# 146 FERC ¶ 61,108: Payment of Dividends from Funds Included in Capital Accounts (Proposed Policy Statement)

> Federal · Agency guidance · In force

URL: https://www.frixlaw.com/law-library/statutes/FERC_PL14_1_000_20140220

## Section

- **Citation:** 146 FERC ¶ 61,108
- **Heading:** Payment of Dividends from Funds Included in Capital Accounts (Proposed 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 (Proposed Policy Statement)

## Text

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
- 2 -

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
- 2 -

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
- 2 -

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
- 3 -

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
- 4 -

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
- 5 -

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
- 6 -

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
- 7 -

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
- 8 -

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
- 9 -

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
- 9 -

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
- 10 -

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
- 11 -

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
- 12 -

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
- 13 -

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
- 14 -

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
- 15 -

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
- 16 -

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
- 17 -

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
- 17 -

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.

## Nearby sections

- [77 FERC ¶ 61,263 Policy Statement Establishing Factors the Commission Will Consider in Evaluating Whether A Proposed Merger is Consistent With the Public Interest](https://www.frixlaw.com/law-library/statutes/FERC_RM96_6_000.md)
- [88 FERC ¶ 61,227 Certification of New Interstate Natural Gas Pipeline Facilities](https://www.frixlaw.com/law-library/statutes/FERC_PL99_3_000.md)
- [109 FERC ¶ 61,186 Policy Statement on Credit-Related Issues for Electric OATT Transmission Providers, ISOs & RTOs](https://www.frixlaw.com/law-library/statutes/FERC_PL05_3_000.md)
- [112 FERC ¶ 61,040 Order Further Clarifying Policy Statement on Natural Gas and Electric Price Indices](https://www.frixlaw.com/law-library/statutes/FERC_PL03_3_006.md)
- [120 FERC ¶ 61,060 Section 203 Supplemental Policy Statement](https://www.frixlaw.com/law-library/statutes/FERC_PL07_1_000.md)
- [121 FERC ¶ 61,221 FERC Hydrokinetic Energy Project Policy Statement](https://www.frixlaw.com/law-library/statutes/FERC_PL08_1_000.md)
- [123 FERC ¶ 61,048 Composition of Proxy Groups for Determining and Oil Pipeline Return on Equity](https://www.frixlaw.com/law-library/statutes/FERC_PL07_2_000.md)
- [123 FERC ¶ 61,156 Revised Policy Statement on Enforcement](https://www.frixlaw.com/law-library/statutes/FERC_PL08_3_000.md)
- [125 FERC ¶ 61,058 Compliance with Statutes, Regulations, and Orders](https://www.frixlaw.com/law-library/statutes/FERC_PL09_1_000.md)
- [125 FERC ¶ 61,208 Material Changes in Facts that Require Notifications Under Commission Regulations Under the Public Utility Holding Company Act of 2005](https://www.frixlaw.com/law-library/statutes/FERC_PL09_2_000.md)
- [128 FERC ¶ 61,060 Smart Grid Policy Statement](https://www.frixlaw.com/law-library/statutes/FERC_PL09_4_000.md)
- [129 FERC ¶ 61,248 Policy Statement On Disclosure Of Exculpatory Materials](https://www.frixlaw.com/law-library/statutes/FERC_PL10_1_000.md)
- [130 FERC ¶ 61,220 Policy Statement On Penalty Guidelines](https://www.frixlaw.com/law-library/statutes/FERC_PL10_4_000_20100318.md)
- [132 FERC ¶ 61,216 Revised Policy Statement On Penalty Guidelines](https://www.frixlaw.com/law-library/statutes/FERC_PL10_4_000.md)

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/FERC_PL14_1_000_20140220. Check the current official text before relying on it. Not legal advice.