# 148 FERC ¶ 61,020: Payment of Dividends from Funds Included in Capital Accounts (Final Policy Statement)

> Federal · Agency guidance · In force

URL: https://www.frixlaw.com/law-library/statutes/FERC_PL14_1_000

## Section

- **Citation:** 148 FERC ¶ 61,020
- **Heading:** Payment of Dividends from Funds Included in Capital Accounts (Final Policy Statement)
- **Jurisdiction:** Federal
- **Kind:** Agency guidance
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** FERC Policy Statements / Payment of Dividends from Funds Included in Capital Accounts (Final Policy Statement)

## Text

148 FERC ¶ 61,020
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION

18 C.F.R. Parts 2 and 35

[Docket No. PL14-1-000]

Payment of Dividends From Funds Included in Capital Account

(Issued July 17, 2014)

AGENCY: Federal Energy Regulatory Commission.
ACTION: Policy Statement.
SUMMARY: The Commission issues this policy statement to provide guidance that the
Federal Power Act (FPA) should be interpreted as not prohibiting the payment of
dividends from funds included in capital account by any public utility that has a market-
based rate tariff on file with the Commission, does not have captive customers, and does
not provide transmission or local distribution services. The Commission has concluded
that the payment of dividends from funds included in capital account by such public
utilities does not implicate the concerns underlying the enactment of the provision of the
FPA that prohibits the payment of dividends from funds included in capital account.
Thus, it is unnecessary for any public utility that meets the criteria identified in this
policy statement to file a petition for declaratory order in order to seek assurances that
dividends paid from capital account are not unlawful under this provision of the FPA.

Docket No. PL14-1-000
- 2 -

EFFECTIVE DATE:
This policy will become effective July 17, 2014.
FOR FURTHER INFORMATION CONTACT:
Eric Olesh (Technical Information)
Office of Energy Market Regulation
888 First Street, NE
Washington, DC 20426
(202) 502-6524
eric.olesh@ferc.gov

Antonia Frost (Legal Information)
Office of General Counsel
888 First Street, NE
Washington, DC 20426
Docket No. PL14-1-000
- 2 -

EFFECTIVE DATE:
This policy will become effective July 17, 2014.
FOR FURTHER INFORMATION CONTACT:
Eric Olesh (Technical Information)
Office of Energy Market Regulation
888 First Street, NE
Washington, DC 20426
(202) 502-6524
eric.olesh@ferc.gov

Antonia Frost (Legal Information)
Office of General Counsel
888 First Street, NE
Washington, DC 20426
(202) 502-8085
antonia.frost@ferc.gov

148 FERC ¶ 61,020
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION

Before Commissioners: Cheryl A. LaFleur, Acting Chairman;
Philip D. Moeller, John R. Norris,
and Tony Clark.

Payment of Dividends from Funds
Included in Capital Account
Docket No. PL14-1-000

POLICY STATEMENT

(Issued July 17, 2014)

1.
The Commission issues this policy statement to provide guidance that section
305(a) of the Federal Power Act (FPA)1 should be interpreted as not prohibiting the
payment of dividends from funds included in capital account by any public utility that has
a market-based rate tariff on file with the Commission, does not have captive customers,
and does not provide transmission or local distribution services because the Commission
has concluded that the payment of dividends from capital account by such public utilities
does not appear to implicate the concerns underlying the enactment of FPA section
305(a). In issuing this policy statement, the Commission eliminates a regulatory burden
otherwise applicable under FPA section 305(a) to certain public utilities that pay
dividends from funds included in capital account. Thus, it is unnecessary for any public
utility that meets the criteria identified in this policy statement to file a petition for

1 16 U.S.C. 825d(a).
policy statement, the Commission eliminates a regulatory burden
otherwise applicable under FPA section 305(a) to certain public utilities that pay
dividends from funds included in capital account. Thus, it is unnecessary for any public
utility that meets the criteria identified in this policy statement to file a petition for

1 16 U.S.C. 825d(a).

Docket No. PL14-1-000
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declaratory order in order to seek assurances that dividends paid from capital account are
not unlawful under FPA section 305(a).
I.
Background
A.
FPA Section 305(a) and Its Underlying Concerns
2.
FPA section 305(a) provides that:
It shall be unlawful for any officer or director of any public
utility … to participate in the making or paying of any
dividends of such public utility from any funds properly
included in capital account.2
3.
In Citizens Utils. Co., the Commission noted that this provision of FPA section
305(a) had not previously been interpreted by the Commission or the courts, and that
there was no explicit statement in the legislative history discussing the intent behind this
provision.3 The Commission went on to explain, however, that Congress’ intent could be
gleaned from the practices that led to the passage of the legislation,4 providing as an
example:
that sources from which cash dividends were paid were not
clearly identified and that holding companies had been paying
out excessive dividends on the securities of their operating
companies. A key concern, thus, was corporate officials
raiding corporate coffers for their personal financial benefit.5

2 Id.
3 Citizens Utils. Co., 84 FERC ¶ 61,158, at 61,864 (1998) (Citizens).
4 Id. at 61,864-65.
5 Id. at 61,865 (footnotes omitted); see also Entergy Louisiana Inc., 114 FERC
¶ 61,060, at P 12 (2006); Exelon Corp., 109 FERC ¶ 61,172, at P 8 (2004); ALLETE, Inc.,

(continued…)
raiding corporate coffers for their personal financial benefit.5

2 Id.
3 Citizens Utils. Co., 84 FERC ¶ 61,158, at 61,864 (1998) (Citizens).
4 Id. at 61,864-65.
5 Id. at 61,865 (footnotes omitted); see also Entergy Louisiana Inc., 114 FERC
¶ 61,060, at P 12 (2006); Exelon Corp., 109 FERC ¶ 61,172, at P 8 (2004); ALLETE, Inc.,

(continued…)

Docket No. PL14-1-000
- 3 -

In later cases, in order to ensure that the dividend pay-outs in question would not impair
the liquidity and financial integrity of a public utility, the Commission has also often
conditioned its grant of declaratory relief on the utility’s commitment to observe
specified limitations on the amount of such dividends or on other financial
commitments.6
B.
Petitions for Declaratory Order Requesting Relief
4.
In cases in which a dividend (cash or otherwise) will be accounted for as a charge
to stated, additional, or miscellaneous paid-in capital of a public utility,7 public utilities
often filed petitions for declaratory orders in which the petitioner requests the
Commission’s concurrence that, based upon the facts and circumstances presented, the
making or paying of a proposed dividend will not implicate the concerns underlying the
enactment of FPA section 305(a) and, therefore, will not violate FPA section 305(a). The
majority of these petitions arose from three situations: (1) cases involving utility mergers
or acquisitions in which, due to the application of purchase accounting to the transaction,

107 FERC ¶ 61,041, at P 10 (2004); Niagara Mohawk Holdings, Inc., 95 FERC ¶ 61,381,
at 62,416, order denying reh’g, 96 FERC ¶ 61,144 (2001)
ng utility mergers
or acquisitions in which, due to the application of purchase accounting to the transaction,

107 FERC ¶ 61,041, at P 10 (2004); Niagara Mohawk Holdings, Inc., 95 FERC ¶ 61,381,
at 62,416, order denying reh’g, 96 FERC ¶ 61,144 (2001).
6 Niagara Mohawk Holdings, Inc., 99 FERC ¶ 61,323, at P 10 (2002) (order on
compliance filing accepting petitioner’s commitment not to pay dividends out of paid-in
capital unless it had an investment grade credit rating for its long-term debt); Exelon
Corp., 109 FERC ¶ 61,172 at P 9 (requiring petitioner to maintain a minimum common
equity balance of 30 percent of total capital).
7 See, e.g., 18 C.F.R. pt. 101, Account 201, Common stock issued, and Account
211, Miscellaneous paid-in capital.

Docket No. PL14-1-000
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the retained earnings, which is the traditional source of dividends, of the acquired public
utility is reclassified for balance sheet purposes as additional paid-in capital, without
having any effect on cash otherwise available for paying future dividends;8 (2) cases
involving the distribution (or “spin-off”) of the stock of a subsidiary or subsidiaries of a
public utility, as the result of which, again for balance sheet purposes, the retained
earnings of the public utility may be substantially reduced or eliminated, without having
any effect on cash otherwise available for paying future dividends;9 and (3) cases
involving recapitalizations of public utilities to reduce excessive equity balances with
debt, including situations in which single-asset generating companies with declining
capital needs have experienced a build-up in their equity balances as their assets have
been depreciated.10
5
eliminated, without having
any effect on cash otherwise available for paying future dividends;9 and (3) cases
involving recapitalizations of public utilities to reduce excessive equity balances with
debt, including situations in which single-asset generating companies with declining
capital needs have experienced a build-up in their equity balances as their assets have
been depreciated.10
5.
In response to petitions for declaratory orders concerning these three situations,
and sometimes in other situations, the Commission has found that FPA section 305(a)

8 See, e.g., National Grid plc, 117 FERC ¶ 61,080, at P 83 (2006), order denying
reh’g, 122 FERC ¶ 61,096 (2008); Ameren Corp., 131 FERC ¶ 61,240 (2010); Duke
Energy Ohio, Inc., 137 FERC ¶ 61,137 (2011).
9 See, e.g., Citizens, 84 FERC ¶ 61,158 (1998); Delmarva Power & Light Co.,
91 FERC ¶ 61,043 (2000); ALLETE, Inc., 107 FERC ¶ 61,041 (2004). In ALLETE, Inc.,
the Commission observed that the spin-off transaction was less like a payment of cash
dividends than it was a corporate restructuring involving a one-time distribution of
property, although the accounting issues presented were similar.
10 See, e.g., PPL Electric Utilities Corp., 99 FERC ¶ 61,317 (2002); Allegheny
Generating Co., 130 FERC ¶ 61,269 (2010); System Energy Resources, Inc., 140 FERC
¶ 61,184 (2012).

Docket No. PL14-1-000
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would not be violated by the payment of dividends, and it has allowed the public utility to
make or pay dividends from funds included in capital account.
6
presented were similar.
10 See, e.g., PPL Electric Utilities Corp., 99 FERC ¶ 61,317 (2002); Allegheny
Generating Co., 130 FERC ¶ 61,269 (2010); System Energy Resources, Inc., 140 FERC
¶ 61,184 (2012).

Docket No. PL14-1-000
- 5 -

would not be violated by the payment of dividends, and it has allowed the public utility to
make or pay dividends from funds included in capital account.
6.
The Commission has used a three-factor analysis, derived from Citizens, to
determine when a proposed transaction does not implicate the concerns underlying FPA
section 305(a), specifically that: (1) the utility clearly identifies the sources from which
the dividends will be paid; (2) the dividends will not be excessive; and (3) the proposed
transaction will not have an adverse effect on the value of shareholders’ interests.11 In
certain orders granting relief from FPA section 305(a), issued subsequent to Citizens, the
Commission’s determination also was based on commitments by petitioners either to a
specific dollar cap on dividends or a limitation on the payment of dividends equal to the
pre-merger retained earnings balance of the acquired utility, and/or a commitment by the
public utility to limit the amount of dividends from paid-in capital so that common
equity, as a percentage of total capitalization, is maintained at a minimum level
(frequently, a minimum of 30 percent common equity as a percentage of total
capitalization).12

11 Citizens, 84 FERC at 61,865.
12 See, e.g., Duke Energy Ohio, Inc., 137 FERC ¶ 61,137, at P 7 (2011); National
Grid plc, 117 FERC ¶ 61,080, at P 83 (2006). The Commission also has accepted
alternative protections. See, e.g., Niagara Mohawk Holdings, Inc., 99 FERC ¶ 61,323, at
PP 12-13 (2002).
as a percentage of total
capitalization).12

11 Citizens, 84 FERC at 61,865.
12 See, e.g., Duke Energy Ohio, Inc., 137 FERC ¶ 61,137, at P 7 (2011); National
Grid plc, 117 FERC ¶ 61,080, at P 83 (2006). The Commission also has accepted
alternative protections. See, e.g., Niagara Mohawk Holdings, Inc., 99 FERC ¶ 61,323, at
PP 12-13 (2002).

Docket No. PL14-1-000
- 6 -

7.
Historically, these petitions for declaratory orders concerning FPA section 305(a)
have largely involved requests by public utilities that have captive customers.13 The
Commission has found that a proposed transaction would not violate FPA section 305(a)
where the Commission has been assured that no exploitation or threat to the financial
integrity of the utilities would result from the payment of dividends from capital account,
and therefore would not impair the utility’s ability to continue its obligation to serve
captive customers.14
C.
May 16, 2013 Petition for Declaratory Order
8.
On May 16, 2013 (May 16 Petition),15 Exelon Generation Company, LLC (Exelon
Generation) and five of its direct and indirect subsidiaries (the Acquired Subsidiaries)16
(collectively Applicants) requesting that the Commission confirm that FPA

13 The Commission’s regulations define “captive customers” to mean “any
wholesale or retail electric energy customers served by a franchised public utility under
cost-based regulation.” 18 C.F.R. § 35.36(a)(6) (2013). Our use of the term “captive
customers” in this policy statement is based on this definition.
14 See, e.g., National Grid plc, 117 FERC ¶ 61,080 (2006), order denying reh’g,
122 FERC ¶ 61,096 (2008).
15 While the May 16 Petition arose from a merger transaction and related
accounting issues (see infra note 17), our policy statement in this proceeding is not
limited in its applicability to transactions involving mergers and their related accounting
issues
t is based on this definition.
14 See, e.g., National Grid plc, 117 FERC ¶ 61,080 (2006), order denying reh’g,
122 FERC ¶ 61,096 (2008).
15 While the May 16 Petition arose from a merger transaction and related
accounting issues (see infra note 17), our policy statement in this proceeding is not
limited in its applicability to transactions involving mergers and their related accounting
issues.
16 The five direct and indirect subsidiaries of Exelon Generation included CER
Generation II, LLC, Constellation Mystic Power, LLC, Constellation NewEnergy, Inc.,
Constellation Power Source Generation, Inc. and Criterion Power Partners, LLC.

Docket No. PL14-1-000
- 7 -

section 305(a) was not a bar to the payment of dividends from capital account under the
limitations and circumstances described in the petition.17 The relative novelty in this
May 16 Petition, as compared with other FPA section 305(a) petitions, was that it did not
involve utilities that have captive customers.18 Rather, Applicants stated that Exelon

17 The May 16 Petition arose from a merger transaction, and involved factual
circumstances familiar to the Commission in the context of FPA section 305(a).
Specifically, Applicants explained that the merger between Exelon Corporation (Exelon)
and Constellation Energy Group, Inc. (Constellation) was recorded by Exelon under the
purchase method of accounting and that Exelon applied “push-down” accounting to the
Legacy Constellation Subsidiaries (i.e., all of the subsidiaries of Constellation that
became direct and indirect subsidiaries of Exelon Generation), including the Acquired
Subsidiaries, a subset of the Legacy Constellation Subsidiaries, which are public utilities
under the FPA. “Push-down” accounting is a method of accounting in which the
financial statements of a subsidiary are presented to reflect the costs incurred by the
parent company to buy the subsidiary, instead of the subsidiary’s historical costs
sidiaries of Exelon Generation), including the Acquired
Subsidiaries, a subset of the Legacy Constellation Subsidiaries, which are public utilities
under the FPA. “Push-down” accounting is a method of accounting in which the
financial statements of a subsidiary are presented to reflect the costs incurred by the
parent company to buy the subsidiary, instead of the subsidiary’s historical costs.
Accordingly, the purchase costs of the parent company are shown in the subsidiary’s
statements.
As a result of the “push-down” accounting adjustments to the Legacy
Constellation Subsidiaries at the time of the merger closing, the pre-merger retained
earnings balances of the Legacy Constellation Subsidiaries were “reset to zero” and
reestablished on their books as miscellaneous paid-in capital. In effect, the traditional
source of dividends - retained earnings - was eliminated, without, however, having any
impact on cash actually available for paying dividends.
The purpose of the May 16 Petition was to obtain a Commission determination
that FPA section 305(a) did not prohibit: (1) the Acquired Subsidiaries from paying
dividends to their parent company, Exelon Generation, from their respective capital
account in equal measure to the funds that were recorded as retained earnings at the close
of the merger; and (2) Exelon Generation from, in turn, paying dividends to its parent
company, Exelon Ventures LLC, from its capital account to the extent that Exelon
Generation has received dividends from any of the Legacy Constellation Subsidiaries
paid out of funds recorded as miscellaneous paid-in capital.
18 However, the Commission notes that, in Docket No. EL06-15-000, Exelon
Generation and an affiliate previously had filed a petition for declaratory order requesting

(continued…)
lon Ventures LLC, from its capital account to the extent that Exelon
Generation has received dividends from any of the Legacy Constellation Subsidiaries
paid out of funds recorded as miscellaneous paid-in capital.
18 However, the Commission notes that, in Docket No. EL06-15-000, Exelon
Generation and an affiliate previously had filed a petition for declaratory order requesting

(continued…)

Docket No. PL14-1-000
- 8 -

Generation and the Acquired Subsidiaries did not have captive customers; did not provide
transmission or local distribution service or serve as a designated providers of last resort
(POLR) for any class of customers; and had electric market-based rate authorizations
from the Commission, with the standard waivers and exemptions, including waivers of
FPA section 204(a) (with respect to securities issuances)19 and waiver of the requirement
to maintain their books and records in accordance with the Uniform System of Accounts
(USofA).20
9.
In the May 16 Petition, Applicants presented the Commission with two alternative
requests:
(1)
the Commission could declare that FPA section 305(a) is not a bar to the
proposed payment of dividends by the Applicants, and this determination
could be based on the traditional Citizens three-part analysis, namely, that:
(i) the source of the dividends will be clearly identified; (ii) the dividends
will not be excessive; and (iii) the issuance of such dividends will not have
an adverse effect on the value of shareholders’ interests;21 or, alternatively,

a determination that FPA section 305(a) was not a bar to the payment of dividends from
capital account under the limitations and circumstances described in that petition. Exelon
Generation Company, LLC, 114 FERC ¶ 61,317 (2006).
19 16 U.S.C. § 824c(a).
20 18 C.F.R. pt. 101.
21 See supra P 6.

Docket No. PL14-1-000
- 9 -
a determination that FPA section 305(a) was not a bar to the payment of dividends from
capital account under the limitations and circumstances described in that petition. Exelon
Generation Company, LLC, 114 FERC ¶ 61,317 (2006).
19 16 U.S.C. § 824c(a).
20 18 C.F.R. pt. 101.
21 See supra P 6.

Docket No. PL14-1-000
- 9 -

(2)
the Commission could declare that FPA section 305(a) is not a bar to the
payment of dividends by the Applicants and all current and future public
utility subsidiaries of Exelon that have market-based rate authority, do not
have captive customers, do not provide transmission or local distribution
service, and will not be the POLR for any class of customers, rather than
apply the traditional Citizens three-factor analysis.
In support of its latter alternative, Applicants argued that the concerns relating to
traditional public utilities, which FPA section 305(a) was meant to address, were not
present for these kinds of non-traditional public utilities. In particular, Applicants argued
that, in Order No. 697, the Commission concluded that it was appropriate to apply a
different standard of oversight to public utilities that do not have captive customers and
do not sell electricity at cost-based rates.22 Applicants explained that, in Order No. 697,
the Commission found that it was reasonable to continue to grant (1) blanket
authorizations under FPA section 204(a) to issue securities, and (2) waivers from the
requirement to maintain books in accordance with the USofA,23 to those entities that do

22 Applicants’ May 16, 2013 Petition at 14.
23 Market-Based Rates for Wholesale Sales of Electric Energy, Capacity and
Ancillary Services by Public Utilities, Order No. 697, FERC Stats. & Regs. ¶ 31,252, at
PP 984, 999, clarified, 121 FERC ¶ 61,260 (2007), order on reh’g, Order No. 697-A,
FERC Stats. & Regs
the USofA,23 to those entities that do

22 Applicants’ May 16, 2013 Petition at 14.
23 Market-Based Rates for Wholesale Sales of Electric Energy, Capacity and
Ancillary Services by Public Utilities, Order No. 697, FERC Stats. & Regs. ¶ 31,252, at
PP 984, 999, clarified, 121 FERC ¶ 61,260 (2007), order on reh’g, Order No. 697-A,
FERC Stats. & Regs. ¶ 31,268, clarified, 124 FERC ¶ 61,055, order on reh’g, Order
No. 697-B, FERC Stats. & Regs. ¶ 31,285 (2008), order on reh’g, Order No. 697-C,
FERC Stats. & Regs. ¶ 31,291 (2009), order on reh’g, Order No. 697-D, FERC Stats.
& Regs. ¶ 31,305 (2010), aff’d sub nom. Montana Consumer Counsel v. FERC, 659 F.3d
910 (9th Cir. 2011), cert. denied, 133 S. Ct 26 (2012).

Docket No. PL14-1-000
- 10 -

not have captive customers and do not sell electricity at cost-based rates. In essence,
Applicants argued that it would be logically inconsistent for the Commission to grant a
non-traditional public utility (i.e., merchant generators and power marketers) with
market-based rate authorization a blanket authorization under FPA section 204(a) to issue
securities, as well as a waiver from the requirement to maintain its books in accordance
with the USofA, while, at the same time, under FPA section 305(a), limiting the accounts
from which that public utility may pay dividends.24
10.
In response to the May 16 Petition, the Electric Power Supply Association
(EPSA)25 filed comments generally supporting both alternative requests for relief
by Applicants, but it also advocated that the Commission grant an even broader FPA
section 305(a) determination.26 EPSA posited that the factors that made the Applicants’
petition compelling are broadly applicable to certain classes of public utilities, such as
merchant generators and power marketers, which have market-based rate tariffs on file
with the Commission, do not have captive customers, and do not provide transmission or
ection 305(a) determination.26 EPSA posited that the factors that made the Applicants’
petition compelling are broadly applicable to certain classes of public utilities, such as
merchant generators and power marketers, which have market-based rate tariffs on file
with the Commission, do not have captive customers, and do not provide transmission or

24 Applicants’ May 16, 2013 Petition at 15. Specifically, Applicants stated that it
“would be anomalous for the Commission to conclude, on the one hand, that it need not
be concerned with (a) the quantity or character of securities issued by a public utility
[under FPA section 204(a)] or (b) the manner in which it keeps its accounts [under the
USofA], and then to conclude that the Commission is concerned about how the entity
accounts for dividends paid on its securities [under FPA section 305(a)].” Id.
25 EPSA is the national trade association for competitive power suppliers,
including merchant generators and power marketers.
26 EPSA June 17, 2013 Comments at 1-2.

Docket No. PL14-1-000
- 11 -

local distribution services.27 EPSA added that, although Applicants proposed that the
entities eligible for Applicants’ alternative broadly construed determination include a
limitation that they would not serve as a designated POLR, such condition is not
necessary where a designated POLR would meet the other three criteria, i.e, would have
market-based rate tariffs on file with the Commission, would not have captive customers,
and would not provide transmission or local distribution services.28 Therefore, EPSA
urged the Commission to omit the POLR limitation proposed by Applicants in granting
the broader relief requested under section 305(a).29
11
ary where a designated POLR would meet the other three criteria, i.e, would have
market-based rate tariffs on file with the Commission, would not have captive customers,
and would not provide transmission or local distribution services.28 Therefore, EPSA
urged the Commission to omit the POLR limitation proposed by Applicants in granting
the broader relief requested under section 305(a).29
11.
In support of its request for a broader FPA section 305(a) determination, EPSA
argued that, in the case of entities that have market-based rate authority, do not have
captive customers, and do not provide transmission or local distribution services, the
concerns underlying section 305(a) are not present.30 In such cases, according to EPSA,
the distribution of dividends would not have any adverse effect on the financial integrity
of any traditional public utility, its customers, or the ability of state commissions to
protect public utility customers.31

27 Id. at 2-4.
28 Id. at 2 n.3.
29 Id.
30 Id. at 5-6.
31 Id. at 5.

Docket No. PL14-1-000
- 12 -

12.
In sum, because of the broad applicability of these principles to the competitive
power industry as a whole, and in the interest of administrative economy, EPSA
requested that the Commission issue a blanket order finding that FPA section 305(a) does
not act as a bar to the payment of dividends from capital account by any public utility that
has market-based rate authority, does not have captive customers, and does not provide
transmission or local distribution services.32
13
wer industry as a whole, and in the interest of administrative economy, EPSA
requested that the Commission issue a blanket order finding that FPA section 305(a) does
not act as a bar to the payment of dividends from capital account by any public utility that
has market-based rate authority, does not have captive customers, and does not provide
transmission or local distribution services.32
13.
In their answer, Applicants supported EPSA’s request for a broader FPA
section 305(a) determination and, therefore, noted their agreement with EPSA’s
recommendation that the Commission omit the POLR limitation.33 As an additional basis
for dropping the POLR limitation, Applicants observed that POLR service is a retail
electric service and, thus, within the regulatory framework of state utility commissions.34
Applicants pointed out that those public utilities that provide transmission and local
distribution services and also serve as a POLR would not be eligible for the alternative
broader determination sought in Applicants’ petition by virtue of the limiting condition
that such utilities are providing transmission and local distribution services.35 Further,

32 Id. at 2-4.
33 Applicants’ June 20, 2013 Answer at 3. Applicants noted that POLR, or default,
service is also known by other terms, such as Standard Offer Service or Basic Generation
Service. Id. at 2 n.3.
34 Id. at 3.
35 Id.
the limiting condition
that such utilities are providing transmission and local distribution services.35 Further,

32 Id. at 2-4.
33 Applicants’ June 20, 2013 Answer at 3. Applicants noted that POLR, or default,
service is also known by other terms, such as Standard Offer Service or Basic Generation
Service. Id. at 2 n.3.
34 Id. at 3.
35 Id.

Docket No. PL14-1-000
- 13 -

Applicants asserted that eliminating the POLR limitation would have positive public
policy implications because, in such cases, non-traditional public utilities would not be
discouraged from participating in POLR markets due to the FPA section 305(a) limits on
the payment of dividends.36 Accordingly, Applicants stated that they would not object to
the Commission’s issuance of a blanket declaratory order based on EPSA’s proposal.
14.
In its September 3, 2013 order37 on the May 16 Petition, the Commission granted
Applicants’ primary request for relief, based on the Commission’s traditional Citizens
three-factor analysis, since the Commission agreed that the concerns underlying FPA
section 305(a) were not present under the limitations and circumstances described in the
petition.38 While it declined to grant the broader relief requested in that proceeding, the
Commission also stated that it believed that Applicants and EPSA had made a strong case
for a close examination of whether FPA section 305(a) should be interpreted as not
prohibiting the payment of dividends from capital account by any public utility that has a
market-based rate tariff on file with the Commission, does not have captive customers,
and does not provide transmission or local distribution services.39 Accordingly, the
Commission stated its intent to open a generic proceeding to consider the broader request

36 Id.
37 Exelon Generation Company, LLC, 144 FERC ¶ 61,181 (2013).
38 Id. PP 20-21.
39 Id. P 22.
ate tariff on file with the Commission, does not have captive customers,
and does not provide transmission or local distribution services.39 Accordingly, the
Commission stated its intent to open a generic proceeding to consider the broader request

36 Id.
37 Exelon Generation Company, LLC, 144 FERC ¶ 61,181 (2013).
38 Id. PP 20-21.
39 Id. P 22.

Docket No. PL14-1-000
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for relief, which would provide public notice and an opportunity for a broader range of
interested parties to comment.40
D.
Proposed Policy Statement
15.
In the proposed policy statement,41 the Commission undertook a generic
proceeding to consider whether FPA section 305(a) should be interpreted as not
prohibiting the payment of dividends from capital account by any public utility that has a
market-based rate tariff on file with the Commission, does not have captive customers,42
and does not provide transmission or local distribution services.43 Because the
Commission believed that the payment of dividends from capital account by such public
utilities does not appear to create the concerns underlying the enactment of FPA section
305(a), the Commission proposed this policy in order to eliminate the regulatory burden
of filing unnecessary petitions for declaratory relief under FPA section 305(a) by such
public utilities.
16.
As previously noted, the Commission in response to the May 16 Petition had
expressed its opinion that Applicants and EPSA made a strong case for a close

40 Id.
41 Proposed Policy Statement, Payment of Dividends from Funds Included in
Capital Accounts, 146 FERC ¶ 61,108 (2014).
42 See supra note 13.
43 The Commission proposed that a public utility that does not provide
transmission or local distribution service is a public utility that does not own transmission
or local distribution facilities providing these services.
40 Id.
41 Proposed Policy Statement, Payment of Dividends from Funds Included in
Capital Accounts, 146 FERC ¶ 61,108 (2014).
42 See supra note 13.
43 The Commission proposed that a public utility that does not provide
transmission or local distribution service is a public utility that does not own transmission
or local distribution facilities providing these services.

Docket No. PL14-1-000
- 15 -

examination of whether FPA section 305(a) should be interpreted as not prohibiting the
payment of dividends from capital account by any public utility that has a market-based

rate tariff on file with the Commission, does not have captive customers, and does not
provide transmission or local distribution services.
17.
In the proposed policy statement, the Commission observed that an eligible public
utility: (1) will have satisfied the Commission’s market power analysis to obtain market-
based rate authority for its wholesale power sales; (2) will have no captive customers that
require protection by the Commission or the state commissions; and (3) will not provide
transmission or local distribution services, which are traditional monopoly services
subject to Commission and state commission oversight, to customers. Similar to the
Commission’s finding in Order No. 697, the Commission stated that it may be
appropriate to now apply a different approach to its FPA section 305(a) oversight for
those public utilities that meet the three conditions. The Commission noted, in this
regard, that FPA section 305(a) was promulgated in an era of traditional, vertically-
integrated utilities providing monopoly services to captive customers, and Congress
wanted to ensure that the distribution of dividends would not have any adverse effect on
the financial integrity (and thus the ability to serve) of any such public utility or its
customers
tions. The Commission noted, in this
regard, that FPA section 305(a) was promulgated in an era of traditional, vertically-
integrated utilities providing monopoly services to captive customers, and Congress
wanted to ensure that the distribution of dividends would not have any adverse effect on
the financial integrity (and thus the ability to serve) of any such public utility or its
customers. Since that time, the Commission observed that the electric industry has
evolved, and, in the proposed policy statement, it proposed to oversee differently the
payment of dividends by non-traditional utilities, such as merchant generators and power

Docket No. PL14-1-000
- 16 -

marketers, who have market-based rate authority, do not have captive customers, and do
not provide transmission and local distribution services, which, as noted, are monopoly
services.
18.
The Commission requested comment as to whether the Commission should adopt
a statement of policy that FPA section 305(a) should be interpreted as not prohibiting the
payment of dividends from funds in capital account by any public utility that has a
market-based rate tariff on file with the Commission, does not have captive customers,
and does not provide transmission or local distribution services, because such payment of
dividends does not appear to implicate the concerns underlying the enactment of FPA
section 305(a) and it is thus appropriate to eliminate this regulatory burden otherwise
applicable under FPA section 305(a) to such public utilities.
E.
Commenters
19.
The Commission received comments from Exelon, EPSA, and two individuals,
Messrs. Blake Harrison and Daisuke Ikewaza. All commenters supported adoption of the
Commission’s proposed policy statement. The comments of Exelon and EPSA include
arguments similar to those made in support of Exelon Generation’s May 16 Petition
le under FPA section 305(a) to such public utilities.
E.
Commenters
19.
The Commission received comments from Exelon, EPSA, and two individuals,
Messrs. Blake Harrison and Daisuke Ikewaza. All commenters supported adoption of the
Commission’s proposed policy statement. The comments of Exelon and EPSA include
arguments similar to those made in support of Exelon Generation’s May 16 Petition.
Exelon and EPSA assert that the Commission should adopt the proposed policy
statement’s interpretation of FPA section 305(a) because the payment of dividends by a
public utility that meets the three proposed criteria does not appear to implicate the
concerns underlying FPA section 305(a), as such dividends would not have any adverse
effect on the financial integrity of any traditional public utility, its customers, or the

Docket No. PL14-1-000
- 17 -

ability of state utility commissions to protect such public utility customers.44 In addition,
Exelon and EPSA argue that, in routinely granting waivers and exemptions to public
utilities that have been granted market-based rate authority, including blanket
authorization to issue securities under FPA section 204, the Commission has determined
that it is appropriate to apply a different standard of review and oversight to such public
utilities.45 Furthermore, Exelon asserts that by adopting this policy, the Commission
would ensure that funds appropriately available for the overall liquidity and financial
integrity of a holding company are not stranded at a subsidiary that is a non-traditional
utility (i.e., a utility that has market-based rates, does not have captive customers, and
does not provide transmission or distribution services).46 Exelon also states that the
policy will eliminate unneeded filings and lessen the burden on the Commission of
reviewing those filings.47
20.
Mr
inancial
integrity of a holding company are not stranded at a subsidiary that is a non-traditional
utility (i.e., a utility that has market-based rates, does not have captive customers, and
does not provide transmission or distribution services).46 Exelon also states that the
policy will eliminate unneeded filings and lessen the burden on the Commission of
reviewing those filings.47
20.
Mr. Harrison asserts that Congress’s key concern in passing FPA section 305(a)
was grounded in ensuring the financial and, consequently, operational viability of a
public utility by preventing a utility’s directors or officers from exploiting and

44 Exelon’s May 1, 2014 Comments at 5; EPSA May 20, 2014 Comments at 4.
45 Exelon’s May 1, 2014 Comments at 4-5; EPSA May 20, 2014 Comments at 5-6.
46 Exelon’s May 1, 2014 Comments at 5-6.
47 Id. at 6.

Docket No. PL14-1-000
- 18 -

withdrawing from a utility’s capital account.48 Harrison states that Congress originally
passed the FPA at a time when the primary model of a public utility was a monopolistic,
all-encompassing energy provider. In this model, Harrison states that ratepayers were
forced to deal with the public utility in order to receive energy and that a public utility
director’s financial improprieties could have a dramatic impact on the ratepayers’ energy
service given there was no alternative energy option available to the ratepayer. In that
model, Harrison argues that it was necessary to install safeguards to protect the public
from practices that could harm their access to energy.49
21.
However, Mr
in order to receive energy and that a public utility
director’s financial improprieties could have a dramatic impact on the ratepayers’ energy
service given there was no alternative energy option available to the ratepayer. In that
model, Harrison argues that it was necessary to install safeguards to protect the public
from practices that could harm their access to energy.49
21.
However, Mr. Harrison argues that the landscape of public utilities has changed
since the passage of the FPA toward more retail competition and, in some limited
circumstances, does not give rise to the concern that motivated the initial prohibition in
FPA section 305(a).50 Harrison further argues that, if the fundamental concern of FPA
section 305(a) involved protecting ratepayers from being negatively impacted by
improper dividend conduct where they were beholden only to the public utility for their
energy, and if it can be shown that ratepayers are not beholden to a public utility with

48 Harrison’s April 14, 2014 Comments at 1.
49 Id.
50 Id.

Docket No. PL14-1-000
- 19 -

certain characteristics, then FPA section 305(a) should not be applied to public utilities
with those characteristics.51
22.
Mr. Harrison agrees with the Commission’s proposal in the proposed policy
statement that a public utility that has a market-based rate tariff on file with the
Commission, does not have captive customers, and does not provide transmission or local
distribution services does not lend itself to the concern that motivated Congress to pass
FPA section 305(a). Harrison states that, if the public utility has a market-based rate
tariff on file with the Commission, it is clear evidence that the public utility is not
operating in a regulated, centralized utility environment and it signals that the public
utility is not a traditionally-regulated monopoly
ion services does not lend itself to the concern that motivated Congress to pass
FPA section 305(a). Harrison states that, if the public utility has a market-based rate
tariff on file with the Commission, it is clear evidence that the public utility is not
operating in a regulated, centralized utility environment and it signals that the public
utility is not a traditionally-regulated monopoly. Harrison asserts that, although it is
possible that such a public utility has market power, which would give rise to the set of
concerns that motivated FPA section 305(a), the Commission’s next two proposed
criteria further distinguish this particular type of public utility and alleviate the concerns
motivated by FPA section 305(a).52 Harrison argues that, if the public utility does not
have captive customers, its failure as a result of its financial practices would only harm
those ratepayers who could instead elect to purchase their energy from other suppliers.53
Finally, Harrison argues that, if the public utility does not provide transmission or

51 Id.
52 Id. at 2.
53 Id.

Docket No. PL14-1-000
- 20 -

distribution, this characteristic is further evidence that financial failure as a result of
improper financial conduct would not unduly disrupt ratepayer service.54
23.
Mr. Ikewaza also agrees that the Commission’s three criteria in the proposed
policy statement demonstrate when a public utility does not have market power
51 Id.
52 Id. at 2.
53 Id.

Docket No. PL14-1-000
- 20 -

distribution, this characteristic is further evidence that financial failure as a result of
improper financial conduct would not unduly disrupt ratepayer service.54
23.
Mr. Ikewaza also agrees that the Commission’s three criteria in the proposed
policy statement demonstrate when a public utility does not have market power. Ikewaza
explains that public utilities with market power could exploit their capital account and
pass on the financial losses to their customers, because their customers have no
alternatives in the market and they would be forced to buy electricity even when the price
of electricity is higher.55 Ikewaza adds that the Commission’s three-factor analysis in
Citizens, which the Commission relies on to analyze FPA section 305(a) petitions,56 is a
framework established on the premise that traditional utilities indeed have market power.
Ikewaza states that this framework helps ensure the financial integrity of, and investment
in, traditional utilities by preventing them from arbitrarily using funds from their capital
account.57 However, Ikewaza argues that the Citizens framework is not necessarily

54 Id.
55 Ikewaza’s April 17, 2014 Comments at 1.
56 As described above, under the three-factor analysis in Citizens, the Commission
determines that a proposed transaction does not implicate the concerns underlying FPA
section 305(a) if: (1) the utility clearly identifies the sources from which the dividends
will be paid; (2) the dividends will not be excessive; and (3) the proposed transaction will
not have an adverse effect on the value of shareholders’ interests. See supra P 6
(discussing Citizens, 84 FERC ¶ 61,158 at 61,865).
57 D. Ikewaza’s April 17, 2014 Comments at 1.
e the concerns underlying FPA
section 305(a) if: (1) the utility clearly identifies the sources from which the dividends
will be paid; (2) the dividends will not be excessive; and (3) the proposed transaction will
not have an adverse effect on the value of shareholders’ interests. See supra P 6
(discussing Citizens, 84 FERC ¶ 61,158 at 61,865).
57 D. Ikewaza’s April 17, 2014 Comments at 1.

Docket No. PL14-1-000
- 21 -

suitable for non-traditional utilities because non-traditional utilities usually do not have
market power.58
24.
Mr. Ikewaza states that, under the Commission’s first criterion – that the public
utility that has a market-based rate tariff on file with the Commission – it should be
presumed that such a public utility does not have market power because the Commission
would not grant market-based rate authority to a public utility that has market power.59
Ikewaza explains that if the public utility lacks market power, customers can find and
substitute electricity from other competitors.60 Ikewaza asserts that the Commission’s
second criterion – that the public utility does not have captive customers – is reasonable
because it protects against a situation where, even if customers have alternative sources
of electricity from competing suppliers, the alternatives may not be meaningful if the
customers cannot switch to alternative suppliers without difficulty and at substantial
cost.61 Ikewaza also states that the Commission’s third criterion – that the public utility
does not provide transmission or local distribution services – is reasonable. Ikewaza
argues that, even where a public utility that meets the first two criteria and thus does not
have enough discretion to exploit its capital funds, this third criterion protects against the

58 Id.
59 Id. at 2.
60 Id.
61 Id.
criterion – that the public utility
does not provide transmission or local distribution services – is reasonable. Ikewaza
argues that, even where a public utility that meets the first two criteria and thus does not
have enough discretion to exploit its capital funds, this third criterion protects against the

58 Id.
59 Id. at 2.
60 Id.
61 Id.

Docket No. PL14-1-000
- 22 -

situation where a public utility still provides transmission or local distribution services
and thus could choose to exploit its capital funds in a way that would have a very
significant, negative impact on customers.62 Therefore, Ikewaza supports the third
criteria as part of the Commission’s policy statement.
II.
Policy Statement
25.
Recognizing that the electric industry has evolved, on the record before us, we
find, as a matter of policy, that FPA section 305(a) should not be construed as a bar to the
payment of dividends from funds included in capital account by any public utility that:
has a market-based rate tariff on file with the Commission; does not have captive
customers; and does not provide transmission or local distribution services. The payment
of dividends from capital account by such public utilities does not appear to implicate the
concerns underlying the enactment of FPA section 305(a), and we issue this policy
statement in order to eliminate a regulatory burden otherwise applicable under FPA
section 305(a) to such public utilities. In light of our interpretation of FPA section
305(a), it is our view that a public utility that meets the three criteria identified above
does not need to file a petition for declaratory order under FPA section 305(a) requesting
an interpretation from the Commission that FPA section 305(a) does not bar its payment
of dividends from capital account.

62 Id.
f our interpretation of FPA section
305(a), it is our view that a public utility that meets the three criteria identified above
does not need to file a petition for declaratory order under FPA section 305(a) requesting
an interpretation from the Commission that FPA section 305(a) does not bar its payment
of dividends from capital account.

62 Id.

Docket No. PL14-1-000
- 23 -

III.
Document Availability
26.
In addition to publishing the full text of this document in the Federal Register, the
Commission provides all interested persons an opportunity to view and/or print the
contents of this document via the Internet through the Commission’s Home Page
(http://www.ferc.gov) and in the Commission’s Public Reference Room during normal
business hours (8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street, NE, Room 2A,
Washington, DC 20426.
27.
From the Commission’s Home Page on the Internet, this information is available
on eLibrary. The full text of this document is available on eLibrary in PDF and
Microsoft Word format for viewing, printing, and/or downloading. To access this
document in eLibrary, type the docket number excluding the last three digits of this
document in the docket number field.
28.
User assistance is available for eLibrary and the Commission’s website during
normal business hours from FERC Online Support at 202-502-6652 (toll free at 1-866-
208-3676) or email at ferconlinesupport@ferc.gov, or the Public Reference Room at
(202) 502-8371, TTY (202) 502-8659. Email the Public Reference Room at
public.referenceroom@ferc.gov.
By the Commission.

( S E A L )

Nathaniel J. Davis, Sr.,
Deputy Secretary.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/FERC_PL14_1_000. Check the current official text before relying on it. Not legal advice.