A D.C. Circuit Court of Appeals’ ruling last July, which heldFERC improperly denied Iroquois Gas Transmission the recovery oflegal costs associated with investigations into the illegalconstruction activities of the pipeline, leaves the Commission withonly one course of action on remand, Iroquois said last week. Thatis to uphold the presiding FERC judge’s initial finding that -violations aside – the pipeline’s legal costs were prudentlyincurred and, therefore, recoverable.

In the July 1995 initial decision, the presiding judge foundthat “while Iroquois’s activities in constructing the pipeline mayhave violated environmental or criminal statutes, there was noshowing they were duplicative, wasteful or otherwise imprudent.”Further, he said opponents “presented nothing to rebut Iroquois’sposition that the legal costs were incurred as an appropriate andnormal response to investigatory activities arising from theconstruction.”

Iroquois contends the presiding judge’s decision coincides withthat of the appellate court, which held that illegal conduct “doesnot inexorably compel or warrant either rejection or stigmatizationof the expense as a factor in rate calculations.” Additionally, thecourt said that while it didn’t condone violations ofenvironmental-related certificate conditions, it conceded thatsometimes companies are forced to take shortcuts that ultimatelybenefit ratepayers.

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

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

Susan Parker

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