The D.C. Circuit Court of Appeals remanded an order in whichFERC denied Iroquois Gas Transmission System L.P the recovery oflegal costs stemming from the criminal and civil investigationsinto environmental violations associated with the construction ofpipeline facilities in the early 1990s.

In 1996, the Commission denied the recoverability of thepipeline’s legal expenses – more than $15 million – on the basisthat Iroquois Gas had failed to prove they were prudently incurred.The fact that the costs grew out of civil and criminal violations,FERC argued then, cast doubt on their very prudence. The court,however, said FERC failed to adequately justify the reason for itsdecision in the case.

The Commission “has not made clear which types of legal defensecosts are presumed recoverable for ratemaking purposes and which[are] not, or why the costs here belong on the nonrecoverable sideof the line,” the court opined. “Of course, we do not reach theultimate question [of] whether Iroquois’s legal defense costs werein fact prudently or imprudently incurred, and thus whether theymay or may not be borne by the ratepayers. We hold only that theCommission has not adequately justified its apparent decision toimpose upon Iroquois the burden of proving that its activitiesbenefited ratepayers” in order to be able to recover the legalcosts.

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