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Supreme Court weighs who bears risk of pipeline balancing under MAG‑5 contract in American Midstream v. Rainbow Energy
Summary
At oral argument the court focused on whether section 9.1 of the parties' MAG‑5 agreement excuses American Midstream from performance when Transco issues operational flow orders (OFOs) and on whether Rainbow's lost‑profits damages meet Texas's reasonable‑certainty standard.
A three‑justice panel of the Supreme Court of Texas heard argument Tuesday in American Midstream v. Rainbow Energy Marketing Corp., a contract dispute over the parties' MAG‑5 balancing agreement and whether operational flow orders issued by Transco relieved American Midstream of its obligations. Counsel for the petitioner and the respondent disagreed about whether section 9.1 of the MAG‑5 excuses performance when Transco asks shippers to balance receipts and deliveries.
Why it matters: The case turns on contract construction that could determine liability for commercial trading losses and on the admissibility and sufficiency of a damages model that Rainbow used to calculate lost profits. The court's ruling will affect how balancing agreements and pipeline OFOs are interpreted in industry contracts and whether high‑risk, hypothetical profit models can…
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