Payment of Dividends from Funds Included in Capital Accounts (Proposed Policy Statement)

146 FERC ¶ 61,108

UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

18 CFR Parts 2 and 35

Docket No. PL14-1-000

PAYMENT OF DIVIDENDS FROM FUNDS INCLUDED IN CAPITAL ACCOUNTS

(Issued February 20, 2014)

AGENCY: Federal Energy Regulatory Commission.

ACTION: Proposed policy statement.

SUMMARY: The Commission proposes, as a statement of policy, that section 305(a) of

the Federal Power Act (FPA) should be interpreted as not prohibiting the payment of

dividends from funds included in capital accounts 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 payment of dividends

from funds included in capital accounts by such public utilities does not appear to

implicate the concerns underlying the enactment of FPA section 305(a), the Commission

proposes this policy in order to eliminate a regulatory burden otherwise applicable under

FPA section 305(a) to such public utilities.

DATES: Comments on the proposed policy statement are due within [Insert Date

60 days after publication in the Federal Register].

Docket No. PL14-1-000

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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

Insert Date

60 days after publication in the Federal Register].

Docket No. PL14-1-000

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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

SUPPLEMENTARY INFORMATION:

146 FERC ¶ 61,108

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

Accounts

Docket No. PL14-1-000

PROPOSED POLICY STATEMENT

(Issued February 20, 2014)

1.

The Commission proposes, as a statement of policy, 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 accounts 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 payment of dividends

from capital accounts by such public utilities does not appear to implicate the concerns

underlying the enactment of FPA section 305(a), the Commission proposes this policy in

order to eliminate a regulatory burden otherwise applicable under FPA section 305(a) to

such public utilities.

1 16 U.S.C. 825d(a) (2012).

cause the payment of dividends

from capital accounts by such public utilities does not appear to implicate the concerns

underlying the enactment of FPA section 305(a), the Commission proposes this policy in

order to eliminate a regulatory burden otherwise applicable under FPA section 305(a) to

such public utilities.

1 16 U.S.C. 825d(a) (2012).

Docket No. PL14-1-000

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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, at that time, this part of FPA

section 305(a) had not yet 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 Indeed, as the Commission has stated, “a

primary concern underlying section 305(a) of the FPA is to preclude exploitation of a

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.,

107 FERC ¶ 61,041, at P 10 (2004).

) of the FPA is to preclude exploitation of a

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.,

107 FERC ¶ 61,041, at P 10 (2004).

Docket No. PL14-1-000

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utility by its directors or officers.”6 Therefore, the Commission also has stated that it

reviews “certain liquidity and financial matters when considering the potential impact of

a transaction on an applicant’s financial condition.”7

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,8 jurisdictional

utilities have developed a practice of filing petitions for declaratory orders in which the

petitioner requests the Commission’s concurrence that, based upon the facts and

circumstances presented, as well as commitments made, the making or paying of a

proposed dividend will not implicate the concerns underlying the enactment of FPA

section 305(a) and will not violate the prohibition in FPA section 305(a). The majority of

these petitions have been filed because of concerns that have arisen in three situations:

ssion’s concurrence that, based upon the facts and

circumstances presented, as well as commitments made, the making or paying of a

proposed dividend will not implicate the concerns underlying the enactment of FPA

section 305(a) and will not violate the prohibition in FPA section 305(a). The majority of

these petitions have been filed because of concerns that have arisen in three situations:

(1) in cases involving utility mergers or acquisitions in which, due to the application of

purchase accounting to the transaction, the retained earnings (i.e., the traditional source of

dividends) of the acquired public utility is reclassified for balance sheet purposes as

6 Niagara Mohawk Holdings, Inc., 95 FERC ¶ 61,381, at 62,416, order denying

reh’g, 96 FERC ¶ 61,144 (2001).

7 Exelon Corp., 109 FERC ¶ 61,172 at P 8 (footnote omitted) (citing Niagara

Mohawk Holdings, Inc., 99 FERC ¶ 61,323, at P 4 (2002)).

8 See, e.g., Account 201, Common stock issued, and Account 211, Miscellaneous

paid-in capital, Part 101 Uniform System of Accounts Prescribed for Public Utilities and

Licensees Subject to the Provisions of the Federal Power Act. 18 CFR pt. 101 (2013).

Docket No. PL14-1-000

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additional paid-in capital, without having any effect on cash otherwise available for

paying future dividends;9 (2) in cases involving the spin-off 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;10 and

ng any effect on cash otherwise available for

paying future dividends;9 (2) in cases involving the spin-off 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;10 and

(3) in cases involving single-asset generating companies with declining capital needs that

have experienced a build-up in their equity balances as their assets have been

depreciated.11

5.

In response to petitions for declaratory orders concerning these three situations,

and in other situations, the Commission has found that FPA section 305(a) would not be

violated when there were adequate protections to address the concerns underlying FPA

section 305(a), and it has allowed the public utility to make or pay dividends from funds

included in capital accounts.

9 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).

10 See, e.g., Citizens, 84 FERC ¶ 61,158 (1998); ITC Holdings Corp.,

143 FERC ¶ 61,256 (2013).

11 See, e.g., Allegheny Generating Co., 130 FERC ¶ 61,269 (2010); System Energy

Resources, Inc., 140 FERC ¶ 61,184 (2012).

c, 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).

10 See, e.g., Citizens, 84 FERC ¶ 61,158 (1998); ITC Holdings Corp.,

143 FERC ¶ 61,256 (2013).

11 See, e.g., 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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6.

The Commission has used a three-factor analysis, derived from Citizens, to

determine that a proposed transaction does not implicate the concerns underlying FPA

section 305(a), including 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.12 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 amount of 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).13

7.

Historically, these petitions for declaratory orders concerning FPA section 305(a)

have largely involved requests by utilities that have captive customers.14 We have found

12 Citizens, 84 FERC at 61,865.

13 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)

ities that have captive customers.14 We have found

12 Citizens, 84 FERC at 61,865.

13 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).

14 The Commission’s regulations define “captive customers” to mean “any

wholesale or retail electric energy customers served by a franchised public utility under

(continued…)

Docket No. PL14-1-000

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that a proposed transaction would not violate FPA section 305(a) where we have been

assured that no exploitation or threat to the financial integrity of the utilities would result

from the payment of dividends from capital accounts.15

C.

May 16, 2013 Petition for Declaratory Order

8.

This proposed policy statement is the outgrowth of a May 16, 2013 petition for

declaratory order (May 16 Petition)16 by Exelon Generation Company, LLC (Exelon

Generation) and five of its direct and indirect subsidiaries (the Acquired Subsidiaries)17

(collectively Applicants) requesting that the Commission confirm that FPA

section 305(a) was not a bar to the payment of dividends from capital accounts under the

limitations and circumstances described in the petition.18 The relative novelty in this

cost-based regulation.” 18 CFR 35.36(a)(6) (2013). Our use of the term “captive

customers” in this Proposed Policy Statement is based on this definition.

15 See, e.g., National Grid plc, 117 FERC ¶ 61,080 (2006), order denying reh’g,

122 FERC ¶ 61,096 (2008)

cost-based regulation.” 18 CFR 35.36(a)(6) (2013). Our use of the term “captive

customers” in this Proposed Policy Statement is based on this definition.

15 See, e.g., National Grid plc, 117 FERC ¶ 61,080 (2006), order denying reh’g,

122 FERC ¶ 61,096 (2008).

16 While the May 16 Petition arose from a merger transaction and related

accounting issues (see infra note 18), our Proposed Policy Statement here is not limited

in its applicability to transactions involving mergers and their related accounting issues.

17 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.

18 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

(continued…)

Docket No

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

(continued…)

Docket No. PL14-1-000

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May 16 Petition was that it did not involve utilities that have captive customers.19

Rather, Applicants stated that Exelon Generation and the Acquired Subsidiaries did not

have captive customers; did not provide transmission or local distribution service nor

serve as a designated provider 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

became direct and indirect subsidiaries of Exelon Generation), including the Acquired

Subsidiaries. “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

lation

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) does not prohibit: (1) the Acquired

Subsidiaries from paying dividends to their parent company, Exelon Generation, from

their respective capital accounts 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 accounts

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.

19 However, we note that, in Docket No. EL06-15-000, Exelon Generation and an

affiliate previously filed a petition for declaratory order requesting a declaration that FPA

section 305(a) was not a bar to the payment of dividends from capital accounts under the

limitations and circumstances described in that petition. Exelon Generation Company,

LLC, 114 FERC ¶ 61,317 (2006).

Docket No. PL14-1-000

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issuances)20 and waiver of the requirement to maintain their books and records in

accordance with the Uniform System of Accounts (USofA).21

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:

records in

accordance with the Uniform System of Accounts (USofA).21

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:

(1) the source of the dividends will be clearly identified; (2) the dividends

will not be excessive; and (3) the issuance of such dividends will not harm

shareholders;22 or, alternatively,

(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 on new grounds that all of these entities have

market-based rate authority, do not have captive customers, do not provide

transmission or local distribution service, and do not provide POLR for any

class of customers, rather than on the basis of the application of the

traditional Citizens three-factor analysis.

20 16 U.S.C. 824c(a) (2012).

21 18 CFR pt. 101 (2013).

22 See supra P 6.

Docket No. PL14-1-000

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In support of its latter alternative, Applicants argued that the capital concerns relating to

traditional public utilities, which FPA section 305(a) was meant to address, are not

present for these kinds of non-traditional public utilities.

10

20 16 U.S.C. 824c(a) (2012).

21 18 CFR pt. 101 (2013).

22 See supra P 6.

Docket No. PL14-1-000

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In support of its latter alternative, Applicants argued that the capital concerns relating to

traditional public utilities, which FPA section 305(a) was meant to address, are not

present for these kinds of non-traditional public utilities.

10.

In response to the May 16 Petition, the Electric Power Supply Association

(EPSA)23 filed comments generally supporting both alternative declarations requested

by Applicants, but it also advocated that the Commission grant an even broader FPA

section 305(a) determination.24 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

local distribution services.25 EPSA added that, although Applicants proposed that the

entities eligible for Applicants’ alternative broadly construed declaration 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.26 Therefore, EPSA

23 EPSA is the national trade association for competitive power suppliers,

including merchant generators and power marketers.

24 EPSA June 17, 2013 Comments at 1-2.

25 Id. at 2-4.

26 Id. at 2 n.3.

on file with the Commission, would not have captive customers,

and would not provide transmission or local distribution services.26 Therefore, EPSA

23 EPSA is the national trade association for competitive power suppliers,

including merchant generators and power marketers.

24 EPSA June 17, 2013 Comments at 1-2.

25 Id. at 2-4.

26 Id. at 2 n.3.

Docket No. PL14-1-000

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urged the Commission to omit the POLR limitation proposed by Applicants in granting

the broader relief requested under section 305(a).27

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, do not provide transmission or local distribution services, the concerns

underlying section 305(a) are not present.28 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.29

12.

In sum, because of the broad applicability of these principles to the competitive

power industry as a whole, and in the interest of judicial economy, EPSA requested that

the Commission issue a blanket declaratory order finding that FPA section 305(a) does

not act as a bar to the payment of dividends from capital accounts by any public utility

that has market-based rate authority, does not have captive customers, and does not

provide transmission or local distribution services.30

27 Id.

28 Id. at 5-6.

29 Id. at 5.

30 Id. at 2-4.

ue a blanket declaratory order finding that FPA section 305(a) does

not act as a bar to the payment of dividends from capital accounts by any public utility

that has market-based rate authority, does not have captive customers, and does not

provide transmission or local distribution services.30

27 Id.

28 Id. at 5-6.

29 Id. at 5.

30 Id. at 2-4.

Docket No. PL14-1-000

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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 proposal

to drop the POLR limitation.31 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.32 Applicants also stated that those

public utilities that provide transmission and local distribution services and also serve as

a POLR would not be eligible for the alternative broad declaration sought in Applicants’

petition in any event because of the limiting condition that such utilities are providing

transmission and local distribution services.33 Further, Applicants asserted that

eliminating the POLR limitation would have positive public policy implications because,

in such case, non-traditional public utilities would not be discouraged from participating

in POLR service due to the FPA section 305(a) limits on the payment of dividends.34

Accordingly, Applicants stated that they would not object to the Commission’s issuance

of a blanket declaratory order based on EPSA’s proposal.

31 Applicants’ June 20, 2013 Answer at 3. Applicants note 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.

32 Id. at 3.

33 Id.

34 Id.

nts stated that they would not object to the Commission’s issuance

of a blanket declaratory order based on EPSA’s proposal.

31 Applicants’ June 20, 2013 Answer at 3. Applicants note 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.

32 Id. at 3.

33 Id.

34 Id.

Docket No. PL14-1-000

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14.

In its September 3, 2013 order35 on the May 16 Petition, the Commission granted

Applicants’ primary request for relief, based on the Commission’s traditional Citizens

grounds, since the Commission agreed that the concerns underlying FPA section 305(a)

were not present under the limitations and circumstances described in the petition.36

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 accounts 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.37 Accordingly, the Commission

stated its intent to open a generic proceeding to consider the broader request for relief,

which would provide public notice and an opportunity for a broader range of interested

parties to comment.38

II.

Discussion

15.

In this proposed policy statement, we undertake that generic proceeding to

consider whether FPA section 305(a) should be interpreted as not prohibiting the

35 Exelon Generation Company, LLC, 144 FERC ¶ 61,181 (2013).

36 Id. PP 20-21.

37 Id. P 22.

38 Id.

n opportunity for a broader range of interested

parties to comment.38

II.

Discussion

15.

In this proposed policy statement, we undertake that generic proceeding to

consider whether FPA section 305(a) should be interpreted as not prohibiting the

35 Exelon Generation Company, LLC, 144 FERC ¶ 61,181 (2013).

36 Id. PP 20-21.

37 Id. P 22.

38 Id.

Docket No. PL14-1-000

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payment of dividends from capital accounts by any public utility that has a market-based

rate tariff on file with the Commission, does not have captive customers,39 and does not

provide transmission or local distribution services.40 Because we believe that the

payment of dividends from capital accounts by such public utilities does not appear to

create the concerns underlying the enactment of FPA section 305(a), we propose this

policy in order to eliminate this regulatory burden under FPA section 305(a) for such

public utilities.

16.

As previously noted, we believe that Applicants and EPSA 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 accounts 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. 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.41 In Order No. 697, the Commission found

that it was reasonable to continue to grant entities that do not have captive customers

39 See supra note 14

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.41 In Order No. 697, the Commission found

that it was reasonable to continue to grant entities that do not have captive customers

39 See supra note 14.

40 We propose 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.

41 Applicants’ May 16, 2013 Petition at 14.

Docket No. PL14-1-000

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and do not sell electricity at cost-based rates: (1) blanket authorizations under FPA

section 204(a) to issue securities; and (2) waivers from the requirement to maintain their

books in accordance with the USofA.42 In essence, Applicants argued that it would be

unusual 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 their 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.43

17.

Under the conditions advocated by Applicants and EPSA, we observe that the

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

42 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

o obtain market-based rate authority for its wholesale power sales; (2) will have no

42 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).

43 Applicants’ May 16, 2013 Petition at 15. Specifically, Applicants asserted that

it would be anomalous for the Commission to have previously concluded that it did not

need to be concerned about the character and quality of securities by a non-traditional

public utility (under FPA section 204(a)) or the manner in which a non-traditional public

utility keeps its accounts (under the USofA), and to now conclude that the Commission is

concerned about how a non-traditional public utility accounts for dividends paid on its

securities (under FPA section 305(a)). Id.

Docket No. PL14-1-000

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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 our finding in Order No. 697, it may be appropriate to now apply a different

approach to our FPA section 305(a) oversight for those public utilities that meet these

three conditions

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 our finding in Order No. 697, it may be appropriate to now apply a different

approach to our FPA section 305(a) oversight for those public utilities that meet these

three conditions. We note, 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 electric industry has evolved, and

here we propose to oversee differently the payment of dividends by non-traditional

utilities, such as merchant generators and power 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.

For these reasons, we request 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 accounts 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

n 305(a) should be interpreted as not

prohibiting the payment of dividends from funds in capital accounts 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

Docket No. PL14-1-000

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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.

III.

Comment Procedures

19.

The Commission invites comments on this proposed policy statement within

[Insert Date 60 days after publication in the Federal Register].

IV.

Document Availability

20.

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.

21.

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.

Docket No. PL14-1-000

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22.

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

rary, type the docket number excluding the last three digits of this

document in the docket number field.

Docket No. PL14-1-000

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22.

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.

Nathaniel J. Davis, Sr.,

Deputy Secretary.