In another case the FERC is going to have to defend its policyof not requiring pipelines to flow through penalty revenues, theU.S. Court of Appeals ruled Friday in remanding a case involvingNorAm Gas Transmission (No. 97-1607). The 2-1 decision in Amoco v.FERC, with Judge Randolph concurring in part and dissenting inpart, did not object to NorAm’s raising penalty rates, but it doesask for an explanation of why the Commission believes penaltyrevenues 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 tobelieve that because penalty rates were raised, the incidence ofpenalties would decrease. But “even if a lesser number of penaltiesare imposed, the increased penalty rate might result in a grossincrease in penalty revenue. Moreover – and this is the keyimponderable – whether a shipper will be willing to incur thepenalty depends on his cost in securing alternative supplies in atight market.”
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