Federal Register / Vol. 80, No. 17 / Tuesday, January 27, 2015 / Proposed Rules 4231 

1 16 U.S.C. 824b. 

2 16 U.S.C. 824b(a)(4). 

3See Inquiry Concerning the Commission’s 

Merger Policy Under the Federal Power Act: Policy 

Statement, Order No. 592, 61 FR 68595 (Dec. 30, 

Continued 

pages one through five of the BE–180 

survey and returning it to BEA. This 

requirement is necessary to ensure 

compliance with reporting requirements 

and efficient administration of the Act 

by eliminating unnecessary follow-up 

contact. 

(c) BE–180 definition of financial 

services provider. The definition of 

financial services provider used for this 

survey is identical to the definition of 

the term as used in the North American 

Industry Classification System, United 

States, 2012, Sector 52–Finance and 

Insurance, and holding companies that 

own or influence, and are principally 

engaged in making management 

decisions for these firms (part of Sector 

55–Management of Companies and 

Enterprises). For example, companies 

and/or subsidiaries and other separable 

parts of companies in the following 

industries are defined as financial 

services providers: Depository credit 

intermediation and related activities 

(including commercial banking, savings 

institutions, credit unions, and other 

depository credit intermediation); nondepository credit intermediation 

(including credit card issuing, sales 

financing, and other non-depository 

credit intermediation); activities related 

to credit intermediation (including 

mortgage and nonmortgage loan brokers, 

financial transactions processing, 

reserve, and clearinghouse activities, 

and other activities related to credit 

intermediation); securities and 

commodity contracts intermediation 

and brokerage (including investment 

banking and securities dealing, 

securities brokerage, commodity 

contracts and dealing, and commodity 

contracts brokerage); securities and 

commodity exchanges; other financial 

investment activities (including 

miscellaneous intermediation, portfolio 

management, investment advice, and all 

other financial investment activities); 

insurance carriers; insurance agencies, 

brokerages, and other insurance related 

activities; insurance and employee 

benefit funds (including pension funds, 

health and welfare funds, and other 

insurance funds); other investment 

pools and funds (including open-end 

investment funds, trusts, estates, and 

agency accounts, real estate investment 

trusts, and other financial vehicles); and 

holding companies that own, or 

influence the management decisions of, 

firms principally engaged in the 

aforementioned activities. 

(d) Covered types of services. The BE– 

180 survey covers the following types of 

financial services transactions (sales or 

purchases) between U.S. financial 

companies and foreign persons: 

Brokerage services related to equity 

transactions; other brokerage services; 

underwriting and private placement 

services; financial management services; 

credit-related services, except credit 

card services; credit card services; 

financial advisory and custody services; 

securities lending services; electronic 

funds transfer services; and other 

financial services. 

(e) Due date. A fully completed and 

certified BE–180 report, or qualifying 

exemption claim with pages one 

through five completed, is due to be 

filed with BEA not later than October 1, 

2015. 

[FR Doc. 2015–01491 Filed 1–26–15; 8:45 am] 

BILLING CODE 3510–06–P 

DEPARTMENT OF ENERGY 

Federal Energy Regulatory 

Commission 

18 CFR Part 33 

[Docket No. PL15–3–000] 

Policy Statement on Hold Harmless 

Commitments 

AGENCY: Federal Energy Regulatory 

Commission, DOE. 

ACTION: Proposed policy statement. 

SUMMARY: The Commission proposes, as 

a statement of policy, the following 

clarifications regarding hold harmless 

commitments offered by applicants as 

ratepayer protection mechanisms to 

mitigate adverse effects on rates that 

may result from transactions subject to 

section 203 of the Federal Power Act 

(FPA). First, the Commission proposes 

to clarify the scope and definition of the 

costs that should be subject to hold 

harmless commitments. Second, the 

Commission proposes to clarify that 

applicants offering hold harmless 

commitments must implement controls 

and procedures to track the costs from 

which customers will be held harmless. 

The Commission also proposes to clarify 

the types of controls and procedures 

that applicants offering hold harmless 

commitments must implement. Third, 

the Commission proposes to no longer 

accept hold harmless commitments that 

are limited in duration. Fourth, the 

Commission proposes to clarify that 

applicants may demonstrate that, under 

certain circumstances, transactions will 

not have an adverse effect on rates 

without relying on hold harmless 

commitments or other ratepayer 

protection mechanisms. 

DATES: Comments on the proposed 

policy statement are due within March 

30, 2015. 

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. 

Adam Batenhorst (Legal Information), 

Office of the General Counsel, 888 

First Street NE., Washington, DC 

20426, (202) 502–6150, 

adam.batenhorst@ferc.gov. 

Olga Anguelova (Accounting 

Information), Office of Enforcement, 

888 First Street NE., Washington, DC 

20426, (202) 502–8098, 

olga.anguelova@ferc.gov. 

SUPPLEMENTARY INFORMATION: 

1. We propose, as a statement of 

policy, the following clarifications 

regarding hold harmless commitments 

offered by applicants as ratepayer 

protection mechanisms to mitigate 

adverse effects on rates that may result 

from transactions that are subject to 

section 203 of the Federal Power Act 

(FPA).1 First, we propose to clarify the 

scope and definition of the costs that 

should be subject to hold harmless 

commitments. Second, we propose to 

clarify that applicants offering hold 

harmless commitments must implement 

controls and procedures to track the 

costs from which customers will be held 

harmless. We also propose to clarify the 

types of controls and procedures that 

applicants offering hold harmless 

commitments must implement. Third, 

we propose to no longer accept hold 

harmless commitments that are limited 

in duration. Fourth, we propose to 

clarify that applicants may demonstrate 

that, under certain circumstances, 

transactions will not have an adverse 

effect on rates without relying on hold 

harmless commitments or other 

ratepayer protection mechanisms. 

I. Background 

A. The Commission’s Analysis of 

Proposed Transactions Under FPA 

Section 203 

2. FPA section 203(a)(4) requires the 

Commission to approve a transaction if 

it determines that the transaction will be 

consistent with the public interest.2 The 

Commission has stated that its analysis 

of whether a transaction will be 

consistent with the public interest 

generally involves consideration of 

three factors: (1) The effect on 

competition; (2) the effect on rates; and 

(3) the effect on regulation.3 FPA section 


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1996), FERC Stats. & Regs. ¶ 31,044, at 30,111 

(1996) (Merger Policy Statement), reconsideration 

denied, Order No. 592–A, 79 FERC ¶ 61,321 (1997). 

See also FPA Section 203 Supplemental Policy 

Statement, 72 FR 42277 (Aug. 2, 2007), FERC Stats. 

& Regs. ¶ 31,253 (2007). See also Revised Filing 

Requirements Under Part 33 of the Commission’s 

Regulations, Order No. 642, 65 FR 70983 (Nov. 28, 

2000), FERC Stats. & Regs. ¶ 31,111 (2000), order on 

reh’g, Order No. 642–A, 94 FERC ¶ 61,289 (2001). 

See also Transactions Subject to FPA Section 203, 

Order No. 669, 71 FR 1348 (Jan. 6, 2006), FERC 

Stats. & Regs. ¶ 31,200 (2005), order on reh’g, Order 

No. 669–A, 71 FR 28422 (May 16, 2006), FERC 

Stats. & Regs. ¶ 31,214, order on reh’g, Order No. 

669–B, 71 FR 42579 (July 27, 2006), FERC Stats. & 

Regs. ¶ 31,225 (2006). 

4 16 U.S.C. 824b(a)(4). The Commission’s 

regulations establish verification and information 

requirements for applicants that seek a 

determination that a transaction will not result in 

inappropriate cross-subsidization or a pledge or 

encumbrance of utility assets. See 18 CFR 33.2(j). 

5 ITC Midwest LLC, 140 FERC ¶ 61,125, at P 19 

(2012). 

6Cinergy Corp., 140 FERC ¶ 61,180, at P 41 (2012) 

(citing Duquesne Light Holdings, Inc., 117 FERC 

¶ 61,326, at P 25 (2006)) (‘‘The Commission has 

previously stated that, when there are market-based 

rates, the effect on rates is not of concern. The effect 

on rates is not of concern in these circumstances 

because market-based rates will not be affected by 

the seller’s cost of service and, thus, will not be 

adversely affected by the Proposed Transaction.’’). 

7The Commission has found that there is no 

adverse effect on rates where, although costs may 

increase in one area of the utility’s operations, 

lower costs are expected elsewhere. See, e.g., 

Bluegrass Generation Co., L.L.C., 139 FERC 

¶ 61,094, at P 41 (2012) (finding no adverse effect 

on rates because increases in capacity charges 

would be offset by a savings in energy rates). 

8An increase in rates ‘‘can still be consistent with 

the public interest if there are countervailing 

benefits that derive from the merger.’’ Merger Policy 

Statement, FERC Stats. & Regs. ¶ 31,044 at 30,114; 

see also ALLETE, Inc., 129 FERC ¶ 61,174, at P 19 

(2009) (‘‘Our focus here is on the effect that the 

Proposed Transaction itself will have on rates, 

whether that effect is adverse, and whether any 

adverse effect2 will be offset or mitigated by 

benefits likely to result from the Proposed 

Transaction.’’). 

9See, e.g., ITC Midwest LLC, 133 FERC ¶ 61,169, 

at P 23 (2010) (finding offsetting benefits because 

of the transfer of transmission assets to a standalone 

transmission company); ALLETE, 129 FERC 

¶ 61,174 at P 20 (finding that the advantages created 

in joining a regional transmission organization 

outweighed potential rate increase created by the 

different tax treatment of the assets after transfer); 

Ameren Servs. Co., 103 FERC ¶ 61,121, at P 23 

(2003) (finding that increasing a regional 

transmission organization’s footprint would offset a 

rate increase); Rockland Elec. Co., 97 FERC 

¶ 61,357, at 62,651 (2001) (finding that attracting 

more bidders and encouraging more competition 

offset a potential rate increase for locational 

marginal prices along a seam at times of peak 

demand). 

10Merger Policy Statement, FERC Stats. & Regs. 

¶ 31,044 at 30,111 (‘‘[I]n assessing the effect of a 

proposed merger on rates, we will no longer require 

applicants and intervenors to estimate the future 

costs and benefits of a merger and then litigate the 

validity of those estimates. Instead, we will require 

applicants to propose appropriate rate protection 

for customers.’’). 11 Id. at 30, 123–24. 12 Id. at 30, 124. 

203(a)(4) also requires the Commission 

to find that the transaction ‘‘will not 

result in cross-subsidization of a nonutility associate company or the pledge 

or encumbrance of utility assets for the 

benefit of an associate company, unless 

the Commission determines that the 

cross-subsidization, pledge, or 

encumbrance will be consistent with the 

public interest.’’ 4

3. This proposed policy statement 

focuses on the second prong of the 

Commission’s FPA section 203 analysis, 

the effect of a proposed transaction on 

rates. The Commission has stated that, 

when considering a proposed 

transaction’s effect on rates, its focus ‘‘is 

on the effect that a proposed transaction 

itself will have on rates, whether that 

effect is adverse, and whether any 

adverse effect will be offset or mitigated 

by benefits that are likely to result from 

the proposed transaction.’’ 5

Specifically, as relevant here, the 

Commission considers whether the 

transaction could result in an adverse 

effect on rates to wholesale 

requirements or transmission customers. 

4. If an applicant’s only customers are 

wholesale power sales customers served 

under market-based rates, then the 

transaction will have no adverse effect 

on rates for such customers.6 If, 

however, the transaction could result in 

an increase in rates and the wholesale 

power sales customers of the applicants 

are not served exclusively under 

market-based rates, or if the applicants 

have wholesale requirements or 

transmission customers, the 

Commission evaluates whether there are 

sufficient potential economic benefits 

that offset the projected increase in 

rates. If such benefits exist, the analysis 

of the effect on rates ends with a finding 

that there is no adverse effect on rates 

because of those offsetting economic 

benefits.7

5. If a proposed transaction has the 

potential to increase wholesale rates, 

but there is no showing of quantifiable 

offsetting economic benefits, the 

Commission must determine whether 

ratepayers are sufficiently protected 

from the potential rate increase, or 

whether there are other nonquantifiable, offsetting benefits that 

would, nevertheless, support a finding 

that the proposed transaction is 

consistent with the public interest, 

regardless of the potential for a rate 

increase.8 When the Commission has 

considered such non-quantifiable 

offsetting benefits, it has often been in 

the context of transactions that increase 

competition or enable more competitive 

markets, such as transactions resulting 

in the expansion of regional 

transmission organizations or the 

increase in transmission ownership by 

independent transmission companies.9

6. Prior to the issuance of the Merger 

Policy Statement, the Commission had 

required applicants and intervenors to 

estimate the future costs and benefits of 

a transaction and then litigate the 

validity of those estimates. The 

Commission, however, eliminated those 

requirements in the Merger Policy 

Statement and established various 

mechanisms that applicants could 

implement to show that a merger would 

have no adverse effect on rates.10 As the 

Commission explained: 

Merger applicants should propose 

ratepayer protection mechanisms to assure 

that customers are protected if the expected 

benefits do not materialize. The applicant 

bears the burden of proof to demonstrate that 

the customer will be protected. This puts the 

risk that the benefits will not materialize 

where it belongs—on the applicants. 

Furthermore, we believe that the most 

promising and expeditious means of 

addressing ratepayer protection is for the 

parties to negotiate an agreement on 

ratepayer protection mechanisms. The 

applicants should attempt to resolve the 

issue with customers even before filing, and 

should propose a mechanism as part of their 

filing. Even if these negotiations have not 

succeeded by the time of filing, the parties 

should continue to try to reach a settlement. 

What constitutes adequate ratepayer 

protection necessarily will depend on the 

particular circumstances of the merging 

utilities and their ratepayers, and we strongly 

encourage parties to minimize contentious 

issues and to resolve them without the time 

and expense of a formal hearing. Parties may 

not be able to reach an agreement on an 

appropriate ratepayer protection and the 

Commission may still be able to approve the 

merger. As mentioned earlier, this could 

occur either after a hearing or on the basis 

of parties’ filings if we determine that the 

applicants’ proposal sufficiently insulates the 

ratepayers from harm.11

7. The Commission then explained 

that it had previously accepted ‘‘a 

variety of hold harmless provisions,’’ 

and that parties could consider those as 

well as ‘‘other mechanisms if they 

appropriately address ratepayer 

concerns.’’ 12 Among the types of 

protection the Commission stated 

applicants could propose were the 

following: 

—Open season for wholesale customers— 

applicants agree to allow existing 

wholesale customers a reasonable 

opportunity to terminate their contracts 

(after notice) and switch suppliers. This 

allows customers to protect themselves 

from merger-related harm. 

—General hold harmless provision—a 

commitment from the applicant that it will 

protect wholesale customers from any 

adverse rate effects resulting from the 

merger for a significant period of time 

following the merger. Such a provision 

must be enforceable and administratively 

manageable. 


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13 Id. (footnotes omitted). 

14 Id. 

15 Id. 

16Order No. 642, FERC Stats. & Regs. ¶ 31,111 at 

31,914. 

17 Id. 

18The Commission has also accepted other forms 

of ratepayer protection in lieu of or in addition to 

hold harmless commitments. See, e.g., Cinergy 

Services, Inc., 102 FERC ¶ 61,128, at P 33 (2003) 

(accepting rate freeze as rate mitigation); Vermont 

Yankee Nuclear Power Corp., 91 FERC ¶ 61,325, at 

62,125 (2000) (accepting rate cap and an open 

season provision as mitigation); Cajun Elec. Power 

Coop., Inc., 90 FERC ¶ 61,309, at 62,005–06 (2000) 

(approving a transaction where current customers 

were allowed to keep their current contracts or 

choose from three different power purchasing 

agreements). 

19See, e.g., FirstEnergy Generation Corp., 141 

FERC ¶ 61,239, at PP 1, 16, 27–30 (2012) 

(FirstEnergy) (accepting a hold harmless 

commitment in an asset transaction where 

generation assets would be turned into assets to 

support transmission system upgrades in order to 

meet needs identified in a study by PJM 

Interconnection, L.L.C. following the retirement of 

other generating facilities); ITC Midwest, 140 FERC 

¶ 61,125 at P 15; Int’l Transmission Co., 139 FERC 

¶ 61,003, at P 16 (2012). 

20NSTAR Advanced Energy Sys., Inc., 131 FERC 

¶ 61,098, at P 24 (2010) (‘‘The Commission looks for 

assurances from public utilities that they hold 

customers harmless from these transaction-related 

costs, to the extent they are not exceeded by cost 

savings arising from the transaction, for a 

significant period of time following the merger, not 

an indefinite period of time.’’) (internal citation 

omitted); see also Cinergy, 140 FERC ¶ 61,180 at P 

42; ITC Midwest, 140 FERC ¶ 61,125 at PP 21–22; 

Int’l Transmission, 139 FERC ¶ 61,003 at P 17; BHE 

Holdings Inc., 133 FERC ¶ 61,231, at P 37 (2010); 

cf. Sierra Pacific Power Co., 133 FERC ¶ 61,017, at 

P 14 (2010) (accepting a commitment not to include 

any transaction-related costs in its Commissionaccepted open access transmission tariff). 

21 ITC Holdings Corp., 121 FERC ¶ 61,229, at P 

128 (2007). Although five-year hold harmless 

commitments are most common, the Commission 

has also accepted three-year hold harmless 

commitments. Westar Energy, Inc., 104 FERC 

¶ 61,170, at PP 16–17 (2003); Long Island Lighting 

Co., 82 FERC ¶ 61,129, at 61,463–65 (1998). 

22See, e.g., Puget Energy, 123 FERC ¶ 61,050 at 

P 27 (‘‘We accept Applicants’ hold harmless 

commitment, which we interpret to include all 

merger-related costs, not only costs related to 

consummating the transaction. If Applicants seek to 

recover any merger-related costs in a subsequent 

section 205 filing, they must show quantifiable 

offsetting benefits.’’) (citations and footnotes 

omitted); National Grid plc, 117 FERC ¶ 61,080, at 

P 54 (2006) (‘‘Applicants have committed to hold 

ratepayers harmless from transaction-related costs 

in excess of transaction savings for a period of five 

years.’’). 

23 ITC Holdings Corp., 143 FERC ¶ 61,256, at P 

138 (2013); see also Cinergy, 140 FERC ¶ 61,180 at 

P 42; FirstEnergy Corp., 133 FERC ¶ 61,222, at PP 

62–63 (2010); NSTAR, 136 FERC ¶ 61,016, at PP 62– 

63 (2011); PPL Corp., 133 FERC ¶ 61,083, at PP 26– 

27 (2010); Consumers Energy Co., 118 FERC 

¶ 61,143, at P 33, order on clarification, 120 FERC 

¶ 61,091 (2007). 

24See, e.g., Silver Merger Sub, Inc., 145 FERC 

¶ 61,261, at P 68 (2013) (‘‘We interpret Applicants’ 

hold harmless commitment to apply to all 

transaction-related costs, including costs related to 

consummating the Proposed Transaction and 

transition costs (both capital and operating) 

incurred to achieve merger synergies.’’); Bangor 

Hydro Elec. Co., 144 FERC ¶ 61,030, at P 20 (2013) 

(same); Exelon Corp., 138 FERC ¶ 61,167, at P 118 

(2012) (same). 

—Moratorium on increases in base rates (rate 

freeze)—applicants commit to freezing 

their rates for wholesale customers under 

certain tariffs for a significant period of 

time. 

—Rate reduction—applicants make a 

commitment to file a rate decrease for their 

wholesale customers to cover a significant 

period of time.13

8. The Commission concluded that, 

although each mechanism would 

provide some benefit to ratepayers, in 

the majority of circumstances the most 

meaningful (and the most likely to give 

wholesale customers the earliest 

opportunity to take advantage of 

emerging competitive wholesale 

markets) was an open season 

provision.14 The Commission stated that 

if intervenors raised a substantial 

question as to the adequacy of a merger 

applicant’s proposal, the parties should 

continue to pursue a settlement; if no 

agreement could be reached, the 

Commission explained it might decide 

the issue on the written record or set the 

issue for hearing.15

9. Subsequently, in Order No. 642, the 

Commission promulgated regulations 

governing FPA section 203 applications 

and described the information 

applicants must submit regarding the 

effect of a proposed transaction on rates. 

In relevant part, the Commission stated: 

In the [Merger] Policy Statement, we 

determined that ratepayer protection 

mechanisms (e.g., open seasons to allow 

early termination of existing service contracts 

or rate freezes) may be necessary to protect 

the wholesale customers of merger 

applicants. . . . 

Thus, in the [Notice of Proposed 

Rulemaking] we proposed that all merger 

applicants demonstrate how wholesale 

ratepayers will be protected and that 

applicants will have the burden of proving 

that their proposed ratepayer protections are 

adequate. Specifically, we proposed that 

applicants must clearly identify what 

customer groups are covered (e.g., 

requirements customers, transmission 

customers, formula rate customers, etc.), 

what types of costs are covered, and the time 

period for which the protection will apply.16

10. The Commission adopted the 

proposals set forth in the Notice of 

Proposed Rulemaking and emphasized 

that if applicants did not offer any 

ratepayer protection mechanisms, they 

must explain how the proposed merger 

would provide adequate ratepayer 

protection.17

B. Current Commission Practice 

Regarding Hold Harmless Commitments 

11. Over the last decade hold 

harmless commitments have become a 

common feature of FPA section 203 

applications involving mergers of 

traditional franchised utilities or their 

upstream holding companies.18 More 

recently, some applicants have made 

hold harmless commitments in 

connection with transactions involving 

the acquisition or disposition of existing 

jurisdictional facilities, including in 

circumstances where the acquiring 

entity was a traditional franchised 

utility and entered into the transaction 

in order to satisfy resource adequacy 

requirements at the state level, to 

improve system reliability and/or meet 

other regulatory requirements.19

12. The Commission has consistently 

accepted hold harmless commitments in 

which FPA section 203 applicants 

commit not to seek recovery of 

transaction-related costs in 

jurisdictional rates except to the extent 

that such costs are offset by transactionrelated savings.20 Thus, hold harmless 

commitments typically focus on 

preventing recovery in rates of the costs 

incurred that are ‘‘related’’ to the 

transaction. The Commission has 

previously found that hold harmless 

commitments under which applicants 

commit not to seek to recover 

transaction-related costs except to the 

extent that such costs are exceeded by 

demonstrated transaction-related 

savings for a period of five years to be 

‘‘standard.’’ 21

13. Although the Commission has 

relied on commitments to hold 

customers harmless from transactionrelated costs to support findings of no 

adverse effects on rates, in many of 

these cases, these commitments have 

not included detailed definitions of 

transaction-related costs or savings.22

Further, the Commission has only 

provided general guidance on the scope 

of these costs. In most orders addressing 

transactions in which the Commission 

has accepted hold harmless 

commitments, the Commission has 

explained that transaction-related costs 

are not just those costs related to 

consummating the proposed 

transaction, such as legal, investment 

advisory, accounting and financing 

costs. Rather, the Commission has stated 

that the costs subject to hold harmless 

commitments include all costs that are 

related to the transaction. The 

Commission, however, has never 

specified what these other costs may 

include.23 In more recent cases, the 

Commission has specified that 

transaction-related costs include costs, 

both capital and operating, incurred to 

achieve merger synergies.24 The 

Commission has also specifically noted 

that acquisition premiums, including 


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25An acquisition premium is the excess of the 

total purchase price or consideration paid in the 

transaction over the historical cost of the net assets 

of the entity acquired. 

26Exelon, 138 FERC ¶ 61,167 at P 118 (citing 

Merger Policy Statement, FERC Stats. & Regs. 

¶ 31,044 at 30,126; Duke Energy Moss Landing LLC, 

83 FERC ¶ 61,318 (1998), reh’g denied, 86 FERC 

¶ 61,227, at 61,816 (1999) (citing Mid-Louisiana Gas 

Co., 7 FERC ¶ 61,316, at 61,682, reh’g denied, 8 

FERC ¶ 61,227 (1979), aff’d sub nom. Transcon. Gas 

Pipe Line Corp. v. FERC, 652 F.2d 179 (D.C. Cir. 

1981)) (rate recovery of an existing facility is 

generally limited to the original cost of the facility)). 

27BHE Holdings, 133 FERC ¶ 61,231 at P 36 

(citing PNM Resources, Inc., 124 FERC ¶ 61,019, at 

P 43 (2008) (‘‘Applicants are not required to apply 

a rate freeze and may propose rate increases under 

section 205 filings.’’)); ITC Holdings, 121 FERC 

¶ 61,229 at P 124 (‘‘[T]he Commission finds that any 

increased costs of ITC Midwest attributable to 

prudent transmission investment do not make the 

Transaction contrary to the public interest’’); Boston 

Generating, LLC, 113 FERC ¶ 61,016, at P 26 (2005) 

(‘‘In reviewing an application under section 203, 

the Commission looks at the effects of the 

transaction on rates, not at rate changes that may 

occur regardless of the transaction.’’)); Jersey 

Central Power & Light Co., 87 FERC ¶ 61,014, at 

61,039 (1999) (‘‘The Commission does not require 

applicants under [s]ection 203 to insulate their 

customers from the rate effects of market forces. 

Accordingly, customers are not entitled in a 

[s]ection 203 proceeding to be held harmless from 

external factors such as rising market prices.’’); 

Cincinnati Gas & Elec. Co., 64 FERC ¶ 61,237, at 

62,686, 62,714 (1993), reh’g denied, 69 FERC 

¶ 61,005, order on clarification, 69 FERC ¶ 61,088 

(1994), reh’g denied, 71 FERC ¶ 61,380 (1995). 

28Exelon Corp., 127 FERC ¶ 61,161, at P 102 

(2009) (citing, inter alia, NorthWestern Corp., 117 

FERC ¶ 61,100, at P 40 (2006) (finding speculative 

protestor’s argument that the proposed transaction 

would result in a credit ratings downgrade and lead 

to higher rates or lower reliability)); Old Dominion 

Elec. Coop., 117 FERC ¶ 61,313, at P 29 (2006) 

(affirming initial decision that ‘‘the record supports 

the conclusion that the credit downgrade will not 

raise rates’’). 

29Exelon Corp., 149 FERC ¶ 61,148 (2014) 

(Exelon-Pepco). 

30 Id. P 106. 

31 Id. P 105. 

32 Id. P 107. 

33 Id. P 106. 

34Merger Policy Statement, FERC Stats. & Regs. 

¶ 31,044 at 30,123. See, e.g., Consol. Edison, Inc., 

94 FERC ¶ 61,079, at 61,366 (2001) (‘‘customers do 

have the opportunity to scrutinize costs before they 

are included in NEPOOL’s formula rate, and could 

therefore alert the Commission to costs that, 

contrary to Applicants’ commitments here, might be 

merger-related. In such a situation, we read 

Applicants’ commitment to require them to 

shoulder the burden of proof, and to justify their 

failure to identify the costs as merger-related.’’) 

(citing BEC Energy, 88 FERC ¶ 61,002, at 61,007 

(1999); New England Power Co., 87 FERC ¶ 61,287, 

at 62,146 (1999)). 

35Merger Policy Statement, FERC Stats. & Regs. 

¶ 31,044 at 30,123. 

goodwill,25 are not considered part of 

transaction-related costs, and that 

recovery of such costs must be pursued 

through FPA section 205 filings.26 The 

Commission has also explained that 

protection from transaction-related costs 

does not mean that consumers are 

necessarily insulated from any rate 

increase, such as those related to market 

conditions or those unrelated to the 

transaction,27 or unspecified or 

speculative costs that intervenors claim 

may result from a merger.28

14. With respect to recovering 

transaction-related costs, as noted 

earlier, the standard hold harmless 

commitment provides that applicants 

may not seek to recover in rates any 

transaction-related costs except to the 

extent that such costs are exceeded by 

demonstrated transaction-related 

savings. The Commission recently 

clarified its policy on the recovery of 

transaction-related costs.29 As clarified, 

applicants may seek to recover 

transaction-related costs incurred prior 

to consummating a proposed transaction 

or those transaction-related costs 

incurred within the time period during 

which the hold harmless commitment 

applies by making certain filings.30

Specifically, applicants must submit a 

new filing under FPA section 205, and 

a concurrent informational filing in the 

relevant FPA section 203 docket.31

Consistent with Commission precedent, 

in the FPA section 205 filing, applicants 

must still: (1) Specifically identify the 

transaction-related costs they are 

seeking to recover; and (2) demonstrate 

that those costs are exceeded by the 

savings produced by the transaction.32

The Commission further clarified that it 

will not authorize the recovery of 

merger-related costs in an annual 

informational filing under existing 

formula rates. After noticing the new 

section 205 filing for public comment, 

the Commission will determine both if 

there is adequate support to show that 

recovery of merger-related costs is 

consistent with the hold harmless 

commitment and that the resulting new 

rate is just and reasonable in light of all 

the other factors underlying the 

proposed new rate.33 In accordance with 

the Merger Policy Statement, the 

Commission’s approach places the 

burden of proof on applicants to 

demonstrate that customers are 

protected if the expected benefits do not 

materialize.34

II. Discussion 

A. Purpose of Proposed Policy 

Statement 

15. Upon consideration of the 

Commission’s experience regarding 

hold harmless commitments since 

issuance of the Merger Policy Statement, 

we believe that clarifying the 

Commission’s policy regarding hold 

harmless commitments, a frequently 

proposed ratepayer protection 

mechanism in FPA section 203 

applications, would be beneficial to 

applicants, customers, and interested 

persons. We note, however, that unless 

specifically discussed herein, we 

reaffirm the guidance provided in the 

Merger Policy Statement and 

subsequent precedent, and reiterate that 

applicants under FPA section 203 

should propose ratepayer protection 

mechanisms that ensure that customers 

are protected from the adverse rate 

effects of a proposed transaction. 

Furthermore, the guidance here should 

not discourage applicants from working 

with interested parties to resolve 

contentious issues regarding appropriate 

ratepayer protection mechanisms prior 

to the submission of an application 

under FPA section 203. As the 

Commission stated in the Merger Policy 

Statement, ‘‘the most promising and 

expeditious means of addressing 

ratepayer protection is for the parties to 

negotiate an agreement on ratepayer 

protection mechanisms.’’ 35

Accordingly, we continue to expect 

applicants under FPA section 203 to 

engage their customers, when 

appropriate, and discuss with them any 

potential adverse rate effects that may 

result from a proposed transaction 

under FPA section 203, and how those 

effects can be mitigated. 

16. In this proposed policy statement, 

we propose to provide greater clarity to 

and seek comment from interested 

persons regarding the following issues 

related to hold harmless commitments. 

First, we propose to clarify those costs 

to which hold harmless commitments 

will apply. Although the Commission 

has provided broad guidance regarding 

the costs that should be covered under 

hold harmless commitments, it has 

never defined those costs with much 

specificity, leading to inconsistency 

with respect to this issue. Below, we 

propose to provide additional guidance 

by clarifying the costs that the 

Commission considers to be transactionrelated costs. These are also the 

transaction-related costs that the 

Commission will review if and when 

applicants make the requisite filing 

under FPA section 205 to attempt to 

recover those costs by showing that they 

have been offset by savings due to the 

transaction. Finally, although we 

identify specific categories of costs 

below, we continue to believe that the 

Commission’s policy must remain 

flexible enough to permit a case-by-case 

determination of transaction-related 

costs, and that an attempt to articulate 

those costs precisely could have 

unintended consequences. 

17. Second, we propose to clarify that 

applicants offering hold harmless 

commitments must implement 


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36The Commission has previously explained that 

applicants should ensure that they have appropriate 

internal controls and procedures to ensure the 

proper identification, accounting, and rate 

treatment for all transaction-related costs incurred 

prior to and subsequent to proposed transactions, 

including all transition costs incurred after a merger 

is consummated. See, e.g., ITC Holdings, 143 FERC 

¶ 61,256 at P 168; Silver Merger Sub, 145 FERC 

¶ 61,261 at P 78. 

37See, e.g., Order No. 642, FERC Stats. & Regs. 

¶ 31,111 at 31,914 (‘‘[A]pplicants must clearly 

identify what customer groups are covered (e.g., 

requirements customers, transmission customers, 

formula rate customers, etc.), what types of costs are 

covered, and the time period for which the 

protection will apply.’’). 

38Merger Policy Statement, FERC Stats. & Regs. 

¶ 31,044 at 30,123. 

39See, e.g., FirstEnergy, 141 FERC ¶ 61,239, at PP 

1, 16, 27–30 (2012) (accepting a hold harmless 

commitment in an asset transaction where 

generation assets would be turned into assets to 

support transmission system upgrades in order to 

meet needs identified in a study by PJM 

Interconnection, L.L.C. following the retirement of 

other generating facilities); ITC Midwest, 140 FERC 

¶ 61,125 at P 15; Int’l Transmission Co., 139 FERC 

¶ 61,003, at P 16 (2012). 

40We expect that applicants proposing to recover 

these costs would track and record them pursuant 

to the procedures established below. See infra 

section II.B.2. 

41 If the duties of employees are not solely 

dedicated to activities related to a transaction, 

internal labor costs deemed merger-related should 

be determined in a manner that is proportionally 

equal to the amount of time spent on the merger 

compared to other activities of the utility and 

tracked accordingly. 

42Some of these costs are typically incurred prior 

to the announcement of a merger. 

appropriate internal controls and 

procedures to track those costs from 

which they have committed to hold 

their customers harmless and must 

describe such controls and procedures 

as a part of their FPA section 203 

applications and any section 205 

filings.36 We believe that these controls 

and procedures will ensure the proper 

identification, accounting, and rate 

treatment of all transaction-related costs 

incurred prior to and subsequent to the 

announcement of a proposed 

transaction. Requiring applicants to 

explain how they will track costs related 

to a hold harmless commitment will 

improve the Commission’s ability to 

ensure that there is a process in place 

to prevent those costs from being 

recovered in rates prior to the 

Commission approving the recovery of 

them at a later date under FPA section 

205, and will also clarify for customers 

what types of costs are covered under a 

hold harmless commitment, as required 

by Commission precedent.37

18. Third, we propose that, in order 

for a hold harmless commitment to 

provide adequate ratepayer protection, 

it should not be limited in duration. As 

discussed in further detail below, we are 

concerned that limiting the hold 

harmless commitment to a certain 

period (generally five years) raises the 

risk that transaction-related costs could 

be included in future formula rate 

billings without applicants making the 

showing of offsetting savings. 

Eliminating the time limit will ensure 

that transaction-related costs cannot be 

recovered from ratepayers at any time, 

unless applicants can demonstrate that 

there are offsetting transaction-related 

savings. This revised approach is 

consistent with the Merger Policy 

Statement, which emphasized that the 

burden of proof to demonstrate that 

customers will be protected should be 

on applicants and that applicants 

should also bear the risk that benefits 

will not materialize.38

19. Finally, we propose to clarify that 

applicants may demonstrate that, under 

certain circumstances, transactions will 

not have an adverse effect on rates 

without relying on hold harmless 

commitments or other ratepayer 

protection mechanisms. As noted above, 

some applicants have made hold 

harmless commitments in connection 

with transactions involving the 

acquisition or disposition of existing 

jurisdictional facilities where the 

acquiring entity was a traditional 

franchised utility and entering into the 

transaction in order to satisfy resource 

adequacy requirements at the state level, 

to improve system reliability, and/or 

meet other regulatory requirements.39

Hold harmless commitments may not be 

appropriate in these and other similar 

circumstances given that while these 

proposed transactions may have an 

effect on rates, that effect may not be 

adverse. Accordingly, as discussed in 

further detail below, we propose that 

under certain circumstances, applicants 

may show that a transaction will not 

have an adverse effect on rates without 

proposing additional ratepayer 

protection mechanisms. 

20. Our intent is to apply any changes 

to our policy on hold harmless 

commitments on a prospective basis, for 

applications submitted after the 

Commission has issued a policy 

statement, and not alter existing hold 

harmless commitments accepted by the 

Commission or submitted in 

applications pending at the time the 

Commission issues the policy statement. 

We seek comments from interested 

persons on these proposals. 

B. Revisions to the Commission’s Policy 

on Hold Harmless Commitments 

1. Identifying and Accounting for 

Transaction-Related Costs 

21. We propose to designate the 

following categories of costs as the 

transaction-related costs that should be 

subject to any hold harmless 

commitment. Accordingly, the costs set 

out below are those transaction-related 

costs from which customers must be 

held harmless and that may not be 

recovered from customers except to the 

extent exceeded by demonstrated 

savings.40 As noted above, although we 

propose to provide guidance in this 

proposed policy statement regarding 

how to identify transaction-related 

costs, we continue to believe that 

attempts to precisely articulate all such 

costs are not feasible. For example, 

while many direct costs of a transaction 

can be tracked with proper mechanisms 

and controls, other costs may be more 

difficult to classify. Accordingly, 

because each transaction is unique, the 

final determination of what transactionrelated costs may be recovered by 

applicants will remain subject to a caseby-case analysis; specifically, this 

determination will be made if and when 

applicants propose to recover 

transaction-related costs and 

demonstrate offsetting savings in the 

subsequent FPA section 205 filing 

described previously by the 

Commission. 

22. First, we propose that transactionrelated costs include, but are not limited 

to, the following costs incurred to 

explore, agree to, and consummate a 

transaction: 

• The costs of securing an appraisal, 

formal written evaluation, or fairness 

opinions related to the transaction; 

• The costs of structuring the 

transaction, negotiating the structure of 

the transaction, and obtaining tax advice 

on the structure of the transaction; 

• The costs of preparing and 

reviewing the documents effectuating 

the transaction (e.g., the costs to transfer 

legal title of an asset, building permits, 

valuation fees, the merger agreement or 

purchase agreement and any related 

financing documents); 

• The internal labor costs of 

employees 41 and the costs of external, 

third-party, consultants and advisors to 

evaluate potential merger transactions, 

and once a merger candidate has been 

identified, to negotiate merger terms, to 

execute financing and legal contracts, 

and to secure regulatory approvals; 42

• The costs of obtaining shareholder 

approval (e.g., costs of proxy solicitation 

and special meeting of shareholders); 

• Professional service fees incurred in 

the transaction (e.g., fees for 

accountants, surveyors, engineers, and 

legal consultants); and 


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43Entities engaging in certain internal corporate 

restructuring and reorganizations, unrelated to 

complying with state law restructuring 

requirements, may seek to achieve similar cost 

savings or increased efficiencies as merging entities. 

44Purchase accounting is also commonly referred 

to as acquisition accounting under generally 

accepted accounting principles in the United States. 

Purchase accounting is a formal accounting method 

for merger transactions which measures the assets 

and liabilities of the acquired entity at fair value 

and establishes goodwill for amounts paid in excess 

of fair value. See Accounting Standard Codification 

Section 805–10 (Fin. Accounting Standards Bd. 

2014), available at http://asc.fasb.org. 

45 Michigan Electric Transmission Co., LLC, 116 

FERC ¶ 61,164, at PP 29–30 (2006); Niagara 

Mohawk Holdings Inc., 95 FERC ¶ 61,381, at 62,415, 

reh’g denied, 96 FERC ¶ 61,144 (2001); PPL, 133 

FERC ¶ 61,083 at P 39. 

46See, e.g., Florida Power & Light Co., 145 FERC 

¶ 61,018, at PP 53, 60 (2013); FirstEnergy, 141 FERC 

¶ 61,239 at P 16 n.13. 

47See, e.g., Silver Merger Sub, 145 FERC ¶ 61,261 

at PP 61–62. 

48Exelon-Pepco, 149 FERC ¶ 61,148 at n.180; 

Silver Merger Sub, 145 FERC ¶ 61,261 at P 68; 

Florida Power & Light, 145 FERC ¶ 61,018 at P 60; 

Exelon, 138 FERC ¶ 61,167 at P 118 (citing Merger 

Policy Statement, FERC Stats. & Regs. ¶ 31,044 at 

30,126; Duke Energy Moss Landing, 83 FERC 

¶ 61,318, reh’g denied, 86 FERC ¶ at 61,816 (citing 

Mid-Louisiana Gas, 7 FERC ¶ 61,316, at 61,682, 

reh’g denied, 8 FERC ¶ 61,227, aff’d sub nom. 

Transcon. Gas Pipe Line Co. v. FERC, 652 F.2d 179 

(D.C. Cir. 1981)) (rate recovery of an existing facility 

is generally limited to the original cost of the 

facility)). 

49 Duke Energy Progress, Inc., 149 FERC ¶ 61,220, 

at PP 67–68 (2014) (reviewing Commission 

precedent requiring that acquisition adjustments 

• Installation, integration, testing, and 

set up costs related to ensuring the 

operability of facilities subject to the 

transaction 

23. Moreover, for transactions that are 

pursued but never completed 

(transactions that ultimately fail), their 

costs should not be recovered from 

ratepayers. In addition, we recognize 

that not every cost listed above will be 

found in every transaction. 

24. The second category of 

transaction-related costs relates to 

mergers, where, in addition to the 

transaction-related costs described 

above, parties typically also incur costs 

to integrate individuals and assets into 

the acquiring utility and costs to achieve 

merger synergies.43 These costs, which 

are sometimes referred to collectively as 

‘‘transition’’ costs, are incurred after the 

transaction is consummated, often over 

a period of several years. These costs 

include both the internal costs of 

employees spending time working on 

transition issues, and external costs paid 

to consultants and advisers to 

reorganize and consolidate functions of 

the merging entities to achieve merger 

synergies. These costs may also include 

both capital items (e.g., a new computer 

system or software, or costs incurred to 

carry out mitigation commitments 

accepted by the Commission in 

approving the transaction to address 

competition issues, such as the cost of 

constructing new transmission lines, 

etc.) and expense items (e.g., costs to 

eliminate redundancies, combine 

departments, or maximize contracting 

efficiencies). We propose that 

transaction-related costs incurred to 

integrate the operations of merging 

companies include, but are not limited 

to, the following: 

• Engineering studies needed both 

prior to and after closing the merger; 

• Severance payments; 

• Operational integration costs; 

• Accounting and operating systems 

integration costs; 

• Costs to terminate any duplicative 

leases, contracts, and operations; and 

• Financing costs to refinance 

existing obligations in order to achieve 

operational and financial synergies. 

25. As above, this list of transition 

costs is not exhaustive, and may not 

include some material costs involved in 

the integration of two utilities after a 

merger. We propose to consider 

transition costs as transaction-related 

costs that should be subject to hold 

harmless commitments. We propose to 

assume that such transaction-related 

costs should be covered under hold 

harmless protection, though applicants 

will have an opportunity on a case-bycase basis to show why certain of those 

costs should not have to be covered 

under their hold harmless commitment 

based on their particular circumstances. 

Also, we propose to consider, on a caseby-case basis, whether other costs not 

discussed herein should be subject to 

hold harmless commitments. 

26. Additionally, we note that 

accounting journal entries related to a 

merger transaction may affect expense, 

asset, liability, or proprietary capital 

accounts used in the development of a 

public utility’s rates. These accounting 

journal entries may originate from 

transaction-related costs recorded as an 

expense or capitalized as an asset. 

Additional accounting journal entries 

may originate from goodwill and fair 

value adjustments related to the 

purchase price paid for the acquired 

company. Merger transactions are 

accounted for by applying purchase 

accounting, which adjusts the assets and 

liabilities of the acquired entity to fair 

value and recognizes goodwill for the 

amount paid in excess of fair value.44 If 

the acquired company is a holding 

company, purchase accounting also 

provides for the fair value adjustments 

and goodwill to be recorded on the 

books of some, or all, of the acquired 

holding company’s subsidiaries, which 

is commonly referred to as ‘‘pushdown’’ accounting. Under appropriate 

circumstances, the Commission has 

allowed the fair value accounting 

adjustments and goodwill to be 

recorded on a public utility’s books and 

reported in the FERC Form No. 1. 

Additionally, the Commission has 

required public utilities to maintain 

detailed accounting records and 

disclosures associated with such 

amounts so as to facilitate the 

evaluation of the effects of the 

transaction on common equity and other 

accounts in future periods if needed for 

ratemaking purposes.45 We believe that 

ratepayers should continue to be 

protected from adverse effects on rates 

stemming from accounting entries 

recording goodwill and fair value 

adjustments on a public utility’s books 

and reported in FERC Form Nos. 1 or 1– 

F. This is consistent with our longstanding policy that acquisition 

premiums, including goodwill, must be 

excluded from jurisdictional rates 

absent a filing under FPA section 205 

and Commission authorization granting 

recovery of specific costs. 

27. Similarly, in the context of the 

acquisition of discrete assets by a utility, 

under the Commission’s accounting 

regulations and rate precedent the 

excess purchase cost of utility plant 

over its depreciated original cost is an 

acquisition premium and is excluded 

from recovery through rates unless a 

showing of offsetting benefits is 

demonstrated in an FPA section 205 

filing. In the past, applicants have 

proposed to include acquisition 

premiums as transaction-related costs 

subject to their proposed hold harmless 

commitments,46 and intervenors have 

requested that the Commission require 

applicants to include acquisition 

premiums as transaction-related costs.47

The Commission has not, and does not, 

consider acquisition premiums to be 

part of transaction-related costs. The 

recovery of acquisition premiums must 

be pursued through a separate FPA 

section 205 filing, whether or not a hold 

harmless commitment has been made.48

We do not believe that our proposed 

treatment of transaction-related costs 

here requires a change in the 

Commission’s current practice with 

respect to acquisition premiums. We 

will continue to preclude recovery of 

acquisition premiums as part of 

transaction-related costs, and remind 

applicants that a showing of ‘‘specific, 

measurable, and substantial benefits to 

ratepayers’’ must be made in a 

subsequent FPA section 205 proceeding 

in order to recover an acquisition 

premium.49


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may be recovered if the acquisition provides 

‘‘measurable benefits’’ that are ‘‘tangible and 

nonspeculative,’’ and allowing recovery of an 

acquisition adjustment where ‘‘the acquisition 

provides specific, measurable, and substantial 

benefits to ratepayers’’) (internal citations omitted). 

50See Order No. 642, FERC Stats. & Regs. 

¶ 31,111 at 31,914. 

51Merger Policy Statement, FERC Stats. & Regs. 

¶ 31,044 at 30,124. 

52See Silver Merger Sub, 145 FERC ¶ 61,261 at P 

78; ITC Holdings, 143 FERC ¶ 61,256 at P 168. 

53See, e.g., Central Vermont Public Service Corp., 

138 FERC ¶ 61,161, at P 55 (2012). 

54Merger Policy Statement, FERC Stats. & Regs. 

¶ 31,044 at 30,124. 

55See, e.g., PNM Resources, 124 FERC ¶ 61,019 at 

P 36 (protestor alleging that the five-year limitation 

on recovery will simply result in the deferred 

recovery of transaction-related costs). 

56Evidence of offsetting merger-related savings 

cannot be based on estimates or projections of 

future savings, but must be based on a 

demonstration of actual merger-related savings 

realized by jurisdictional customers. Exelon-Pepco, 

149 FERC ¶ 61,148 at P 107 (citing Audit Report of 

National Grid, USA, Docket No. FA09–10–000 (Feb. 

11, 2011) at 55; Ameren Corp., 140 FERC ¶ 61,034, 

at PP 36–37 (2012)). 

57Merger Policy Statement, FERC Stats. & Regs. 

¶ 31,044 at 30,123. 

28. We seek comments from 

interested persons on these proposals. 

In particular, we seek comments on the 

categories of costs, including transition 

costs, that are proposed to be 

transaction-related costs which should 

be subject to hold harmless protection. 

We also seek comments on the costs that 

should not be subject to hold harmless 

commitments. 

2. Controls and Procedures to Track and 

Record Costs Related To Hold Harmless 

Commitments 

29. As noted above, applicants are 

required to describe in their FPA section 

203 applications how they intend to 

protect ratepayers from transactionrelated costs, consistent with their 

obligation to show that their transaction 

is consistent with the public interest.50

As contemplated in the Merger Policy 

Statement, a hold harmless commitment 

offered by applicants must be 

‘‘enforceable and administratively 

manageable.’’ 51 In creating an 

enforceable and administratively 

manageable commitment, applicants 

should provide assurances that 

transaction-related costs will be 

quantified, documented, and verified, 

and may not be recovered from 

ratepayers until applicants can 

demonstrate that savings, if any, offset 

the transaction-related costs they seek to 

recover. To this end, the Commission 

has required that applicants offering 

hold harmless commitments establish 

internal controls and/or tracking 

mechanisms.52 We propose additional 

guidance below regarding these 

requirements. 

30. First, we propose to clarify that all 

applicants offering hold harmless 

commitments should implement 

appropriate internal controls and 

procedures to ensure the proper 

identification, accounting, and rate 

treatment of all transaction-related costs 

incurred prior to and subsequent to the 

announcement of a proposed 

transaction, including all transition 

costs. 

31. Second, we propose that 

applicants offering hold harmless 

commitments should include, as part of 

their FPA section 203 applications and 

any separate FPA section 205 filings, a 

detailed description of how they define, 

designate, accrue, and allocate 

transaction-related costs, and explain 

the criteria used to determine which 

costs are transaction-related. Applicants 

should specifically identify and 

describe their direct and indirect cost 

classifications, and the processes they 

use to functionalize, classify and 

allocate transaction-related costs. In 

addition, applicants should explain the 

types of transaction-related costs that 

will be recorded on their public 

utilities’ books; how they determined 

the portion of these costs assigned to 

their public utilities; and how they 

classify these costs as non-operating, 

transmission, distribution, production, 

and other. Applicants should also 

describe their accounting procedures 

and practices, and how they maintain 

the underlying accounting data so that 

the allocation of transaction-related 

costs to the operating and non-operating 

accounts of their public utilities is 

readily available and easily verifiable. 

32. We note that the Commission has, 

in the past, required applicants to 

submit their final accounting entries 

associated with transactions within six 

months of the date that the transaction 

is consummated.53 As a part of this 

accounting filing, we propose to require 

applicants subject to the Commission’s 

accounting regulations to provide the 

accounting entries and amounts related 

to all transaction-related costs incurred 

as of the date of the accounting filing, 

along with narrative explanations 

describing the entries. 

33. We seek comments on these 

proposals. 

3. Time Limits on Hold Harmless 

Commitments 

34. The Commission previously stated 

in the Merger Policy Statement that a 

hold harmless commitment need only 

protect customers ‘‘for a significant 

period of time following the merger.’’54

However, in light of the proposed 

treatment of certain categories of costs 

discussed above, the Commission’s 

experience auditing utilities that have 

made hold harmless commitments and 

concerns of protestors in previous FPA 

section 203 applications,55 we propose 

to reconsider whether hold harmless 

commitments that are limited to five 

years (or another specified period) 

adequately protect ratepayers from an 

adverse effect on rates. As part of this 

reconsideration, we believe that timelimited hold harmless commitments 

may not adequately protect ratepayers 

from transaction-related costs. 

Therefore, we propose that there be no 

time limit on hold harmless 

commitments and that costs subject to 

hold harmless commitments cannot be 

recovered from ratepayers at any time 

(regardless of when such costs are 

incurred), absent a showing of offsetting 

savings in order to demonstrate no 

adverse effect on rates.56 This revised 

approach is consistent with the Merger 

Policy Statement, which emphasized 

that the burden of proof to demonstrate 

that customers will be protected should 

be on applicants, and that applicants 

should also bear the risk that benefits 

will not materialize.57

35. Specifically, we are concerned 

that limiting the applicability of hold 

harmless commitments to specific time 

periods may create incentives for 

applicants to modify how they would 

otherwise seek to recover or account for 

recovery of certain transaction-related 

costs based on the time period. For 

example, an applicant could try to 

include transaction-related costs in 

formula rates without making a showing 

of offsetting savings if the costs, though 

incurred during the hold harmless 

period, do not enter the ratemaking 

process until after the hold harmless 

period expires. Moreover, whether or 

not any such incentives exist, certain 

transaction-related expenditures could 

be properly capitalized as an asset 

during the hold harmless period, but the 

recovery of the costs associated with 

that asset would occur only as the asset 

is depreciated over future periods that 

extend beyond the hold harmless 

period. 

36. Similarly, limiting the 

applicability of hold harmless 

commitments to specific time periods 

may incentivize applicants to delay 

incurring some types of transactionrelated costs until after the hold 

harmless period expires. By waiting to 

incur costs subject to hold harmless 

commitments until after the expiration 

of the hold harmless period, applicants 

could attempt to include such costs in 

their future formula rate billings 

without making the showing of 


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58See, e.g., FirstEnergy, 141 FERC ¶ 61,239 at PP 

1, 16, 27–30 (accepting a hold harmless 

commitment in an asset transaction where 

generation assets would be turned into assets to 

support transmission system upgrades in order to 

meet needs identified in a study by PJM 

Interconnection, L.L.C. following the retirement of 

other generating facilities); ITC Midwest, 140 FERC 

¶ 61,125 at P 15; Int’l Transmission Co., 139 FERC 

¶ 61,003, at P 16 (2012). 

59See, e.g., Old Dominion Elec. Cooperative and 

N.C. Elec. Membership Corp. v. Va. Elec. and Power 

Co.,146 FERC ¶ 61,200 (2014). 60 FirstEnergy, 141 FERC ¶ 61,239 at P 5. 

61 44 U.S.C. 3501–3520. 

62See 5 CFR 1320. 

offsetting savings required to justify 

recovery of such costs. In this regard, we 

believe that the focus of a hold harmless 

commitment should be on whether a 

cost is transaction-related, and not on 

when the cost is incurred. 

37. We seek comments on this 

proposal. 

4. Transactions Without Adverse Effects 

on Rates 

38. As explained above, applicants 

under FPA section 203 must 

demonstrate that proposed transactions 

do not have an adverse effect on rates. 

In order to make this showing, 

applicants sometimes propose, and the 

Commission has accepted, hold 

harmless commitments. Pursuant to 

these hold harmless commitments, the 

Commission has held that customers 

must be held harmless from transactionrelated costs unless and until applicants 

demonstrate offsetting transactionrelated benefits—whether quantifiable 

cost savings or other non-quantifiable 

benefits. 

39. As noted above, some applicants 

have made hold harmless commitments 

in connection with transactions 

involving the acquisition or disposition 

of existing jurisdictional facilities where 

the acquiring entity was a traditional 

franchised utility and entering into the 

transaction in order to satisfy resource 

adequacy requirements at the state level, 

to improve system reliability, and/or 

meet other regulatory requirements.58

However, while customers in these 

examples may experience a rate increase 

due to the costs of the facilities, such 

rate effect may not necessarily be 

adverse because those costs were 

incurred to meet a governmental 

regulatory requirement. The 

Commission has held that, as a general 

matter of policy, ratepayers should bear 

the cost of utility service.59

40. Accordingly, we propose to clarify 

that applicants undertaking certain 

transactions to fulfill documented 

utility service needs need not propose 

ratepayer protection mechanisms such 

as a hold harmless commitment in an 

application under FPA section 203 in 

order to show that the transaction will 

not have an adverse effect on rates. We 

believe that applicants engaging in these 

types of transactions can make the 

requisite showing that, even though the 

proposed transaction may have an effect 

on rates, such effect on rates is not 

adverse. 

41. Examples of the transactions in 

which applicants may demonstrate no 

adverse effect on rates without offering 

a hold harmless commitment or other 

ratepayer protection mechanism would 

include the purchase of an existing 

generating plant or transmission facility 

that is needed to serve the acquiring 

company’s customers or forecasted load 

within a public utility’s existing 

footprint, in compliance with a resource 

planning process, or to meet specified 

North American Electric Reliability 

Corporation (NERC) standards. We 

propose that applicants seeking to 

demonstrate that a transaction will not 

have an adverse effect on rates for these 

or other reasons should provide 

supporting evidence and documentation 

which could include an explanation 

that the transaction is intended to serve 

existing customers or forecasted load 

within an existing footprint; to address 

a state commission order or directive 

requiring acquisition of specific assets; 

to address a need for a transmission 

facility, as established through a 

regional transmission planning process 

or as required to satisfy a NERC 

standard; or to address other state or 

federal regulatory requirements. For 

instance, in FirstEnergy, applicants 

requested approval from the 

Commission under FPA section 203 for 

an internal transfer of certain assets that 

would address significant reliability 

concerns, including a potential NERC 

violation, at a cost that was two-thirds 

that of the next possible solution.60 In 

that order, consistent with existing 

policy, the Commission accepted 

applicants’ hold harmless commitment 

as it was offered. Under the clarification 

proposed herein, however, such a hold 

harmless commitment would not need 

to be offered in order to show that the 

transaction would not have an adverse 

effect on rates. 

42. Applicants may make a showing 

that a particular transaction does not 

have an adverse effect on rates based on 

other grounds, but the burden remains 

on applicants to show in their 

application for authorization under FPA 

section 203 that the costs, or a portion 

of the costs, related to such a transaction 

should be passed on to ratepayers. 

Further, applicants may provide the 

Commission with information to show 

the need to meet other regulatory 

requirements as a means to demonstrate 

that the effect on rates due to the 

transaction is not adverse. The 

Commission will carefully review such 

a showing before determining that a 

proposed transaction without any 

proposed ratepayer protection 

mechanism has no adverse effect on 

rates. We believe this approach is 

consistent with both the Merger Policy 

Statement and the Commission’s policy 

that ratepayers should bear the costs of 

utility service. We seek comments on 

this proposal. 

III. Comment Procedures 

43. We invite comments on this 

proposed policy statement within 

March 30, 2015. 

IV. Document Availability 

44. 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. 

45. 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. 

46. User assistance is available for 

eLibrary and the Commission’s Web site 

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. 

V. Information Collection Statement 

47. The Paperwork Reduction Act 

(PRA) 61 requires each federal agency to 

seek and obtain Office of Management 

and Budget (OMB) approval before 

undertaking a collection of information 

directed to ten or more persons or 

contained in a rule of general 

applicability. OMB regulations require 

approval of certain information 

collection requirements imposed by 

agency rules.62 Upon approval of a 

collection(s) of information, OMB will 


asabaliauskas on DSK5VPTVN1PROD with PROPOSALS
Federal Register / Vol. 80, No. 17 / Tuesday, January 27, 2015 / Proposed Rules 4239 

63The hourly cost figures are based on data for 

salary plus benefits. We think industry is similarly 

situated to FERC in terms of the average cost of a 

full time employee, and we are using $70.50 per 

hour for salary plus benefits. 

The estimates for cost per response are derived 

using the following formula: Average Burden Hours 

per Response * $70.50 per Hour = Average Cost per 

Response. 

64We estimate that one FPA section 205 filing 

may be made annually subject to the Proposed 

Policy Statement. 

assign an OMB control number and an 

expiration date. Respondents subject to 

the filing requirements of an agency rule 

will not be penalized for failing to 

respond to these collections of 

information unless the collections of 

information display a valid OMB 

control number. 

The following table shows the 

Commission’s estimates for the 

additional burden and cost, as 

contained in the Proposed Policy 

Statement: 

REVISIONS, IN THE PROPOSED POLICY STATEMENT IN DOCKET NO. PL15–3 

Requirements 

Number and 

type of 

respondents 

Number of 

responses per 

respondent 

Total number 

of responses 

Average burden 

hours & cost 

per response 63

Total burden hours & 

total cost 

(1) (2) (1) * (2) = (3) (4) (3) * (4) 

FERC–519 (FPA Section 203 Filings) .......... 18 1 18 20 hrs.; $1,410 .......... 360 hrs.; $25,380. 

FERC–516 (FPA Section 205, Rate and 

Tariff Filings).

1 1 64 1 103.26 hrs.; 

$7,279.83.

103.26 hrs.; 

$7,279.83. 

FERC–555, Record Retention ...................... 18 1 18 4 hrs.; $282 ............... 72 hrs.; $5,076. 

TOTAL ................................................... ........................ ........................ ........................ ................................... 535.26 hrs.; 

$37,735.83. 

Title: FERC–519, Application under 

Federal Power Act Section 203; FERC– 

516, Electric Rate Schedules and Tariff 

Filings; and FERC–555, Preservation of 

Records for Public Utilities and 

Licensees, Natural Gas and Oil Pipeline 

Companies. 

Action: Revised Collections of 

Information. 

OMB Control No: 1902–0082 (FERC– 

519), 1902–0096 (FERC–516), and 1902– 

0098 (FERC–555). 

Respondents: Business or other for 

profit, and not for profit institutions. 

Frequency of Responses: As needed 

and ongoing. 

Necessity of the Information: To 

protect ratepayers and to mitigate 

possible adverse effects on rates that 

may result from mergers or certain other 

transactions that are subject to section 

203 of the FPA, we propose 

clarifications and additional 

information collection requirements 

related to hold harmless commitments 

offered by applicants. 

Internal review: The Commission has 

reviewed the changes included in the 

Proposed Policy Statement and has 

determined that the additional reporting 

and recordkeeping requirements are 

necessary. 

Interested persons may obtain 

information on the reporting 

requirements by contacting: Federal 

Energy Regulatory Commission, 888 

First Street NE., Washington, DC 20426 

[Attention: Ellen Brown, Office of the 

Executive Director, email: 

DataClearance@ferc.gov, Phone: (202) 

502–8663, fax: (202) 273–0873]. 

By the Commission. Commissioner 

Honorable is voting present. 

Issued: January 22, 2015. 

Nathaniel J. Davis, Sr., 

Deputy Secretary. 

[FR Doc. 2015–01423 Filed 1–26–15; 8:45 am] 

BILLING CODE 6717–01–P 

FEDERAL COMMUNICATIONS 

COMMISSION 

47 CFR Parts 2 and 90 

[PS Docket Nos. 13–87, 06–229; WT Docket 

No. 96–86, RM–11433, RM–11577; Report 

No. 3013] 

Petition for Reconsideration of Action 

in Rulemaking Proceeding 

AGENCY: Federal Communications 

Commission. 

ACTION: Petition for reconsideration. 

SUMMARY: In this document, a Petition 

for Reconsideration (Petition) has been 

filed in the Commission’s Rulemaking 

proceeding by Danielle Coffey, on behalf 

of Telecommunications Industry 

Association. 

DATES: Oppositions to the Petition must 

be filed on or before February 11, 2015. 

Replies to an opposition must be filed 

on or before February 23, 2015. 

ADDRESSES: You may submit comments, 

identified by PS Docket Nos. 13–87, 06– 

229; WT Docket No. 96–86, by any of 

the following methods: 

• Federal Communications 

Commission’s Web site: http://fjallfoss.

fcc.gov/ecfs2/. Follow the instructions 

for submitting comments. 

• People with Disabilities: Contact the 

FCC to request reasonable 

accommodations (accessible format 

documents, sign language interpreters, 

CART, etc.) by email: FCC504@fcc.gov 

or phone: 202–418–0530 or TTY: 202– 

418–0432. 

FOR FURTHER INFORMATION CONTACT: John 

A. Evanoff, Esq., Public Safety and 

Homeland Security Bureau, (202) 418– 

0848, email John.Evanoff@fcc.gov. 

SUPPLEMENTARY INFORMATION: This is a 

summary of Commission’s document, 

Report No. 3013, released January 14, 

2015. The full text of this document is 

available for viewing and copying in 

Room CY–B402, 445 12th Street SW., 

Washington, DC or may be purchased 

from the Commission’s copy contractor, 

Best Copy and Printing, Inc. (BCPI) (1– 

800–378–3160). The Commission will 

not send a copy of this Notice pursuant 

to the Congressional Review Act, 5 

U.S.C. 801(a)(1)(A) because this notice 

does not have an impact on any rules of 

particular applicability. 

Subject: Proposed Amendments to the 

Service Rules Governing Public Safety 

Narrowband Operations in the 769–775/ 

799–805 MHz Bands (PS Docket No. 13– 

87); National Public Safety 

Telecommunications Council Petition 

for Rulemaking on Aircraft Voice 

Operations at 700 MHz (RM–11433); 

National Public Safety 

Telecommunications Council Petition 

for Rulemaking to Revise 700 MHz 

Narrowband Channel Plan (RM–11433); 

Region 24 700 MHz Regional Planning 

Committee Petition for Rulemaking (WT 

Docket No. 96–86 and PS Docket No. 

06–229); and State of Louisiana Petition 

for Rulemaking (RM–11577), published 

at 79 FR 71321, December 2, 2014, and 

published pursuant to 47 CFR 1.429(e). 

See also 47 CFR 1.4(b)(1) of the 

Commission’s rules. 


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