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However, the loan agreements provided that, if the total amount
of interest paid by a borrower over the life of the loan exceeded
a preset fixed-rate cap, the taxpayer would refund the excess.
The taxpayer included in income the amount of interest collected
with each monthly payment only to the extent it did not exceed
the fixed-rate cap. Respondent argued, and this Court agreed,
that the excess collections should be included in gross income
because a contingent obligation to repay does not constitute a
restriction on use sufficient to prevent their being classified
as income.
The excess collections in Southwestern Energy Co. and
Continental Ill. Corp. differ from the excess fuel and energy
conservation costs collected by Florida Power in three
significant respects. First, Florida Power is required to pay
interest on its overrecoveries, whereas, in Southwestern Energy
Co. and Continental Ill. Corp., the taxpayer did not include an
interest component in its refunds of excess collections. Second,
Florida Power, burdened by additional accounting and
administrative responsibilities, derives no benefit from the
regulatory imposed recovery system. Florida Power is forced by
the FPSC and FERC to overrecover its costs and then give refunds
in later months in order to reduce the volatility of customers’
monthly bills caused by fluctuating fuel prices and random energy
conservation expenditures. The regulatory recovery method is
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