Depending on who you ask, KN Energy’s (KN) choice gas program inNebraska was either a raving success or a seriously flawedoperation. Results indicate 100,000 people participated in thetwo-year program, which concluded last month. While KN was pleasedwith the turn-out, other involved parties have joined together in alawsuit accusing the Colorado-based company of breaking antitrustlaws and creating a monopoly by setting up unfair market advantagesfor itself and its affiliate, KN Gas Services.

“KN opened its service area to competition among natural gassuppliers, believing that competition would create lower prices andimproved 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 tonearly $5 million saved last year by our Nebraska customersfollowing the first year of [the program.]”

Midwest United Energy, a competing marketer in the program, andConsumer Services Association (a Midwest United affiliate),disagree with Watson’s assessment, and have gone to court to provetheir point. The lawsuit originally was filed in the U.S. DistrictCourt of Colorado last April. It seeks over $30 million in totaldamages and costs.

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

“The gas choice program has a lot of merit, but it is alsoflawed in serious ways. Overall it’s a good concept, but it doesn’ttranslate into success unless everybody’s playing at the samelevel,” Lar Voss, CEO of Midwest United Energy said. “We feel thatKN opened up the market, but then used the unregulated rates to getmore customers. We are satisfied with the number of customers weaccumulated, 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 KNEnergy spokesperson. “We opened up the market for competition sobreaking antitrust laws doesn’t add up.”

The results prove KN’s dominance in the market. KN and KN GasServices accrued 80% of the residential and commercial customerseligible to select a supplier in Nebraska. KN Gas Services received44%, KN received 36%, the Public Alliance for Community Energy(PACE) received 20%, Midwest United Energy received 1% and KansasGas Marketing received less than 1%. About 71% of participantschose to retain their current supplier, and 29% selected a supplierby mailing in a selection form.

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

John Norris

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