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Gas companies go to trial over pipeline

Opening arguments began Monday in a civil lawsuit that could have hundreds of millions of dollars at stake, making it the largest civil case in Garfield County history.

The case, KN TransColorado vs. Questar Corp., et al, revolves around the $340 million, 300-mile TransColorado Pipeline that runs north to south through Colorado’s Western Slope to Blanco, N.M.

The Ninth Judicial District courtroom in Glenwood Springs was filled almost to capacity by attorneys from both sides; their boxes and three-ring binders containing thousands of pages of exhibits and evidence. District Judge Thomas Ossola is presiding over the nonjury trial, which is expected to take upwards of five weeks.



KN Energy Corp., now part of Kinder Morgan, and Questar Corp. joined forces in 1990 to construct a pipeline to carry natural gas from the Piceance Basin, northwest of Rifle, and the Uinta Basin in eastern Utah to the San Juan Basin in northern New Mexico.

Each company agreed to pay half the construction costs.



The TransColorado pipeline, which went into operation in March 1999, carries gas south to an pipeline that runs east and west. The idea was to take less-expensive natural gas in Colorado, charge gas companies a fee to transport their product down the pipeline to New Mexico, then let gas companies sell the gas from the Blanco hub at a higher rate.

At the same time the TransColorado line was being built, attorneys from KN TransColorado allege, Questar was building its own pipeline, called Mainline 104, to compete with the TransColorado line, as well as keeping the development of the new pipeline a secret.

In their opening statements, Questar attorneys countered that first off, the pipeline wouldn’t compete directly with the TransColorado line, and also that KN TransColorado officials knew full well about the pipeline but are trying to use it as an excuse to get out of the project because “they just don’t like the deal.”

Mike Beatty, an attorney for KN TransColorado, said KN TransColorado is the victim of secretive business practices by Questar. He explained that Questar had assured KN TransColorado it was fully on board with the project, but once the deal to share in the cost of the pipeline with an option to sell out was finalized, natural gas prices in the San Juan Basin dropped and construction costs for the TransColorado line skyrocketed.

“This is a pipeline that should have never been built,” Beatty said. “No one ever told (KN TransColorado executives) Questar was planning to build a pipeline for 200 million (cubic feet per day) with the leftovers to go into the TransColorado system.”

So in an effort to keep KN interested, Beatty said, Questar pledged to build compressor facilities for the line.

“We believe there was a fraudulent inducement of the put,” Beatty said of the “put” clause that would allow Questar to sell out its share of the project. “It’s about disclosure. The put itself was a sale in partnership interest.”

KN TransColorado is seeking a recision of the Questar-KN TransColorado partnership and put agreements, as well as up to $500 million in damages.

Questar attorney George Haley explained how that company sees the dispute.

“Usually, two multibillion-dollar companies can find a way to come to a settlement short of making you decide,” he said to Ossola.

He said Questar officials stand accused of being “liars and thieves” and “making deals in the night” but didn’t do anything wrong.

“We’re here to defend our honor,” he said.

“There was a lack of a meeting of the minds and that’s what leads us to today. It’s a lack of a meeting of the minds on who should pay,” Haley said.

Haley insisted KN TransColorado executives “went in with their eyes wide open.”

“The philosophy for (KN) TransColorado was, `Build it and they will come’ … Our philosophy was different: `If we build it and the market doesn’t come, we get to get out,'” Haley said.

Questar wants KN TransColorado to buy out its share of the pipeline for an amount, not including attorney fees, of $127 million.

The day wrapped up with witness testimony by former KN Energy CEO Larry Hall. Hall said he didn’t know about the plan by Questar to build another pipeline, but if he did, “We would not have executed the agreement and I would have been quite surprised that our partner would build something in direct competition to TransColorado,” he said.

The trial will resume today at 9 a.m.


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