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Mass. AG says gas utility improperly collecting legal fees from customers

By Bryan Cohen | Jul 7, 2011


BOSTON (Legal Newsline) - Massachusetts Attorney General Martha Coakley announced on Thursday that she has asked the Department of Public Utilities to look into a gas company's allegedly improper collection of $18 million in legal fees from customers.

New England Gas Company provides natural gas distribution service to approximately 54,000 customers in the state. It is a division of the Texas-based Southern Union Company, which is one of the nation's largest diversified natural gas companies. Coakley alleges that a senior executive of Southern Union is a partner at a New York law firm hired by NEGC to perform $18 million in work in connection with a single lawsuit.

The executive allegedly continued to receive compensation from the firm despite this apparent conflict of interest.

As part of a settlement agreement approved by the DPU in 1990, gas companies in Massachusetts can recover certain costs from their customers related to the clean up of toxic sites contaminated by old facilities and the legal claims that could arise out of such pollution. Coakley's office is requesting that the DPU determine whether NEGC collected certain other legal fees to which it is not entitled.

"Our investigation revealed that Massachusetts customers paid millions in legal fees to an outside firm with direct ties to a Southern Union executive," Coakley said. "This appears to be a clear conflict of interest, and we are asking the Department to investigate this further to ensure that ratepayers are properly protected."

Since 2003, NEGC has sought the collection of over $20 million in legal fees to litigate claims that are related to contaminated gas manufacturing sites. A significant portion of the fees were incurred defending Southern Union from a class action lawsuit brought by residents of Tiverton, R.I., stemming from property contaminated by a predecessor of NEGC. Southern Union settled the claim for $11.5 million in 2009, an amount that will be collected from NEGC's ratepayers.

Over $18 million in legal fees were allegedly funneled to Kasowitz, Torres, Benson & Friedman, a New York-based law firm that employs Eric D. Herschmann, Southern Union's president, chief operating officer and vice-chairman of its board of directors. Coakley alleges that under the arrangement, the more legal fees charged by the Kasowitz Firm and collected from NEGC's Massachusetts customers, the more Herschmann stood to gain monetarily.

Coakley's office argues that the DPU should also examine legal fees incurred by a Texas-based law firm that employs the chief ethics officer of Southern Union. Coakley's office of ratepayer advocacy is authorized to intervene in judicial and administrative proceedings on behalf of consumers in connection with any matter involving the rates, charges, prices or tariffs of any gas company doing business in the state.

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