Iroquois Seeks Remand Ruling on Legal Costs Recovery

A D.C. Circuit Court of Appeals' ruling last July, which held FERC improperly denied Iroquois Gas Transmission the recovery of legal costs associated with investigations into illegal construction activities of the pipeline, leaves the Commission with only one course of action on remand, Iroquois said last week. That is to uphold the presiding FERC judge's initial finding that - violations aside - the pipeline's legal costs were prudently incurred and, therefore, recoverable.

In the July 1995 initial decision, the presiding judge found that "while Iroquois's activities in constructing the pipeline may have violated environmental or criminal statutes, there was no showing they were duplicative, wasteful or otherwise imprudent." Further, he said opponents "presented nothing to rebut Iroquois's position that the legal costs were incurred as an appropriate and normal response to investigatory activities arising from the construction."

Iroquois contends the presiding judge's decision coincides with that of the appellate court, which held that illegal conduct "does not inexorably compel or warrant either rejection or stigmatization of the expense as a factor in rate calculations." Additionally, the court said that while it didn't condone violations of environmental-related certificate conditions, it conceded that sometimes companies are forced to take shortcuts that ultimately benefit ratepayers.

The Commission saw things differently, reversing the initial decision and denying rehearing in two separate orders in late 1996 and in early 1997. It ruled that Iroquois had placed itself in an "untenable position" when it argued that its illegal activities benefited ratepayers. In separate action, FERC ordered the pipeline to remove from its rate base all legal defense costs associated with the federal investigations. Following the appeals court decision, the Commission - in response to a request by Iroquois - confirmed the pipeline could retroactively recover these legal costs if it should prevail on remand at FERC [RP97-126].

At issue is the recovery of about $4.1 million in legal costs that Iroquois incurred, as of April 1994, in defending itself against certain criminal and civil investigations into its construction activities by the Department of Justice, according to the pipeline. In May 1996, it plead guilty to four violations of the Clean Water Act, paying a total of $22 million in fines, penalties, and settlement and mitigation expenses. Iroquois said it does not seek to recover these costs.

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