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Second Remand Affects Penalty Revenue

Second Remand Affects Penalty Revenue

In another case the FERC is going to have to defend its policy of not requiring pipelines to flow through penalty revenues, the U.S. Court of Appeals ruled Friday in remanding a case involving NorAm Gas Transmission (No. 97-1607). The 2-1 decision in Amoco v. FERC, with Judge Randolph concurring in part and dissenting in part, did not object to NorAm's raising penalty rates, but it does ask for an explanation of why the Commission believes penalty revenues will be so insignificant as to warrant no consideration. In the year prior to NorAm's rate filing the pipeline had collected $1.8 million in penalty revenue. The court noted FERC appeared to believe that because penalty rates were raised, the incidence of penalties would decrease. But "even if a lesser number of penalties are imposed, the increased penalty rate might result in a gross increase in penalty revenue. Moreover - and this is the key imponderable - whether a shipper will be willing to incur the penalty depends on his cost in securing alternative supplies in a tight market."

Susan Parker

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