company," said Gatlin. He said the company is "yet another victim of radically higher energy pricing caused" by Hurricanes Katrina and Rita. Gatlin also said his customers understand the problem and only about 5% have chosen to leave the company and return to regulated utility service.

"Santanna believes that the majority of its affected customers are knowledgeable of the recent catastrophic events, understand their impact on energy prices, and are willing to stay with the Santanna program as it works through these issues," the company said in a statement.

Santanna spokesman Bill Plunkett said the marketing company already is "communicating cooperatively with public officials, including the attorney general's office, and will continue to do so."

He said the company has switched its fixed-rate customers over to index-based pricing. "It is going to be the [Chicago citygate] index issued by Natural Gas Intelligence plus 6 cents per therm," said Plunkett. Prior to this change customers were being charged various fixed rates depending on when they signed up for service. Some customers were paying about 79 cents per therm, but now initially they will be paying about $1.28/therm.

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