Coakley seeks inquiry into utility’s legal fees

Gas company’s ties to law firm paid $18.5m questioned

July 08, 2011|By Erin Ailworth, Globe Staff
  • Attorney General Martha Coakley said the $18m in legal fees billed to ratepayers appear to be a clear conflict of interest.
Attorney General Martha Coakley said the $18m in legal fees billed to ratepayers…

Attorney General Martha Coakley is asking state utilities regulators to investigate whether a conflict of interest at New England Gas Co. led the Fall River utility to improperly charge more than $18 million in legal fees to its Massachusetts customers.

Coakley’s office filed a complaint with the Department of Public Utilities yesterday, alleging that New England Gas billed customers for “excessive and imprudently incurred’’ fees paid to a law firm in which the president of the utility’s parent company, Southern Union Co., is a partner.

“Massachusetts customers paid millions in legal fees to an outside firm with direct ties to a Southern Union executive,’’ Coakley said in a statement. “This appears to be a clear conflict of interest.’’

New England Gas did not respond to a request for comment. The utility serves more than 50,000 commercial and residential customers in Fall River, Somerset, Swansea, Westport, North Attleborough, and Plainville.

Coakley first questioned the legal fees when New England Gas sought approval of a $6.2 million rate increase from the Department of Public Utilities. Regulators ultimately approved a roughly $5 million increase. The higher rates went into effect in April.

In a February filing to utility regulators, Coakley also questioned New England Gas’s “dubious rela tionship with outside legal counsel,’’ specifically, Kasowitz Benson Torres & Friedman LLP, which has offices in several states. The firm had received $18.5 million in legal fees incurred, for the most part, after one of its New York partners, Eric D. Herschmann, joined Southern Union’s management team as a senior executive vice president in 2005. He has been the company’s president and chief operating officer since 2008.

“The more Kasowitz bills the company for their services, the more Mr. Herschmann stands to make as a partner,’’ Coakley wrote then.

In response, New England Gas said in a filing that it disclosed Herschmann’s relationship to the Securities and Exchange Commission, and Southern Union’s board has continuously evaluated Herschmann’s ties to the firm. The board, according to the filing, found that the firm “could and should provide legal services to the company’’ and procedures were in place to remove Herschmann from the approval process when working with his law firm.

“The fees paid to the Kasowitz firm for its representation are appropriate and fair for the work received and the results obtained,’’ the utility said.

A spokesman for the Department of Public Utilities, Tim Shevlin, declined to comment. Southern Union and Kasowitz did not respond to requests for comment.

As attorney general, Coakley acts as the official advocate for Massachusetts ratepayers. In recent months, her office has taken a more active role in questioning utility charges.

Last year, she challenged National Grid’s roughly $100 million request for an increase to its natural gas rates, citing “inappropriate expenses’’ the utility intended to pass on to customers. Those expenses included shipping an executive’s wine collection from Great Britain, where National Grid is based; sending executives to President Obama’s inauguration; and paying private school tuition for an executive’s children.

Public utility officials ultimately approved less than half of National Grid’s request. In April, an audit commissioned by National Grid found deficiencies in the utility’s accounting system.

Erin Ailworth can be reached at eailworth@globe.com or on Twitter @ailworth.

Advertisement
Advertisement
|
|
|
|