Opinion ID: 1720100
Heading Depth: 1
Heading Rank: 4

Heading: Cajun Litigation Expenses

Text: GSU argues the commission erred in disallowing $1.73 million in litigation expenses which were incurred in its defense in a fraud suit brought by Cajun Electric Power Cooperative (Cajun). GSU contends the costs it incurred in the Cajun litigation were necessary and reasonable expenses incurred in the conduct of its utility business and are properly recoverable from the ratepayers. The Cajun litigation arose over Cajun's investment in the River Bend nuclear plant, of which Cajun owned 30% and GSU owned 70%. [5] Cajun filed suit in federal district court against GSU in June, 1989, alleging that GSU fraudulently induced Cajun to participate in the project. In the present proceeding, GSU included $1.73 million of expenses incurred in the Cajun litigation in 1993. In disallowing this expense, the commission stated: Special Counsel recommended that the Cajun fraud litigation cost be excluded. In the lawsuit, Cajun alleged that Gulf States fraudulently induced Cajun to invest in River Bend. The litigation could result in bankruptcy for either Gulf States or Cajun, depending upon the outcome. Clearly, the costs are unusual and non-recurring in that they are abnormally large, and such claims are highly unlikely to recur. The ratepayers should not be required to bear the cost of defending the Company against substantial allegations of fraud, especially where the alleged fraud relates to inducements to cause third parties to invest in a project already found to be imprudent by the Commission. Gulf States invited Cajun to invest in River Bend to help avoid the write-off that could otherwise have followed from the Commission's disallowance of a portion of River Bend. The ratepayers should not have to bear the extraordinary costs arising out of the ensuing fraud litigation. The Commission reached a similar result when South Central Bell was the subject of an antitrust suit brought by the U.S. Department of Justice. Ex Parte South Central Bell Tel. Co., LPSC Order No. U-14673, 41 PUR 4th 298 at p. 305-306 (1981). The Commission adopts Special Counsel's recommendation, and will disallow the costs. Subsequent to the commission's order, the federal district court rendered judgment in favor of GSU in Phase I of the litigation, rejecting Cajun's allegation of pre-contract fraud. [6] The court has not yet heard the second phase of the case, which involves allegations of fraud during the contract. Recently, the trustee in Cajun's bankruptcy suit announced a settlement of the litigation which requires GSU to take back Cajun's share of River Bend, but provides for Cajun to fund the decommissioning costs for the unit. GSU argues that the commission erred in disallowing the litigation expenses simply because Cajun alleged fraud on its part. Moreover, GSU contends there was no factual basis for the commission's determination that the litigation expenses were unusual, abnormal or non-recurring. Although we agree with GSU that the mere allegation of fraud in a lawsuit against a utility would not be a sufficient basis to disallow litigation expenses, we find that under the facts as a whole, the commission correctly disallowed the litigation expenses. The underlying basis of Cajun's suit was that GSU's management fraudulently induced Cajun to participate in the River Bend project, a project which we have previously held was imprudent on GSU's part. Any judgment in this case against GSU would have affected its shareholders, not the ratepayers. Therefore, it is clear that the defense of this suit by GSU benefited its shareholders, not the ratepayers. Moreover, it appears that these litigation expenses were unusual and not likely to recur. Based on these facts, we are unable to conclude that the commission was arbitrary and capricious in disallowing these litigation expenses.