ADFITs: Not a Phantom
In his article, "Phantom Taxes: The Big Payback" (Courts and Commissions, 7/1/96, p. 41), David Wise argues that utility recovery of stranded facility costs...
The U.S. Court of Appeals for the District of Columbia Circuit has upheld a ruling by the Federal Energy Regulatory Commission requiring an interstate pipeline company to sell excess low-cost storage gas supplies to its sales customers at cost, on the theory that ratepayers who bear risk for losses in industry restructuring should retain gains from the same process.
The pipeline, Williston Basin Interstate Pipeline Co., had found that excess gas was available after it had cut sales operations as part of the market restructuring ordered by the FERC. The pipeline wanted to sell the gas at market rates and retain the profits for shareholders. It argued that, as a general rule under cost-of-service regulation, shareholders have a right to the gain from the sale of assets held for providing service. Under that rule, the pipeline argued, customers pay for the services they receive and so have no legal interest in gains or losses when such assets are sold.
In upholding the FERC's ruling, however, the court said that ratepayers had been held responsible for costs incurred by the pipeline to comply with FERC-ordered changes in the gas industry. It said that if customers have to bear the risk of losses on utility assets that come from dramatic industry restructuring, "it is hard to see why they should not reap the benefits from forced realization of gains." Williston Basin Interstate Pipeline Co. v. FEC., - F.3d - , Nos 93-1420 et al., June 20, 1997 (D.C.Cir.).
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