Nebraska Utility Turns On Deregulation, Gives Up Customers to Get Ahead

KN Gas Services, Scottsbluff, NE, a division of KN Energy, is hoping to get a sober picture of its position in the Nebraska and Wyoming marketplace by letting go of some of its customers prior to deregulation.

A direct mailing went out to its 100,000 customers in Nebraska and 10,500 customers in Wyoming last month that explained the deregulation process and included a ballot so that they could select a utility and payment plan.

The election process ended May 1, and customers will be committed to their choice for one year.

“The industry will be deregulated, and when it does, we want to be the front runner,” said spokesman Loren Finkelstein. “There are those who are going to fight deregulation kicking and screaming, and then there are those who endorse it. Those who endorse it will be better off.”

“This is a sophisticated direct marketing campaign, It requires an investment of a lot of energy for deregulation,” Finkelstein said. “Deregulation has come a lot slower than most people expected, but we wanted to be ready for it when it was enacted. If it is done right, it will be to the benefit of the consumer.”

The move is not new among utility monopolies. Columbia Gas, an affiliate of the Columbia Energy Group, Herndon, VA, has run similar programs in Ohio, Kentucky, Pennsylvania, Maryland and Virginia.

“This is something that is being done as the utility companies are restructuring as a result of deregulation,” said Thomas Michael, an analyst for Xnergy, a utility consulting firm based in Burlington, MA. “It is not clear, though if this is speeding up the deregulation process in Wyoming and Nebraska.”

Michael said that utilities, including KN Gas Services, have been competing for customers all along with their affiliated companies, so they have a good idea how they will be positioned once the industry is deregulated in Nebraska and Wyoming.

This is the second year that KN Gas Services has deregulated itself in Nebraska and the fourth year it has deregulated itself in the Wyoming marketplace.

“They are doing this because they do not have very much upside to their profits,” Michael said. “All gas companies have to buy their supply for the long term, so if they buy gas at higher prices then they are conceived as incompetent, if they buy at low prices it will look as if they are just doing their job. They are going to get beat up if they are wrong.”

In Nebraska, 70 percent of gas customers switched from their traditional host company and 60 percent switched in Wyoming during the program.

The competition for KN Gas Services includes Kansas Gas Marketing, Tulsa, OK; Midwest United Energy LLC, Hays, KN; and PACE, a nonprofit gas provider owned by 50 municipalities in Nebraska. KN Gas' parent company KN Energy will continue to supply the gas to all Nebraska residents, regardless of whether they choose KN Gas Services.

“KN Energy and KN Gas Services try very hard to keep each other at arm's length during the campaign,” Finkelstein said. “If they don't it could skew the results of the campaign.”

In Nebraska, at the end of the balloting, KN Gas Services received 18,134 ballots; in Wyoming the company received 1,165 ballots. Ballots were mailed to 176 of the 180 municipalities in Nebraska. Finkelstein would not comment on why four communities refused to participate in the Choice Gas selection process.

“In Nebraska there is no state utilities authority so the rates are usually determined by the municipality governments,” he said.

As of press time, the results in Nebraska showed KN Gas Services keeping 10,771 customers. KN Energy was second with 3,644 customers, while PACE garnered 3,190 votes. Midwest United Energy and Kansas Gas Marketing had 432 and 97 votes respectively.

Last year when KN Gas Services launched the selection program in Nebraska, 68 percent of the people returned their ballots and KN Gas retained approximately 80 percent of its customers.

“We were excited about the turnout,” said Finkelstein. “Percentage wise, it was better than most presidential elections.”

In Wyoming, where KN Energy's competitors include Wyoming Community Gas, and Wyrulec/Midwest United Energy, KN Energy received 639 votes, Wyoming Community gas received 499 and Wyrulec/Midwest United Energy received 27 votes.

The final results will be known by the company during the week of May 10.

If deregulation is enacted effectively Finkelstein expects the savings to increase. In addition to the direct mailing of ballots, gas companies are holding open houses and using telemarketing during the campaign.

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