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Iroquois Gas Transmission Sys., L.P. v. Federal Energy Regulatory Comm'n

Citation: 28 ELR 21497
No. 97-1276, 145 F.3d 398/(D.C. Cir., 07/21/1998)

The court remands a Federal Energy Regulatory Commission (FERC) decision holding that a natural gas company's legal costs incurred in defending alleged environmental violations could not be included in its rate base used to calculate its permissible charges. The court first holds that FERC has not made clear which types of legal defense costs are presumed recoverable for ratemaking purposes and which are not, or why the costs here are not recoverable. Particularly in light of the explicit discussion of pollution laws in Mountain States Telephone & Telegraph Co. v. FCC, 939 F.2d 1035 (D.C. Cir. 1991) (Mountain States II), FERC's burden here requires more than the making of general allusions to the public interest in compliance with environmental statutes or with Natural Gas Act § 7's certificate requirements. Mountain States II recognizes that ratepayers often benefit from activities that are ultimately found illegal and that policies inducing management to pursue absolutely risk-free environmental compliance measures are therefore not, on their face, in the ratepayers' interest. Thus, FERC must do a better job of explaining why all activities that turn out to violate environmental laws should be presumed unlikely to benefit ratepayers as required for presumptive disallowance. The court, however, does not reach the ultimate question whether the gas company's legal defense costs were in fact prudently incurred, and thus whether they may be borne by the ratepayers. Rather, the court holds that FERC has not adequately justified its decision to impose on the natural gas company the burden of proving that its activities benefitted ratepayers.

A concurring judge would further hold that the calculus of whether a rate is reasonable should take into consideration noneconomic benefit, such as the environmental costs of the gas company's conduct, as well as economic benefit.

Counsel for Petitioner
Joseph S. Koury
Wright & Talisman
1200 G St. NW, Ste. 600, Washington DC 20005
(202) 393-1200

Counsel for Respondent
Samuel Soopper
Federal Energy Regulatory Commission
825 N. Capitol St. NE, Washington DC 20426
(202) 208-0200

Before Wald and Henderson, JJ.