Policy Statement in Docket PL15-3, pub. in Fed. Reg.

33502

Federal Register / Vol. 81, No. 102 / Thursday, May 26, 2016 / Notices

Dated: May 20, 2016.
Kimberly D. Bose,
Secretary.

SUPPLEMENTARY INFORMATION:

[FR Doc. 2016–12411 Filed 5–25–16; 8:45 am]
BILLING CODE 6717–01–P

DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
[Docket No. PL15–3–000]

Policy Statement
Federal Energy Regulatory
Commission, DOE.
ACTION: Policy Statement.
AGENCY:

The Commission adopts the
following policies regarding future
implementation of 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 clarifies
the scope and definition of the costs that
should be subject to hold harmless
commitments. Second, the Commission
adopts the proposal that applicants
offering hold harmless commitments
should implement controls and
procedures to track the costs from
which customers will be held harmless.
The Commission identifies the types of
controls and procedures that applicants
offering hold harmless commitments
should implement. Third, the
Commission declines to adopt its
proposal to no longer accept hold
harmless commitments that are limited
in duration. Fourth, the Commission
clarifies that, in connection with certain
types of FPA section 203 transactions,
an applicant may be able to demonstrate
that the transaction will not have an
adverse effect on rates without the need
to make any hold harmless
commitment.
DATES: This policy statement will
become effective August 24, 2016.
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.
Noah Monick (Legal Information), Office
of the General Counsel, 888 First
Street NE., Washington, DC 20426,
(202) 502–8299, noah.monick@
ferc.gov.
Olga Anguelova (Accounting
Information), Office of Enforcement,
888 First Street NE., Washington, DC
20426, (202) 502–8098,
[email protected].

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SUMMARY:

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Policy Statement
1. The Commission issues this Policy
Statement to provide guidance regarding
future implementation of 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
2. On January 22, 2015, the
Commission proposed guidance in four
areas pertaining to hold harmless
commitments: (1) The scope and
definition of the costs that should be
subject to hold harmless commitments;
(2) controls and procedures to track the
costs from which customers will be held
harmless; (3) whether to no longer
accept hold harmless commitments that
are limited in duration; and (4)
clarification that, in certain cases, an
applicant may be able to demonstrate
that a proposed transaction will not
have an adverse effect on rates without
the need to make any hold harmless
commitment or offer any other form of
ratepayer protection mechanism.2 We
adopt, clarify, and withdraw, in part,
the proposals in the Proposed Policy
Statement as explained in further detail
below.
3. First, we adopt, as general
guidance, the lists of transaction-related
costs and transition costs that should be
subject to any hold harmless
commitment, as proposed in the
Proposed Policy Statement, and provide
additional clarifications regarding
transition costs, capital costs, labor
costs, and the costs of transactions that
are not consummated. Second, we
adopt, in part, the proposal regarding
establishing controls and procedures for
transaction-related costs subject to any
hold harmless commitment. Third, we
withdraw our proposal to no longer
accept hold harmless commitments that
are limited in duration and clarify that
we will continue to accept hold
harmless commitments that are time
limited to support a Commission
finding that a proposed transaction will
have no adverse effect on rates. Fourth,
we clarify that consistent with the
Merger Policy Statement, a hold
harmless commitment is one of several
forms of ratepayer protection that an
applicant can offer to address any
potential adverse effect on rates, and
that hold harmless commitments may be
unnecessary for some categories of
1 16

U.S.C. 824b (2012).
Statement on Hold Harmless
Commitments, Proposed Policy Statement, 80 FR
4231 (Jan. 27 2015), 150 FERC ¶ 61,031 (2015)
(Proposed Policy Statement).
2 Policy

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transactions if an applicant can
otherwise demonstrate that a proposed
transaction will have no adverse effect
on rates.
I. Background
A. The Commission’s Analysis of
Proposed Transactions Under FPA
Section 203
4. FPA section 203(a)(4) requires the
Commission to approve proposed
dispositions, consolidations,
acquisitions, or changes in control if it
determines that the proposed
transaction will be consistent with the
public interest.3 The Commission’s
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.4 Before
granting authorization, FPA section
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.’’ 5
5. The Proposed Policy Statement
focused on the second prong of the
Commission’s FPA section 203 analysis,
specifically, the effect of a proposed
transaction on rates. As explained in the
Proposed Policy Statement, the
Commission has stated that, when
considering a proposed transaction’s
effect on rates, the Commission’s focus
‘‘is on the effect that a proposed
transaction itself will have on rates,
whether that effect is adverse, and
3 16

U.S.C. 824b(a)(4) (2012).
Inquiry Concerning the Commission’s
Merger Policy Under the Federal Power Act: Policy
Statement, Order No. 592, 61 FR 68595 (Dec. 30,
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).
5 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).
4 See

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Federal Register / Vol. 81, No. 102 / Thursday, May 26, 2016 / Notices
whether any adverse effect will be offset
or mitigated by benefits that are likely
to result from the proposed
transaction.’’ 6 As relevant here, the
Commission considers whether the
transaction could result in an adverse
effect on rates to wholesale
requirements or transmission customers.
6. Generally, the Commission may
find that a transaction will have no
adverse effect on rates if an applicant
demonstrates that there is no
mechanism that would enable the
applicant to recover costs related to the
transaction in wholesale power or
transmission rates, either because
existing contracts would not allow such
costs to be passed through to customers
or, in the case of market-based rates, the
transaction can have no adverse impact
on wholesale rates.7 In addition, in
cases in which the proposed transaction
may have an effect on rates, the
Commission may nevertheless be able to
find that the transaction will not have
an adverse effect on rates if the
applicant has demonstrated that there
are offsetting benefits. Finally, the
Commission may base its finding that a
transaction will not have an adverse
effect on rates in whole or in part on an
applicant’s offer of specific ratepayer
protections, such as a hold harmless
commitment.
7. 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.8 Similarly,
if an applicant is unable to pass through
transaction-related costs because its
existing contracts do not allow for such
pass through, then the transaction will
have no adverse effect on rates for such
customers.9 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 benefits to ratepayers that
would offset any potential rate impact.

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6 Proposed

Policy Statement, 150 FERC ¶ 61,031
at P 3 (quoting ITC Midwest LLC, 140 FERC
¶ 61,125, at P 19 (2012)).
7 See Exelon Corp., 149 FERC ¶ 61,148, at P 105
(2014).
8 Cinergy 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.’’).
9 See, e.g., Public Service Co. of New Mexico, 153
FERC ¶ 61,377, at P 39 (2015); NRG Energy
Holdings, Inc., 146 FERC ¶ 61,196, at P 87 (2014).

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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.10
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.11 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.12
8. 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, instead, established
various ratepayer protection
mechanisms that an applicant could
10 The 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).
11 An 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 effect will be offset or mitigated by benefits
likely to result from the Proposed Transaction.’’).
12 See, 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).

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33503

offer to insulate customers from any
possible rate effects attributable to a
proposed transaction.13
9. 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.’’ 14 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.
—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.15

10. 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.16
11. 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
13 Merger 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.’’).
14 Id. at 30,124.
15 Id. (footnotes omitted).
16 Id.

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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.17

12. 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.18

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B. Current Commission Practice
Regarding Hold Harmless Commitments
13. 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.19 More
recently, hold harmless commitments
have been made in connection with
transactions by traditional franchised
utilities to acquire jurisdictional
facilities in order to satisfy resource
adequacy requirements at the state level,
to improve system reliability and/or
meet other regulatory requirements.20
14. 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 transaction17 Order No. 642, FERC Stats. & Regs. ¶ 31,111 at
31,914.
18 Id.
19 The 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).
20 See, 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).

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related savings.21 Thus, hold harmless
commitments typically focus on
preventing recovery in rates of the costs
incurred that are ‘‘related’’ to the
transaction.22 Although the Commission
has relied on commitments to hold
customers harmless from transactionrelated costs to support findings of no
adverse effects on rates, these
commitments generally have not
included detailed definitions of the
transaction-related costs that are
covered by the applicant’s hold
harmless commitment or identified the
categories of savings that the transaction
is expected to produce.23
C. Proposed Policy Statement
15. On January 22, 2015, the
Commission issued a Proposed Policy
Statement on Hold Harmless
Commitments to attempt to address: (1)
Concerns of parties that may believe
hold harmless commitments offer
insufficient protection; (2) instances in
which hold harmless commitments may
not be necessary; and (3) confusion over
the scope and coverage of hold harmless
commitments.
16. The Proposed Policy Statement
focused on the matter of what should
constitute an acceptable hold harmless
commitment to demonstrate that
21 NSTAR 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).
22 An applicant may seek to recover transactionrelated 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. Specifically, an applicant must
submit a new filing under FPA section 205 and a
concurrent informational filing in the relevant FPA
section 203 docket. In the FPA section 205 filing,
an applicant must: (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. Exelon
Corp., 149 FERC ¶ 61,148 at PP 105–107.
23 See, 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.’’).

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ratepayers will be adequately protected
from any rate effects of a transaction.
The Commission identified several
general areas to address including: (1)
The scope and definition of the costs
that should be subject to hold harmless
commitments; (2) controls and
procedures to track the costs from
which customers will be held harmless;
(3) the acceptance of hold harmless
commitments that are limited in
duration; and (4) clarification that, if
applicants are otherwise able to
demonstrate that a proposed transaction
will not have an adverse effect on rates,
then there is no need for applicants to
make hold harmless commitments or
offer other ratepayer protection
mechanisms. The Proposed Policy
Statement did not propose to provide
guidance on what categories of savings
related to a proposed transaction may be
used in a subsequent section 205 filing
to justify recovery of transaction-related
costs. These issues will be considered
on a case-by-case basis.
D. Comments
17. Comments were filed by American
Electric Power Company, Inc. (AEP);
American Public Power Association and
the National Rural Electric Cooperative
Association (collectively, APPA and
NRECA); Edison Electric Institute (EEI);
Electric Power Supply Association
(EPSA); Louisville Gas and Electric
Company and Kentucky Utilities
Company (collectively, Kentucky
Utilities); South Central MCN, LLC and
Midcontinent MCN, LLC (collectively,
Transmission-Only Companies);
Southern Company Services, Inc. as
agent for Alabama Power Company,
Georgia Power Company, Gulf Power
Company, and Mississippi Power
Company (collectively, Southern
Company); Transmission Access Policy
Study Group; and Transmission
Dependent Utility Systems
(Transmission Dependent Utilities).
18. We discuss specific concerns
raised by commenters below.
II. Discussion
A. Scope and Definition of TransactionRelated Costs
1. Proposal
19. The Commission’s experience has
been that applicants generally do not
attempt to define what costs are
subsumed in the term ‘‘transactionrelated costs,’’ and that this may lead to
later disagreement over which costs are
or are not covered by the applicant’s
hold harmless commitment. In the
Proposed Policy Statement, therefore,
the Commission set forth guidelines for
costs subject to hold harmless

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commitments offered by FPA section
203 applicants.24 Specifically, the
Commission proposed that 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
transaction-related savings.25 The
Commission proposed to provide
guidance in the Proposed Policy
Statement regarding how to identify
transaction-related costs, and
acknowledged that attempts to precisely
articulate all such costs are not feasible.
20. First, the Commission proposed
that transaction-related 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 26 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; 27
• the costs of obtaining shareholder
approval (e.g., the costs of proxy
solicitation and special meetings of
shareholders);
• professional service fees incurred in
the transaction (e.g., fees for
accountants, surveyors, engineers, and
legal consultants); and
• installation, integration, testing, and
set up costs related to ensuring the
operability of facilities subject to the
transaction.
21. Moreover, the Commission stated
that, for transactions that are pursued
24 See Proposed Policy Statement, 150 FERC
¶ 61,031 at PP 21–28.
25 We expect that applicants proposing to recover
these costs would track and record them pursuant
to the procedures established below. See infra PP
66–69.
26 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.
27 Some of these costs are typically incurred prior
to the announcement of a merger.

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but never completed (transactions that
ultimately fail), transaction-related costs
should not be recovered from
ratepayers. The Commission also
recognized that not every cost listed
above will be found in every
transaction,28 and that the final
determination of what transactionrelated costs may be recovered by
applicants will remain subject to caseby-case analysis.
22. The Commission stated that there
is a second category of transactionrelated costs related to mergers, where,
in addition to the costs to consummate
the transaction described above, parties
typically also incur costs to integrate the
operations and assets of the merging
companies in order to achieve merger
synergies.29 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)
and expense items (e.g., costs to
eliminate redundancies, combine
departments, or maximize contracting
efficiencies). The Commission proposed
that such transition 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.30
23. The Commission stated that this
list of transition costs is not exhaustive,
and may include other categories of
28 Proposed

Policy Statement, 150 FERC ¶ 61,031
at P 23.
29 Entities 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.
30 Proposed Policy Statement, 150 FERC ¶ 61,031
at P 24.

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costs incurred or paid in connection
with the integration of two utilities after
a merger. Thus, the Commission
proposed to consider transition costs as
transaction-related costs that should be
subject to hold harmless commitments
on a case-by-case basis and that such
transaction-related costs should be
covered under hold harmless protection,
although noting that applicants will
have an opportunity to show why
certain of those costs should not be
considered transaction-related costs
under their hold harmless commitment
based on their particular circumstances.
Also, the Commission proposed to
consider, on a case-by-case basis,
whether other costs not discussed
herein should be subject to hold
harmless commitments.
24. Additionally, the Commission
noted 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.31
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.32 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
31 Id.

P 26.

32 Purchase

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), http://asc.fasb.org.

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accounts in future periods if needed for
ratemaking purposes.33 The
Commission stated that it believed 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.
25. Finally, the Commission stated, in
the context of FPA section 203
transactions involving the acquisition of
discrete assets (e.g., an existing power
plant) 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.34 The Commission
stated that it has not, and does not,
consider acquisition premiums to be
part of transaction-related costs and, as
such, it did not believe that the
proposed treatment of transactionrelated costs required a change in the
Commission’s current practice with
respect to acquisition premiums.
Therefore, the Commission stated it will
continue to preclude recovery of
acquisition premiums as part of
transaction-related costs, and reminded
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, whether or not a hold
harmless commitment has been made.35
2. Comments
a. General Comments
26. As a general matter, many
commenters support the Commission’s
intent to provide additional guidance

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33 PPL

Corp., 133 FERC ¶ 61,083, at P 39 (2010);
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).
34 Proposed Policy Statement, 150 FERC ¶ 61, 031
at P 27.
35 Id. (citing Duke Energy Progress, Inc., 149 FERC
¶ 61,220, at PP 67–68 (2014) (reviewing
Commission precedent requiring that acquisition
adjustments 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)).

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and clarity to the costs covered by hold
harmless commitments.36 For example,
EEI generally supports the list of costs
that the Commission proposes to
consider as transaction-related costs
covered by a hold harmless commitment
as long as individual applicants
continue to have the flexibility to tailor
what is covered by the hold harmless
commitment to their individual
circumstances.37 EEI also states that the
Commission should explicitly confirm
that hold harmless commitments only
apply to transaction-related costs.38
27. Several commenters support the
full list of transaction-related costs the
Commission enumerated.39 For
example, APPA and NRECA support the
scope of the costs outlined in the
Proposed Policy Statement. APPA and
NRECA list the following benefits likely
to emerge from the Commission’s
clarifications including: (1) Fewer
protests of FPA section 203
applications; (2) more streamlined FPA
section 203 proceedings; (3) improved
ratepayer protections; (4) more
consistent Commission orders; (5) easier
enforcement and administration in
Commission orders; (6) fewer
compliance issues and complaints
regarding cost recovery; (7) greater
assurance of recovery of costs; and (8)
lower financing costs due to more
regulatory certainty.40
28. At the same time, APPA and
NRECA agree that the proposed list of
costs is not definitive or determinative
and that ‘‘because each transaction is
unique, the final determination of what
transaction-related costs may be
recovered by applicants will remain
subject to a case-by-case analysis.’’ 41
APPA and NRECA and the
Transmission Dependent Utilities
suggest that applicants should bear the
ultimate burden to show the adequacy
of their hold harmless commitment.42
The Transmission Dependent Utilities
request that the Commission confirm
that, in making its case-by-case
determinations as to additional costs
that will be subject to particular hold
36 See AEP Comments at 2; APPA and NRECA
Comments at 8; EEI Comments at 2; Kentucky
Utilities Comments at 2; Southern Company
Comments at 5; Transmission Access Policy Study
Group Comments at 1;Transmission Dependent
Utilities Comments at 3.
37 EEI Comments at 13.
38 Id.
39 APPA and NRECA Comments at 9;
Transmission Access Policy Study Group
Comments at 3; Transmission Dependent Utilities
Comments at 3–4.
40 APPA and NRECA Comments at 7–8.
41 Id. at 8 (citing Proposed Policy Statement, 150
FERC ¶ 61,031 at P 21). See also Transmission
Dependent Utilities Comments at 4.
42 APPA and NRECA Comments at 9;
Transmission Dependent Utilities Comments at 4.

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harmless commitments, the Commission
will not limit its consideration only to
consummation and transition costs but
it will consider ‘‘any rate increase that
results from a transaction.’’ 43
29. APPA and NRECA also state that
they remain skeptical that utility
mergers benefit customers in the form of
lower wholesale energy prices or lower
transmission rates and assert that
empirical evidence supports their
view.44 They state that the evidence for
the electric industry mergers is mixed at
best and shows that merger benefits do
not pan out and are not passed on to
consumers.45 Therefore, APPA and
NRECA state that the Commission
should be vigilant in enforcing hold
harmless commitments.46
30. Other commenters suggest the
Commission take a different approach
than an enumerated list of transactionrelated and transition costs. For
example, the Kentucky Utilities state
that the Proposed Policy Statement
should utilize ‘‘a more neutral’’
approach in its guidance as to whether
transaction-related costs should be
subject to a hold harmless commitment
and that, if the transaction meets direct
operating or regulatory compliance
needs, any offered hold harmless
commitment should not be assumed to
cover ‘‘nearly all’’ transaction/transition
costs.47 Instead, the Kentucky Utilities
suggest that the Commission should
recognize that covered costs should be
based on a fair and reasonable analysis
of the specific facts or circumstances of
the transaction.48
31. Several commenters support the
Commission’s current policy regarding
treatment of acquisition premiums.49
Finally, Transmission Access Policy
Study Group states that the Commission
should not be dissuaded from adopting
its proposal based on speculative
contentions that these measures will
chill investment.50
b. Transition Costs
32. EEI and AEP request that the
Commission provide greater clarity as to
the scope and definition of transition
43 Transmission

Dependent Utilities Comments at

4.
44 APPA and NRECA Comments at 6–7 (citing
John Kwoka, Merger Control, and Remedies: A
Retrospective Analysis of U.S. Policy 104, 126, 148,
155–56, 231 (2015)).
45 Id.
46 Id. at 7.
47 Kentucky Utilities Comments at 6.
48 Id.
49 APPA and NRECA Comments at 9;
Transmission Access Policy Study Group
Comments at 3–4; Transmission Dependent Utilities
Comments at n.8.
50 Transmission Access Policy Study Group
Comments at 4.

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costs. Both caution that the Proposed
Policy Statement does not distinguish
transition costs from other ongoing
business activities that merging entities
may undergo that are unrelated to the
merger but are also seeking to increase
efficiency.51 EEI notes that the lack of
distinction could lead companies to
postpone otherwise beneficial
investments to avoid those investments
being viewed as transaction-related
costs.52
33. Furthermore, AEP states that over
time the costs of ongoing business as a
public utility and transition costs will
become harder to differentiate,53 and
EEI cautions that a broad definition
risks creating uncertainty about
recovery of prudently-incurred costs.54
Both are specifically concerned that
post-integration engineering studies will
be included as transition costs and they
assert that doing so will discourage
utilities from undertaking studies that
are prudent or beneficial to ratepayers.55
Finally, AEP questions the
Commission’s basis for generally
including transition costs as transactionrelated costs because: (1) Applicants
generally commit to hold customers
harmless from costs directly incurred to
effectuate the transaction and (2) the
Proposed Policy Statement does not cite
a case in which the Commission has
formally adopted a rule requiring the
inclusion of transition costs as
transaction-related costs.56
c. Capital Costs
34. AEP and EEI assert that the costs
of any assets used to provide utility
service on an ongoing basis belong in
rate base and should not be excluded
from the rate base because they may be
a transaction cost.57 Both assert that
capital assets could be built to increase
efficiencies, they will benefit customers,
and the costs should be fully

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51 AEP

Comments at 5–6 (giving the examples of
‘‘engineering studies,’’ ‘‘operating systems
integration costs,’’ and ‘‘operational integration
costs’’); EEI Comments at 13–14 (giving the example
of investments in new information technology
systems, which could be timed coincidently with a
merger and not incurred primarily for the purpose
of integration, and, therefore, should not be
considered subject to a hold harmless commitment).
See also Kentucky Utilities Comments at 7
(cautioning that entities may also engage in nontransaction related refinancing and renegotiation of
vendor contracts that could be considered transition
costs under a broad definition and that only an
incremental or non-utility component of those costs
should be considered a transaction-related cost).
52 EEI Comments at 14.
53 See AEP Comments at 5 (stating that over time
these costs ‘‘will have an increasingly diminished
nexus to the merger itself’’).
54 See EEI Comments at 14.
55 See AEP Comments at 6; EEI Comments at 18.
56 See AEP Comments at 4–5.
57 See id. at 7; EEI Comments at 16.

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recoverable.58 AEP asserts that the test
for whether these capital costs should
be included should be the same as it has
always been: ‘‘are the facilities used and
useful by the utility’s customers and
were the costs of the facilities prudently
incurred in connection with the
provision of utility service.’’ 59 AEP
states that this is consistent with the
general principle that ratepayers should
bear the cost of utility service.60
35. AEP states that making capital
costs subject to a hold harmless
commitment raises further issues of how
the policy will be implemented,
including tracking and recovery of costs
and future interconnection of generating
facilities.61 AEP states that the
Commission has approved settlements
in the past that did not include new
transmission as a transition cost;
instead, the Commission waited to
address it in a future proceeding, which
AEP asserts is the appropriate course for
capital costs.62
36. Furthermore, EEI and AEP state
that hold harmless commitments should
not apply to costs related to new
facilities that are constructed at the
Commission’s direction or approval to
mitigate market power concerns raised
by a merger transaction.63 Both assert
that these assets provide utility service,
and therefore benefits, to customers and
should not be excluded from recovery as
transaction costs just because the assets
were included in mitigation strategies.64
EEI suggests that new facilities that raise
competition or rate concerns may be
addressed through protection
mechanisms other than a hold harmless
commitment and that doing so would
reduce implementation problems
regarding the tracking of costs and
recovery of related costs.65
37. EEI asserts that the Commission
should recognize that costs related to
transactions undertaken as part of
normal operations, such as to align
ownership of an asset with a
maintenance or reliability compliance
obligation, or a transaction involving
acquisition of a small, discrete
transmission asset from a distribution58 See AEP Comments at 7 (giving the example of
new more efficient facilities enabled by the
combined entities’ larger size); EEI Comments at
16–17 (giving the example of a new operations
center).
59 AEP Comments at 7.
60 Id. (citing Proposed Policy Statement, 150
FERC ¶ 61,031 at P 39).
61 Id. at 8, n.1.
62 Id. at 8 (citing Pub. Serv. Co. of Colo., 78 FERC
¶ 61,267, at 62,139 (1997)).
63 See id.; EEI Comments at 11, 17.
64 See AEP Comments at 8; EEI Comments at 16.
65 EEI Comments at 17–18 (suggesting providing
customers with a first call right on the increased
available transmission capacity).

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33507

only entity, should not be subject to
exclusion from rates under a hold
harmless commitment.66
d. Internal Labor Costs
38. AEP, EEI, and Southern Company
all suggest that the Commission should
clarify that internal labor costs that are
subject to a hold harmless commitment
should include only incremental costs
caused by the merger that would not
otherwise be incurred.67 They contend
that, if an employee was already
employed by the merging or acquiring
entities at the time the transaction was
announced, the employee’s salary
should not be treated as a transactionrelated cost because any assignments
related to the transaction would be
performed in addition to other duties,
with no additional compensation.68
Furthermore, EEI contends that the full
cost of an employee’s salary should
continue be fully recoverable because
the salary is prudently incurred to serve
existing customers.69 AEP and Southern
Company assert that excluding nonincremental employee costs would
result in unmerited rate reductions for
customers of merging entities 70 and
state that tracking labor costs will be
burdensome and subject employees to
endless tracking requirements.71
Finally, AEP and Southern Company
both state that the Proposed Policy
Statement cites no precedent to support
including non-incremental internal
labor costs as transaction-related costs
subject to a hold harmless
commitment.72 AEP asserts that
Commission precedent can reasonably
be read to mean that hold harmless
commitments only apply to incremental
internal costs.73
66 Id.

at 17.
AEP Comments at 11; EEI Comments at 15–
16; Southern Company Comments at 6–8. See also
Kentucky Utilities Comments at 7 (cautioning that
hold harmless commitments should only apply to
incremental costs in general).
68 See AEP Comments at 11–12; EEI Comments at
16; Southern Company Comments at 7. Southern
Company recognizes that some employees may
receive additional compensation due to a merger
and does not object to incremental compensation or
the costs of new staff brought on to effectuate the
transaction being treated as incremental transaction
costs. Southern Company Comments at 7–8.
69 EEI Comments at 16.
70 See AEP Comments at 11–12; Southern
Company Comments at 7.
71 See AEP Comments at 13; Southern Company
Comments at 9.
72 AEP Comments at 12; Southern Company
Comments at 8.
73 AEP Comments at 12 (citing Ameren Energy
Generating Co., 145 FERC ¶ 61,034, at P 97 n.99
(2013) (Ameren)).
67 See

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e. Costs of Transactions That Are Not
Completed and Costs Incurred Prior to
Announcement
39. AEP and EEI do not agree with the
Commission’s statement that costs
related to transactions that are never
completed should not be recovered from
ratepayers.74 Both assert that there are
sound business reasons that a firm may
choose not to pursue a transaction and
that excluding recovery of such costs
may improperly punish a firm for
abandoning a transaction that was not
ultimately in the best interest of its
customers or discourage a firm from
exploring transactions.75 EEI asserts that
past Commission policy did not exclude
recovery of such costs and that it is
difficult to ascertain when ‘‘normal
business decisions’’ become
transactions that are being ‘‘pursued.’’ 76
Furthermore, EEI asserts that the
proposal will require tracking of costs
with more specificity than is required
by the Commission’s current accounting
rules.77
40. Southern Company asks for a
clarification of the treatment of costs
related to failed acquisitions. It states
that a clarification that this statement is
applicable only to the merger context
would be useful because transactionrelated costs relating to failed attempts
to acquire specific generation and
transmission facilities to fulfill a need,
such as a need to serve load reliably,
should be recoverable in a utility’s costof-service.78 Southern Company
provides an example of a Request For
Proposals (RFP) for long-term capacity
that results in ten bidders and
negotiations are pursued with two of the
bidders, one offering a 20-year power
purchase agreement and another
offering to sell an existing generating
unit. If negotiations fail with the bidder
that happens to be an existing generator,
Southern states that transaction-related
costs associated with the potential
purchase should not be deemed
‘‘unrecoverable,’’ as the threat of such
an action could skew the RFP results.79
Southern states that such costs are
merely the routine costs of capacity
procurement efforts. Therefore,
74 Id. at 14 (citing Proposed Policy Statement, 150
FERC ¶ 61,031 at P 23); EEI Comments at 15.
75 See AEP Comments at 14–15 (stating that a
utility may not have completed a transaction for
which it incurred preliminary costs: (1) Because the
current owner decides to abandon the transaction;
(2) based on the results of due diligence review; (3)
because it determined a self-built project could be
built at lower cost; or (4) because a lower-cost
option becomes available from another seller); EEI
Comments at 15.
76 EEI Comments at 15.
77 Id.
78 Southern Company Comments at 4–5.
79 Id. at 5.

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Southern Company states that ‘‘[t]he
Commission should clarify that such
costs, to the extent prudently-incurred,
are permitted to be recovered in
wholesale power rates.’’ 80
41. EEI and EPSA contend that the
Commission should not require
inclusion of costs incurred prior to the
announcement of a transaction because
doing so would be premature,
burdensome, and costly.81 EEI states
that long-term strategic planning,
including investigating potential
transactions, is part of the routine daily
operations of any company and should
not be singled out for separate tracking,
which it asserts would be unwieldy and
misleading because staff would
conceivably have to bill their time
separately for every potential project or
transaction they analyze, just in case
that project or transaction came to
fruition.82 EEI states that the burden of
this proposal exceeds the benefits due to
the number of transactions that may be
explored and could provide a
disincentive for companies to
investigate transactions that could
ultimately benefit customers.83
f. Request for Guidance on Savings
42. EEI suggests that the Commission
should provide useful guidance by
adding some discussion to the Policy
Statement regarding the scope and
definition of transaction-related savings
or benefits.84 EEI states that, as part of
this guidance, the Commission should
specify ‘‘that hold harmless costs from
a purchase can be netted against
benefits from a future sale, so that if the
future sale produces net benefits those
can be used to offset the prior
purchase’s costs, thereby reducing or
eliminating costs to be tracked under a
hold harmless commitment for the prior
sale.’’ 85 EEI states that ‘‘[t]his would
allow companies that engage in multiple
transactions over time to ensure that
customers are not charged the costs net
of the benefits of [multiple] transactions
taken together. ’’ 86
3. Commission Determination
43. We adopt in part the policy set
forth in the Proposed Policy Statement
regarding what kinds of costs are
typically transaction-related costs
covered by a hold harmless
80 Id.
81 See EEI Comments at 14; EPSA Comments at
4–6 (‘‘Such a requirement is tantamount to asking
a couple who are only on a second date to pick out
their wedding china pattern.’’).
82 EEI Comments at 14.
83 Id. at 14–15.
84 Id. at 18.
85 Id.
86 Id.

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commitment. As described above,
comments received in response to the
Proposed Policy Statement were
generally supportive of the
Commission’s proposals. Accordingly,
we adopt, and will consider, as general
guidance, the proposed list of
transaction-related costs including:
• 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 87 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; 88
• the costs of obtaining shareholder
approval (e.g., the costs of proxy
solicitation and special meetings of
shareholders);
• professional service fees incurred in
the transaction (e.g., fees for
accountants, surveyors, engineers, and
legal consultants); and
• installation, integration, testing, and
set up costs related to ensuring the
operability of facilities subject to the
transaction.
44. Further, we will adopt, and will
consider, as general guidance, the
proposed subset of transaction-related
costs—transition costs—to include the
following when incurred to integrate
operations:
• 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.
45. We will continue to consider hold
harmless commitments on a case-by87 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.
88 Some of these costs are typically incurred prior
to the announcement of a merger.

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case basis and, as such, applicants may
propose that their hold harmless
commitment cover specific transactionrelated costs in addition to those listed
above, if they can demonstrate that
those certain cost categories may be
properly included or excluded from
their hold harmless commitment
without an adverse effect on rates. The
burden remains on applicants to show
that any offered hold harmless
commitment will meet the
Commission’s standard that the
proposed transaction does not have an
adverse effect on rates.
46. We decline to adopt the
Transmission Dependent Utilities’
request that we consider any rate
increase that results from a transaction
to be a transaction-related cost subject to
an applicant’s hold harmless
commitment. This goes beyond our
standard on adverse effects on rates as
an increase in rates ‘‘can still be
consistent with the public interest if
there are countervailing benefits that
derive from the merger.’’ 89 The
adoption of the Transmission
Dependent Utilities request would
curtail an applicant’s ability to craft
suitable ratepayer protection
mechanisms and limit the Commission’s
ability to authorize transactions where
rate increases are offset by the benefits
of the transaction. We continue to
believe that the guidance related to
transaction-related costs set out in this
Policy Statement does not require a
change in the Commission’s current
practice with respect to acquisition
premiums. Therefore, 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, whether or not a
hold harmless commitment has been
made.
47. To provide further clarity, we
discuss below, in detail, the following
topics: (a) Transition costs; (b) capital
costs; (c) internal labor costs; (d) costs
of transactions that are not completed
and costs incurred prior to
announcement; and (e) requests for
guidance on savings.
a. Transition Costs
48. We will continue to consider
transition costs as a subset of
89 Merger Policy Statement, FERC Stats. & Regs.
¶ 31,044 at 30,114; see, e.g., Bluegrass Generation
Co., L.L.C., 139 FERC ¶ 61,094 at P 41 (finding no
adverse effect on rates because increases in capacity
charges would be offset by a savings in energy
rates).

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transaction-related costs. We are
unconvinced by commenters’ assertions
that the line distinguishing costs
incurred in connection with the normal
business activities of a public utility and
costs incurred to integrate operations
and assets of two previously unaffiliated
companies is difficult to discern or too
burdensome to track. We acknowledge
that the classification of a specific cost
is fact specific and requires judgment in
some cases. Nevertheless, to the extent
there are categories of transition costs
listed herein that applicants do not
consider transaction-related based on
transaction specific circumstances,
applicants are free to demonstrate in the
FPA section 203 proceeding that these
costs should not be considered
transaction-related. We acknowledge
AEP’s concern that the Commission has
not adopted a formal rule regarding the
treatment and definition of transition
costs for purposes of a hold harmless
commitment. However, the Commission
has stated that transaction-related costs,
in the context of a hold harmless
commitment, include transition costs.90
In this Policy Statement, we provide
additional guidance as to what those
costs are. Further, if an applicant
categorizes costs as transaction-related
out of an abundance of caution because
there is uncertainty regarding the nexus
between the cost and the transaction,
the Commission’s policy provides for
the recovery of such costs with a
demonstration of offsetting benefits
should the transaction produce savings
or other synergies.91 This policy should
not discourage beneficial investment by
applicants following completion of a
Commission-authorized transaction, but
rather should encourage documentation
90 See, e.g., Union Power Partners, L.P., 154 FERC
¶ 61,149, at P 63 (2016) (‘‘We interpret Purchaser’s
hold harmless commitment to apply to all
transaction-related costs, including costs related to
consummating the Proposed Transaction and
transition costs, incurred prior to the
consummation of the Proposed Transaction, or in
the five years after the Proposed Transaction’s
consummation.’’) (emphasis added); Exelon Corp.,
138 FERC ¶ 61,167, at P 118 (2012) (‘‘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 related synergies.’’)
(emphasis added).
91 Merger Policy Statement, FERC Stats. & Regs.
¶ 31,044 at 30,123 (noting that an increase in rates
‘‘can be consistent with the public interest if there
are countervailing benefits that derive from the
transaction’’); Pennsylvania Electric Co., 154 FERC
¶ 61,109 at P 48 (‘‘The Commission has established
that, where applicants make hold harmless
commitments in the context of FPA section 203
transactions, in order to recover transaction-related
costs, applicants must demonstrate offsetting
benefits at the time they apply to recover those
costs.’’).

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33509

and tracking of those costs and related
savings.
b. Capital Costs
49. We also clarify that whether or not
capital costs, including capital costs
related to mitigation, should be
considered transaction-related costs that
should be subject to an applicant’s hold
harmless commitment can be
considered on a case-by-case basis
either upfront in the FPA section 203
proceeding, or when an applicant seeks
to recover such costs in an FPA section
205 proceeding.92 In this regard, we
recognize that it would be inappropriate
to adopt a general policy that all capital
costs, including capital costs related to
mitigation, are subject to an applicant’s
hold harmless commitment. Applicants
may incur capital costs for facilities that
are used and useful and provide service
to customers. Conversely, applicants
may also incur capital costs as a direct
requirement of the transaction, which
are not used and useful until a later
point in time. An inquiry into whether
these costs are used and useful or
otherwise prudently incurred would
require a fact specific inquiry, which is
more appropriately handled on a caseby-case basis rather than under a
generally applicable policy.
50. In general, capital costs unrelated
to the transaction are not subject to an
applicant’s hold harmless commitment.
For example, applicants may be able to
demonstrate that certain capital projects
were already in the preliminary stages
of construction or development prior to
the merger announcement and would be
completed whether or not the
transaction is ever consummated. If
adequately documented, we agree that
such capital costs should not be subject
to an applicant’s hold harmless
commitment.
51. As guidance, we are principally
concerned about three categories of
capital costs directly tied to the
transaction that may negatively impact
customer rates: (1) The capital costs of
facilities that are constructed as part of
an applicant’s commitment to mitigate
competition concerns that have been
identified in the Commission’s
authorization; (2) the costs of replacing
any equipment or facility of merging
companies, prior to the end of its useful
life, if such action was the direct
consequence of a transaction; and (3)
the transition costs of integrating the
previously separate systems. Generally,
these costs will be considered
transaction-related costs subject to an
applicant’s hold harmless commitment
92 Proposed Policy Statement, 150 FERC ¶ 61,031
at PP 21–25.

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unless applicants demonstrate offsetting
benefits, or offer ratepayer protections
other than a hold harmless commitment,
in their FPA section 203 application.
52. While applicants may present
their case-by-case analysis when they
seek to recover capital costs in an FPA
section 205 proceeding, we advise
applicants to present a clear case in
their FPA section 203 application to
avoid uncertainty when possible.
Therefore, we advise applicants to
clearly state which known capital costs
related to the transaction will be
included or excluded from a hold
harmless commitment at the time of
their FPA section 203 application.
Further, we advise applicants to clearly
explain a process for determining which
capital costs—that may be unknown at
the time of the application but are
related to the transaction and
determined at a future date—will be
included or excluded from a hold
harmless commitment at the time of
their FPA section 203 application.
Similarly, we advise applicants to
explain the treatment of operation and
maintenance costs incurred in relation
to transaction-related capital costs if the
related plant asset meets the used and
useful criterion in providing utility
service, the Commission may consider
exclusion of such costs from the hold
harmless commitment. A clear
explanation in the FPA section 203
application of the treatment of capital
costs will aid the Commission and third
parties in understanding how a
transaction will not have an adverse
effect on rates both in considering the
application and in future related
proceedings, including any future FPA
section 205 filing to show transactionrelated savings.
53. Finally, we note that capital costs
incurred for documented utility need,
including those for reliability, such as
transmission upgrades, that are related
to a transaction may offer similar
benefits to the transactions discussed
below where a hold harmless
commitment may not be necessary for a
showing of no adverse effect on rates.93
In such cases, applicants may
demonstrate that such capital costs are
not transaction-related costs subject to
their hold harmless commitment by
showing such costs have offsetting
benefits or otherwise showing that these
capital costs have no adverse effect on
rates.
c. Internal Labor Costs
54. We will adopt the proposal to
include both internal and external labor
costs related to a transaction as
93 See

infra PP 92–95.

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transaction-related costs. The
Commission’s concern is that an
applicant will use its existing
employees to both perform normal
utility activities as well as transactionrelated activities and not make a
distinction between the two activities.
As a result, the applicant would recover
transaction-related labor costs without
demonstrating that they are offset by
benefits. Thus, an appropriate labor cost
allocation is needed to ensure the
applicant’s ratepayers are not paying for
transaction-related activities without a
showing of offsetting benefits.
55. The Commission declines to adopt
AEP’s reading of Commission precedent
in Ameren as limiting transactionrelated internal labor costs to
incremental internal labor costs.94 In
Ameren the Commission stated that the
applicant must file its accounting for
any costs incurred to effectuate the
transaction which ‘‘may include, but are
not limited to, internal labor costs, legal,
consulting, and professional services
incurred to effectuate the
transaction.’’ 95 This statement directing
accounting entries to be filed does not
impact the scope of transaction-related
costs subject to the applicant’s hold
harmless commitment, and thus, cannot
be construed to mean that hold harmless
commitments only apply to incremental
labor costs.
56. Commenters’ arguments that labor
costs for existing employees that
perform additional transaction-related
tasks but receive no additional
incremental salary should not be subject
to hold harmless commitment are
misplaced. Imposing additional
transaction-related tasks on existing
employees without additional
compensation does not relieve
applicants from general ratemaking
principles, which require that employee
costs follow the employees’ assigned
tasks.96 Employees’ time should be
allocated in proportion to the tasks
performed. Otherwise, ratepayers will
bear transaction-related costs without
offsetting benefits. Therefore, it is the
Commission’s policy that applicants
support the allocation of the labor costs
for salaried employees who work on
both normal business activities in
providing utility service and on
transaction-related activities with
appropriate supporting documentation
(e.g., approved time sheets detailing the
94 Ameren,

145 FERC ¶ 61,034 at P 97, n.99.

95 Id.
96 See, e.g., Final Audit Report: Audit of Formula
Rates, Transmission Incentives, and Demand
Response at Baltimore Gas and Electric Company,
Docket No. FA13–13–000 at 17–18 (2015) (noting
inappropriate recovery of internal labor costs in
transmission rates).

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allocation of actual time worked on
utility, transaction, and other non-utility
activities). To the extent applicants are
unable or unwilling to track internal
employees time related to a transaction,
applicants should consider and propose
other ratepayer protection mechanisms.
d. Costs of Transactions That Are Not
Completed and Costs Incurred Prior to
Announcement
57. As for costs related to transactions
that are pursued but never completed,
we clarify our statement that such
‘‘costs should not be recovered from
ratepayers.’’ 97 Instead those costs are
subject to the Commission’s general
rate-making principles under FPA
sections 205 and 206 and the
Commission’s accounting precedent.98
With respect to EEI’s comment
regarding activities in the early stages of
a transaction that are undertaken in the
course of normal business, we note that
only those activities related to the
transaction for which the hold harmless
commitment was made necessitate
separate tracking. In terms of tracking
expenses prior to the announcement of
a transaction, we note that a hold
harmless commitment only applies
where the Commission issues an order
accepting such a commitment. Expenses
for transactions that do not reach that
point are subject to the Commission’s
ordinary ratemaking principles.
Moreover, if a transaction that is the
subject of a hold harmless commitment
is not consummated, there would
presumably never be any transactionrelated savings that could offset
transaction-related costs.
58. In addition, we clarify that while
all costs related to the acquisition of an
existing facility required to serve load or
transmission customers, including costs
associated with bids for other facilities
that were incurred as a part of routine
capacity procurement efforts, will be
considered transaction-related costs if
an applicant makes a hold harmless
commitment, as we have noted in the
preceding paragraphs, capital costs of
facilities that are used and useful and
provide service to customers would
normally be recoverable in rates under
general ratemaking principles, unless
the capital costs fall within one of the
categories discussed above (e.g., capital
costs related to mitigation measures), in
which case they would be subject to the
97 Proposed Policy Statement, 150 FERC ¶ 61,031
at P 23.
98 The costs incurred to consummate a merger
transaction are considered to be nonoperational in
nature and, to the extent recorded on a
jurisdictional entity’s books, should be included in
a non-operating expense account—Account 426.5,
Other Deductions. 18 CFR pt. 101 (2015).

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applicant’s hold harmless commitment.
Moreover, under our accounting rules,
when electric plant constituting an
operating system is purchased, the costs
of acquisition, including expenses
incidental thereto, are properly
includible in electric plant and charged
to Account 102, Electric Plant
Purchased or Sold.99 Thus, in the
situation Southern Company posits, the
real question is what portion of the costs
associated with an RFP process,
including costs incurred pursuing bids
that are ultimately unsuccessful, would
be properly includible in the costs of the
facility that is acquired. To the extent all
or some portion of those costs are
included in the cost of the facility that
is acquired, and assuming that the
facility is used and useful and provides
service to customers, they would
normally be recoverable as capital costs
associated with that facility and,
therefore, not be subject to any hold
harmless commitment that is made.
e. Request for Guidance on Savings
59. Regarding transaction-related
savings, we decline to allow the netting
of benefits from future transactions
against the transaction-related costs of
past transactions, as EEI suggests. The
Commission has previously confined its
analysis regarding the effect on rates to
the transaction that is the subject of the
application.100 Applicants are not
required to create separate records to
measure savings if they do not intend to
recover transaction-related costs from
ratepayers. Furthermore, we decline to
speculate on the scope and definition of
transaction-related savings that
applicants may offer in a subsequent
FPA section 205 filing in order to
recover transaction-related costs
covered by a hold harmless commitment
given that we have received a limited
number of FPA section 205 filings
seeking to recover transaction-related
costs by showing offsetting savings.
Applicants may choose the most
appropriate method to calculate savings
so long as the savings can be shown to
result from the transaction. We will
review these filings on a case-by-case
basis.

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B. Controls and Procedures To Track
and Record Costs Related to Hold
Harmless Commitments
1. Proposal
60. In the Proposed Policy Statement
the Commission proposed to clarify that
99 18

CFR pt. 101 (2015).
BHE Holdings, Inc., 133 FERC ¶ 61,231 at
P 40 (focusing on ‘‘costs related to the instant
transaction for purposes of the Commission’s
section 203 analysis’’).
100 See

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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.101
61. Specifically, the Commission
noted that applicants are required to
describe in their FPA section 203
applications how they intend to protect
ratepayers from transaction-related
costs, consistent with their obligation to
show that their transaction is consistent
with the public interest.102 As
contemplated in the Merger Policy
Statement, a hold harmless commitment
offered by applicants must be
‘‘enforceable and administratively
manageable.’’ 103 Therefore the
Commission proposed that 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.104 In the Proposed Policy
Statement, the Commission proposed
the following additional guidance
regarding these requirements.
62. First, the Commission proposed 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.105
63. Second, the Commission proposed
that applicants offering hold harmless
commitments should include, as part of
their FPA section 203 applications and
any separate FPA section 205 filings
seeking to recover transaction-related
101 Proposed Policy Statement, 150 FERC
¶ 61,031 at P 29.
102 See Order No. 642, FERC Stats. & Regs.
¶ 31,111 at 31,914.
103 Merger Policy Statement, FERC Stats. & Regs.
¶ 31,044 at 30,124.
104 See Silver Merger Sub, Inc., 145 FERC
¶ 61,261, at P 78 (2013); ITC Holdings Corp., 143
FERC ¶ 61,256, at P 168 (2013).
105 Proposed Policy Statement, 150 FERC
¶ 61,031 at P 30.

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costs, 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.106
64. The Commission noted that it had,
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.107 The Commission
proposed to require applicants subject
to the Commission’s accounting
regulations to provide, as a part of this
accounting filing, the accounting entries
and amounts related to all transactionrelated costs incurred as of the date of
the accounting filing, along with
narrative explanations describing the
entries.108
2. Comments
65. EEI requests clarifications and
changes related to the Commission’s
proposed accounting treatment. EEI
encourages the Commission to have
applicants ‘‘simply identify succinctly
how they plan to categorize and handle
the costs, in conformance with the
Uniform System of Accounts . . . .’’ 109
EEI asserts that applicants should be
able to rely on the accounting systems
they already have in place without
having to explain the design and use of
those systems, as their accounting
practices are already overseen by the
Commission.110 EEI asserts the
Commission should specify that if
transaction costs are reasonably
projected to be minor or below a certain
106 Id.

P 31.
e.g., Central Vermont Public Service
Corp., 138 FERC ¶ 61,161, at P 55 (2012).
108 Proposed Policy Statement, 150 FERC
¶ 61,031 at P 32.
109 EEI Comments at 19.
110 Id.
107 See,

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threshold, the costs need not be tracked,
as the cost of tracking them would
exceed the benefit.111 EEI also
encourages the Commission to extend
the deadline for submitting accounting
to one year rather than six months as the
information may take more than six
months to be verified and the extra time
would lead to a more complete filing.112
66. Noting that the Commission seeks
to require applicants to track and record
costs that may be incurred even prior to
a public announcement of any proposed
transaction, EPSA states it does not
understand how the Commission can
recognize that it can be challenging to
accurately track, record and categorize
all transaction-related costs but also
require applicants to keep accurate
accounting of such information,
particularly in the early stages of a
negotiation.113 EPSA states the
proposed requirement is not only
premature, but extremely difficult to
implement, administratively
burdensome, and costly.114 EPSA states
that this requirement is more
appropriate after a public
announcement of a transaction.
Therefore, EPSA requests that the
Commission not require tracking of
transaction-related costs incurred prior
to the announcement of a transaction.115
67. APPA and NRECA, Transmission
Access Policy Study Group, and
Transmission Dependent Utilities
support the Commission’s proposed
tracking requirements.116 Specifically,
APPA and NRECA support the
Commission’s proposal that the internal
controls and procedures should be
detailed in the FPA section 203
applications and any related FPA
section 205 rate filing.117 Transmission
Access Policy Study Group states that
internal controls are both feasible and
essential and are good housekeeping,
consistent with the practice of regulated
utilities to operate pursuant to systems
of accounts and fundamental to
honoring hold harmless
commitments.118 Transmission
Dependent Utilities support the tracking
requirements because the clarifications
will help ensure that transaction-related
costs will be quantified, documented,
and verified and ensure that transaction111 Id.
112 Id.

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113 EPSA

Comments at 6.

114 Id.
115 Id.
116 APPA and NRECA Comments at 10–11;
Transmission Access Policy Study Group
Comments at 1, 4; Transmission Dependent Utilities
Comments at 7.
117 APPA and NRECA Comments at 10.
118 Transmission Access Policy Study Group
Comments at 4.

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related costs will not be recovered from
ratepayers until applicants demonstrate
offsetting savings.119 Transmission
Dependent Utilities assert that these
requirements will result in fewer
compliance difficulties, will reduce
disputes about cost recovery, and will
simplify the Commission’s
administration of hold harmless
conditions by providing a clearer
picture of each public utility’s
compliance efforts.120
3. Commission Determination
68. We will withdraw the
Commission’s proposal requiring
applicants to describe their accounting
procedures and practices, and how they
maintain the underlying accounting
data for the transaction. As EEI
suggested, applicants should be able to
rely on their accounting systems
without having to explain the design
and use of those systems in the FPA
section 203 filing. However, we will
adopt the Commission’s proposal
regarding establishing controls and
procedures for transaction-related costs
subject to the hold harmless
commitment, regardless of the projected
amount of the costs of the transaction.
We will also adopt the proposal that
applicants offering hold harmless
commitments should include in the
FPA section 203 application a
description of how they define,
designate, accrue, and allocate
transaction-related costs. Applicants
should also explain the criteria used to
determine which costs are transactionrelated.
69. Applicants that make a hold
harmless commitment must make clear,
at minimum, what they are committing
to and have the ability to record and
track such costs. A well-documented
methodology and system to account for
such costs also facilitates uniformity in
practice and reduces confusion in how
the hold harmless commitments are
applied. Additionally, if applicants
choose to seek recovery of those costs in
a separate FPA section 205 filing, proper
documentation is necessary for
determining the appropriateness of the
recovery. Moreover, proper
documentation of these costs will
provide for the avoidance of ongoing
litigation which has been voiced as a
concern by commenters.121
70. We will continue to require that
applicants submit their final accounting
entries associated with transactions
119 Transmission
120 Id.
121 See, e.g., AEP Comments at 10; EEI Comments
at 7, 10; Southern Company Comments at 9, 12.

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C. Time Limits on Hold Harmless
Commitments
1. Proposed Policy Statement
Recommendations
72. The Commission proposed to
reconsider whether a hold harmless
commitment that is limited to five years
or another specified time period
adequately protects ratepayers from an
adverse effect on rates.122 Specifically,
in light of the proposed treatment of
certain categories of costs as transactionrelated for purposes of any hold
harmless commitment, the
Commission’s experience auditing
utilities that have made hold harmless
commitments, and concerns of
protestors in previous FPA section 203
applications,123 the Commission

Dependent Utilities Comments

at 7.

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within six months of the date that the
transaction is consummated. We will
also adopt the Commission’s proposal to
require applicants subject to the
Commission’s accounting regulations to
provide, as a part of this accounting
filing, the amounts related to all
transaction-related costs incurred as of
the date of the accounting filing. The
final accounting entries and amounts
related to transaction-related costs allow
the Commission to scrutinize how
applicants record the transaction at the
time of consummation and apply the
criteria to identify transaction-related
costs as of the accounting filing date.
The filing does not necessarily reflect all
transaction-related costs as they
typically continue to be incurred well
after the merger. Given that applicants
should have controls and procedures in
place to track these costs in a timely
manner, six months should be adequate
for filing the accounting entries. If
additional time is needed, applicants
may file a request for extension
including the reasons for the requested
additional time.
71. We clarify that irrespective of the
date that a transaction is announced,
companies required to follow the
Commission’s accounting regulations
must have appropriate controls and
procedures in place to track transactionrelated costs to ensure compliance.
Specifically, the Commission’s longstanding policy is that costs incurred to
effectuate a merger are non-operating in
nature, and they should be recorded in
Account 426.5, Other Deductions.
Accordingly, absent a change in the
Commission’s accounting requirements,
these costs should be tracked when they
are incurred.

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122 Proposed Policy Statement, 150 FERC ¶ 61,031
at P 34.
123 See, e.g., PNM Resources, Inc., 124 FERC
¶ 61,019, at P 36 (2008) (protestor alleging that the

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proposed to reconsider whether hold
harmless commitments that are limited
to five years (or another specified
period) adequately protect ratepayers
from any adverse effect on rates. As part
of this reconsideration, the Commission
stated that it believed that time-limited
hold harmless commitments may not
adequately protect ratepayers from
transaction-related costs. Therefore, the
Commission proposed 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.124 The
Commission stated that 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.125

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2. Comments
73. Many commenters suggest that the
Commission should continue to accept
time limited hold harmless
commitments.126 They contend that the
Commission has not shown that there is
any evidence that applicants have
purposely deferred costs past the end of
the five-year period or otherwise evaded
review that requires a change in current
policy.127 Furthermore, they assert that,
if the Commission is concerned that
time-limited hold harmless
commitments may lead an applicant to
delay incurring or recovering a
transaction’s costs until after the hold
harmless period expires, the
Commission already has tools and
protections to adequately protect
customers.128 Furthermore, AEP states
five-year limitation on recovery will simply result
in the deferred recovery of transaction-related
costs).
124 Evidence 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 Corp.,
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)).
125 Merger Policy Statement, FERC Stats. & Regs.
¶ 31,044 at 30,123.
126 See EEI Comments at 6; EPSA Comments at 4;
Kentucky Utilities Comments at 3–4; Southern
Company Comments at 9.
127 See generally AEP Comments at 8–9; EEI
Comments at 6; Southern Company Comments at
9–10.
128 See generally AEP Comments at 9 (asserting
current accounting, auditing, and ratemaking
practices are adequate); EEI Comments at 9–10
(stating that current accounting rules address the

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that the change in policy would be a
reversal of the Merger Policy Statement
and put the Commission back in the
position of weighing the costs and
benefits of mergers.129 Commenters
contend that the Commission should
not adopt this policy, which will
unnecessarily burden applicants at the
expense of transactions that benefit
customers.130 They generally assert that
the change in policy will discourage
mergers, which they believe will harm
customers and deter infrastructure
investment.131
74. Commenters explain that the
Commission’s concerns are unwarranted
because it is in the applicant’s financial
interest to complete integration as soon
as possible to ensure a quick transition
and capture synergies.132 Furthermore,
they assert that the integration of the
operations of merging utilities generally
occurs in the first few years after a
merger.133 They also assert that the costs
associated with tracking these costs
indefinitely will be burdensome and
significant.134 Commenters caution that
an indefinite hold harmless
commitment could incentivize entities
to not pursue elimination of duplicative
services and costs, which would reduce
benefits to ratepayers, because the costs
of such activity may be considered
transition costs in perpetuity and,
therefore, be unrecoverable.135
75. Commenters also state that any
change to the Commission’s practice of
accepting hold harmless commitments
that are limited in duration will
undermine regulatory certainty.136 They
state that without a time limit the
Commission creates the unnecessary
risk of future litigation in which there
may be attempts by protesters or the
Commission to link future costs back to
a previous transaction, no matter how
unrelated to a transaction, and that any
entity that had a merger or transaction
would then need to disprove that
assertion.137 Commenters assert that
Commission’s concerns regarding deferral of
recovery); Southern Company Comments at 11
(suggesting that the Commission’s policy related to
the recovery of regulatory assets is sufficient).
129 See AEP Comments at 11.
130 See EEI Comments at 6; EPSA Comments at 4.
131 See EEI Comments at 10–11; EPSA Comments
at 4.
132 See generally AEP Comments at 9; EEI
Comments at 8, 10.
133 AEP Comments at 9; Southern Company at
10–11.
134 EPSA Comments at 4; Southern Company
Comments at 12 (stating that in addition to the cost
of new systems, all current and future employees
would have to be trained to recognize and track the
costs).
135 See EEI Comments at 8; EPSA Comments at 5.
136 EEI Comments at 6.
137 See AEP Comments at 10 (worrying that an
open-ended commitment will spawn multiple look

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33513

without regulatory certainty investors
will be unwilling to commit funds or
will increase the costs of the funds they
do commit, which will have an adverse
effect on the costs and on the viability
of transactions and utility valuations.138
As to transaction-related capital costs,
Southern Company also asserts that one
would expect that at some point in time,
used and useful investments should and
would be included in rates, and if the
Commission wishes to exclude certain
assets from recovery it should use a
more targeted approach than extending
the hold harmless period for all
transaction-related costs.139 Others state
that a transaction must be considered
closed at some point in order for there
to be closure for both accounting and
ratemaking purposes 140 and requiring
an open ended hold harmless
commitment could deter ‘‘beneficial
consolidation.’’ 141 EEI states that the
Commission’s current standard provides
ample protection for customers while
also providing regulatory certainty,
which is essential in a constantly
changing industry.142
76. Commenters further explain that it
will be difficult to determine if costs are
transaction-related the further in time
entities get from the transaction because
of intervening events 143 and a changing
regulatory and technological
environment,144 and that it will be
difficult to untangle these costs in rates
from the entity’s general ongoing
operations.145 They caution that the
further in time one gets from a
transaction the more difficult it will
become to determine what is and is not
a transition cost.146 AEP suggests that
the Commission could remedy this
problem either by accepting timelimited hold harmless provisions or
limiting the scope of transition costs to
the activities required to integrate the
companies once their merger is
consummated.147
77. AEP also notes that a hold
harmless commitment with no limit on
duration raises questions like: (1) How
back proceedings); EEI Comments at 7, 10 (asserting
that this will create an inappropriate evidentiary
burden on applicants that may also be impossible
to overcome); Kentucky Utilities Comments at 3;
Southern Company Comments at 10, 12–13.
138 See AEP Comments at 10, n.3; EEI Comments
at 7.
139 See Southern Company Comments at 11–12.
140 See AEP Comments at 10; Southern Company
Comments at 12.
141 Southern Company Comments at 12.
142 EEI Comments at 7.
143 See id. at 6.
144 See Kentucky Utilities Comments at 3.
145 See AEP Comments at 10; EEI Comments at 7.
146 See Kentucky Utilities Comments at 3;
Southern Company Comments at 13.
147 AEP Comments at 10.

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do you measure how much of a cost
incurred 15 years after a merger was
attributable to merger ‘‘integration’’ as
opposed to normal utility operations; (2)
if merger ‘‘integration’’ costs can still be
incurred decades after the transaction
closed, can merger ‘‘savings’’ still be
accruing over that same period; (3) how
do you measure those savings; and (4)
would companies need to maintain
shadow books for the unmerged
companies for the rest of time to prove
the savings that resulted from the
merger? 148
78. EEI asserts that a time-limited
commitment is consistent with U.S.
generally accepted accounting
principles, which recognize that
transactions end when all costs, assets,
and liabilities have been recorded.149
EEI states that the Commission should
recognize that there is a finite transition
period following a transaction and five
years is a reasonable time frame in
which one could expect that a company
would complete its transition and
integration.150 EEI asserts that the
Commission should also recognize a
commitment of less than five years may
be appropriate for ‘‘relatively minor’’
transactions and that an indefinite hold
harmless commitment is simply
unreasonable.151
79. APPA and NRECA, Transmission
Access Policy Study Group, and the
Transmission Dependent Utilities
support the Commission’s proposal not
to accept time-limited hold harmless
commitments.152 These commenters
state that the Commission should focus
on whether a cost is transaction-related,
not on when it was incurred or when
recovery is sought.153
80. APPA and NRECA state that
unlimited duration hold harmless
commitments will not impose a
significant additional burden on
applicants because most transition costs
are incurred in the first few years after
the merger is consummated.154
Furthermore, to the extent that a longer
commitment may lead to an additional
burden on applicants, APPA and
NRECA state that this burden is
reasonable because it would mean that
transaction-related costs continued to be
incurred and offsetting merger savings
148 Id.

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149 EEI
150 Id.

Comments at 8.
at 9.

151 Id.
152 APPA and NRECA Comments at 11;
Transmission Access Policy Study Group
Comments at 2; Transmission Dependent Utilities
Comments at 8.
153 APPA and NRECA Comments at 11;
Transmission Dependent Utilities Comments at
7–8.
154 APPA and NRECA Comments at 11.

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failed to materialize.155 Transmission
Dependent Utilities state that timelimited commitments provide
incentives for utilities to make
inefficient spending and rate recovery
decisions while failing to provide full
protection to ratepayers.156 Therefore,
Transmission Dependent Utilities assert
that eliminating any time limit on a
hold harmless commitment is in the
public interest because it will bring
greater certainty to the electric markets
regarding costs subject to recovery in
the future.157
3. Commission Determination
81. After careful consideration of the
comments, we withdraw our proposal to
no longer accept time-limited hold
harmless commitments and will
continue to accept hold harmless
commitments that are time limited as a
method to show no adverse effect on
rates. We agree with certain commenters
that there is a tradeoff between the
articulation of transaction-related costs
adopted in section II.A above 158 and the
duration of a hold harmless
commitment, as there is less of a nexus
between activities that are identified as
transition costs and the transaction as
time passes. While the Commission
intends to ensure that ratepayers are
adequately protected from potential
adverse effects on rates, a hold harmless
commitment must also be
administratively manageable.
82. As some commenters note, as time
passes, it becomes more difficult to
distinguish actions taken, and related
expenditures, to integrate the operations
and assets of newly-merged companies
from the conduct of an applicant’s
normal business activities, and it
becomes more difficult to determine
which costs share a nexus with the
transaction and should thus be subject
to an offered hold harmless
commitment. Future actions, such as
engineering studies, taken in the normal
course of business need to be
distinguished from those undertaken to
effectuate the transaction for the
duration of the hold harmless
commitment. If we were to adopt the
proposal to no longer accept timelimited hold harmless commitments,
applicants may be required to make
these distinctions years removed from a
transaction. As both commenters who
support and oppose time limits on any
hold harmless commitment recognize,
the majority of these costs are incurred
155 Id.
156 Transmission

Dependent Utilities Comments

at 7.
157 Id.
158 See

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in the first five years after the closing of
the transaction. At this time we do not
find that there is sufficient evidence to
conclude that applicants are indeed
incurring substantial transaction-related
costs after five years.
83. Therefore, we find that the
articulation of transaction-related costs
set forth in section II.A above, paired
with the incentive of applicants to
achieve integration and transaction
related synergies as soon as possible,
adequately protect ratepayers while
providing applicants with regulatory
certainty that a time-limited hold
harmless commitment will not result in
endless litigation regarding costs
incurred after a transaction is
consummated. We intend hold harmless
commitments to avoid protracted
litigation while at the same time
protecting customers from the uncertain
costs incurred to complete transactions.
84. In response to EEI’s view that a
commitment of less than five years may
be appropriate for what EEI terms
‘‘relatively minor’’ transactions, as we
stated in the Proposed Policy Statement,
the Commission has found 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.’’ 159 While applicants may
nevertheless propose hold harmless
commitments of any number of years,
we caution that applicants retain the
burden of demonstrating that proposed
ratepayer protections are adequate.160
Applicants must adequately support
and demonstrate that any commitment
they propose provides adequate
ratepayer protection when compared to
other ratepayer protection mechanisms,
including the offer of a five year hold
harmless period that has become the
norm in the industry.
D. Transactions Without an Adverse
Effect on Rates
1. Proposed Policy Statement
Recommendations
85. The Commission noted in the
Proposed Policy Statement that some
applicants have made hold harmless
commitments in connection with
159 Proposed Policy Statement, 150 FERC ¶ 61,031
at P 12 (citing 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. Id. n.21 (citing 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)).
160 Order No. 642, FERC Stats. & Regs. ¶ 31,111
at 31,914.

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transactions involving the acquisition of
existing jurisdictional facilities where
the acquiring entity is a traditional
franchised utility and is 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.161 Furthermore, the
Commission noted that, 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 stated that it has held
that, as a general matter of policy,
ratepayers should bear the cost of utility
service.162
86. The Commission proposed to
clarify that applicants undertaking
certain types of transactions to fulfill
documented utility service needs may
not need to offer a hold harmless
commitment in order to show that the
transaction does not have an adverse
effect on rates.163 Specifically, the
Commission stated that it believed 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.
87. The Commission noted several
examples of transactions in which
applicants may demonstrate no adverse
effect on rates without offering a hold
harmless commitment or other ratepayer
protection mechanism, including 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. The
Commission proposed 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

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161 Proposed

Policy Statement, 150 FERC ¶ 61,031
at P 39. See, 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.
162 See, e.g., Old Dominion Elec. Cooperative and
N.C. Elec. Membership Corp. v. Va. Elec. and Power
Co.,146 FERC ¶ 61,200 (2014).
163 Proposed Policy Statement, 150 FERC ¶ 61,031
at P 40.

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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.164 Under the clarification
proposed therein, however, the
Commission stated that 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.
88. The Commission proposed that
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, the
Commission proposed that 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 proposed that
it would carefully review such a
showing before determining that a
proposed transaction without any
proposed ratepayer protection
mechanism has no adverse effect on
rates.
2. Comments
89. Several commenters support the
Commission’s proposal that hold
harmless commitments may not be
necessary for certain categories of
transactions when undertaken to
provide utility service for which
ratepayers should bear cost
responsibility.165 Several parties
recommend that the Commission more
directly and clearly acknowledge that
hold harmless commitments are not
always necessary and that the Proposed
Policy Statement does not mandate their
inclusion in every FPA section 203
application.166 EEI states that each
transaction is unique and suggests that
the need for and role of a hold harmless
164 Id.

P 41.
AEP Comments at 13; EEI Comments at
12; EPSA Comments at 3; Kentucky Utilities
Comments at 4; Southern Company Comments at 3;
Transmission-Only Companies Comments at 1.
166 See EEI Comments at 11 (contending that it is
not clear how the different sections of the document
interact); Kentucky Utilities Comments at 5.
165 See

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33515

commitment will vary.167 Additionally,
commenters request that the
Commission clarify that the
circumstances articulated in the
Proposed Policy Statement for when a
hold harmless commitment may not be
necessary are not exclusive or
comprehensive,168 and that the
examples given were intended to be
illustrative and will be interpreted
broadly.169
90. Other commenters request that the
Commission clarify that it does not
intend to identify certain categories of
transactions that do not have an adverse
effect on rates or transactions that do
not require ratepayer protection
mechanisms.170 These commenters seek
confirmation that the Commission is
stating only that applicants may make a
showing for any FPA section 203
transaction that there is no adverse
effect on rates based on case-specific
evidence, and as such those applicants
need not offer a hold harmless
commitment if they have otherwise met
their burden of proof to make such a
demonstration.171 Furthermore, APPA
and NRECA urge the Commission to
proceed with caution and avoid
reducing the requirement of showing no
adverse effect on rates to an exercise
where any claimed, non-quantifiable
benefits from a transaction are
determined to outweigh rate
increases.172
91. Similarly, the Transmission
Dependent Utilities also urge the
Commission not to exempt certain
transactions from the requirement to
adopt ratepayer protection mechanisms
and state that the proposal undercuts
the other ratepayer protection
mechanisms proposed in the Proposed
Policy Statement.173 They assert that the
Commission should not adopt the
proposal because: (1) Practically any
asset transaction could meet the
Commission’s proposed standard as
nearly any such transaction could be
deemed necessary to serve existing or
forecasted load or to satisfy at least one
federal or state regulatory requirement;
(2) wholesale customers may derive no
167 EEI Comments at 11–12 (suggesting additional
exemptions such as a transaction where the benefits
outweigh any potential negative effects, or those
negative effects may be de minimis).
168 EPSA Comments at 3; Southern Company
Comments at 4.
169 Kentucky Utilities Comments at 5.
170 See APPA and NRECA Comments at 12;
Transmission Access Policy Study Group
Comments at 6.
171 See APPA and NRECA Comments at 12–13;
Transmission Access Policy Study Group
Comments at 8–9.
172 APPA and NRECA Comments at 14.
173 See Transmission Dependent Utilities
Comments at 8–9.

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benefits from transactions that satisfy
state resource adequacy requirements;
(3) FPA section 215 174 prohibits
reliability standards from including any
requirement to enlarge such facilities or
to construct new transmission capacity
or generation capacity and therefore, the
Commission should not grant a special
exemption from adopting ratepayer
protection mechanisms to utilities that
purchase facilities in order to comply
with NERC standards; and (4) the
premise that an increase in rates may
not be adverse because of the reason for
the transaction is flawed.175 The
Transmission Dependent Utilities state
that no such exemption is needed
because to the extent that such a
transaction provides for benefits to
wholesale ratepayers, applicants should
be able to demonstrate such benefits or
savings exceed the transaction-related
costs.176
92. Some commenters also identified
other types of transactions that may
have a rate impact, but not one that is
adverse, and therefore should not
require any additional ratepayer
protection. These commenters request
that the Commission clarify that, in
addition to transactions involving
purchases of existing generation
facilities, a hold harmless commitment
may also be unnecessary in connection
with: (1) Purchases of existing
transmission facilities that provide
benefits, such as added capacity or
increased reliability; 177 (2) transactions
consummated under a blanket
authorization; 178 (3) transactions that
involve necessary contract rights or
other jurisdictional assets, rather than
physical facilities; 179 (4) transactions
undertaken in order to comply with any
other federal or state regulatory
framework; 180 (5) transactions with ‘‘no
identified or reasonably de minimis
costs, such as internal reorganizations or
restructurings;’’ 181 (6) transactions
involving the transfer of non-energized
turn-key facilities; 182 and (7)
acquisitions of non-jurisdictional
transmission assets by a transmissiononly company.183
174 16

U.S.C. 824o(a)(3) (2012).
Transmission Dependent Utilities
Comments at 9–10.
176 See id. at 11.
177 Southern Company Comments at 3.
178 EEI Comments at 12.
179 Kentucky Utilities Comments at 5.
180 Id. at 5–6 (including environmental, antitrust,
market power regulation, energy efficiency
standards, or portfolio standards).
181 Id. at 6.
182 See AEP Comments at 14; Southern Company
Comments at 4.
183 Transmission-Only Companies Comments at
1. The Transmission-Only Companies explain that

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175 See

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93. EPSA requests that the
Commission reaffirm its policy that
there is no adverse effect on rates and
that no hold harmless commitment is
required where an applicant’s costbased rates do not allow for automatic
pass-through of transaction-related costs
because applicants can only recover
transaction-related costs through a filing
under FPA section 205 in such
circumstances.184 EPSA also asks that
the Commission recognize that
particular types of rate schedules,
including schedules and agreements for
reliability must run, reactive power/
voltage control, and restoration services,
do not allow for automatic pass-through
of costs.185
3. Commission Determination
94. We clarify that the Commission
does not intend to exempt classes of
transactions that require authorization
under FPA section 203 from the
requirement to make a showing of no
adverse effect on rates. Our intention is
to make it clear that, under the Merger
Policy Statement, a hold harmless
commitment is just one of several
ratepayer protection mechanisms that
may be appropriate in a given case, but
that a hold harmless commitment (or
other ratepayer protection) may be
unnecessary for some categories of
transactions.186 In addition, we reaffirm
that a hold harmless commitment is not
a requirement for an FPA section 203
application; in cases in which some
form of ratepayer protection may be
appropriate, applicants may offer other
forms of ratepayer protection to
demonstrate that the transaction has no
adverse effect on rates.187 This
observation does not relieve applicants
of their obligation to demonstrate that
the proposed transaction does not have
an adverse effect on rates based on the
circumstances of their transaction or to
offer ratepayer protection mechanisms
their business model itself carries benefits and will
further Commission policy. Id. at 5–6.
184 EPSA Comments at 3 (citing NRG Energy
Holdings, 146 FERC ¶ 61,196 at P 87).
185 Id. at 3–4.
186 See, e.g., Pub. Serv. Co. of New Mexico, 153
FERC ¶ 61,377 at P 39 (finding that there was no
adverse effect on wholesale requirements customers
because those customers receive service under longterm, Commission-approved contracts with stated
rates whose terms would not change a result of the
proposed transaction and cannot change absent a
filing under FPA section 205 with the Commission
to change those rates); NRG Energy Holdings, 146
FERC ¶ 61,196 at P 87 (finding that there was no
adverse effect on wholesale rate because applicants
would continue to make wholesale sales at marketbased rates or at cost-based rates, under which
applicants had no ability to pass through any
increased costs resulting from the proposed
transaction).
187 Merger Policy Statement, FERC Stats. & Regs.
¶ 31,044 at 30,123–24.

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where appropriate.188 Further, the
burden of demonstrating that any given
transaction presents no adverse effect on
rates continues to lie with the
applicants.189
95. For example, certain rate
schedules do not contain a mechanism
that would allow an applicant to pass
on transaction-related costs.190
Although it would be unnecessary to
make any hold harmless commitment in
connection with such a transaction, the
applicant would nonetheless have to
demonstrate how the rate schedule
precludes passing on transaction-related
costs to customers. Furthermore, if
applicants believe the transaction for
which they seek approval provides
needed benefits to customers, they may
choose to make such a showing.
96. The transactions we identified in
the Proposed Policy Statement (i.e.,
documented utility needs such as 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 NERC
standards), were only illustrative, and
not intended to be an all-inclusive list.
As a result, we do not adopt the
suggestion by some commenters that the
Commission identify other types of
transactions that may not require a hold
harmless commitment. We emphasize
that, in all cases, applicants have the
burden of demonstrating that a
proposed transaction will have no
adverse effect on rates. A hold harmless
commitment or other form of ratepayer
protection is only called for in those
instances where an applicant cannot
otherwise meet this burden.
97. Finally, we note that the
Transmission Dependent Utilities
misapprehend the statement in the
Proposed Policy Statement regarding
transactions involving acquisitions of
existing facilities to fulfill a NERC
reliability standard. Nothing in this
Policy Statement requires an entity to
acquire or invest in facilities. Instead,
this Policy Statement states that if an
entity acquires a facility to fulfill a
requirement of a NERC reliability
standard and it seeks approval under
FPA section 203 for that transaction, the
188 See

id.
at 30,123.
190 See, e.g., Pub. Serv. Co. of New Mexico, 153
FERC ¶ 61,377 at P 39 (finding that there was no
adverse effect on wholesale requirements customers
because those customers receive service under longterm, Commission-approved contracts with stated
rates whose terms would not change a result of the
proposed transaction and cannot change absent a
filing under FPA section 205 with the Commission
to change those rates).
189 Id.

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entity may present evidence that the
transaction’s effect on rates is not an
adverse effect on rates instead of
offering a hold harmless commitment.
E. Other Issues Raised
1. Comments
98. EEI states that the Commission’s
FPA section 203 analysis already
protects customers well.191 EEI asserts
that the Commission’s current
regulations and guidance already ensure
that the proper information to examine
and address potential effects on
customers and markets is required to be
provided to the Commission.192 EEI
states that it appreciates the
Commission’s goal of providing clarity,
but it encourages modification of the
proposal so that any policy the
Commission adopts ‘‘puts use of the
commitments in perspective within the
[FPA] section 203 process and is fair
and workable.’’ 193 EEI asserts that the
structure of the Proposed Policy
Statement does not clearly identify what
the text of the proposed policy is, which
it asserts is essential for readers to
understand and comment on the
proposal.194 EEI further asserts that
given the fundamental changes it
suggested to the Proposed Policy
Statement, the Commission should
respond to those suggestions, re-notice
the statement and provide a chance for

entities to provide additional
feedback.195
99. EEI and EPSA ask the Commission
to clarify that it will not apply any new
requirements set out in this Policy
Statement to pending or previouslyapproved section 203 transactions, even
if there is a subsequent related FPA
section 205 filing.196 EEI states that
parties have structured pending or
previous transactions based on the thenapplicable review process and it would
be ‘‘manifestly unfair’’ to apply new
conditions on parties after they have
submitted their applications.197 EPSA
states that its members and other market
participants seek clarity that any such
filings would not be evaluated against
any new requirements or policies
implemented in a final Policy
Statement, but under the policies in
existence at the time the relevant
transaction was approved.198
2. Commission Determination
100. We will apply all changes
contained in this Policy Statement on a
prospective basis, effective 90 days after
publication of this Policy Statement in
the Federal Register, for applications
submitted on and after that effective
date. The guidance herein does not alter
existing hold harmless commitments
accepted by the Commission nor does it
modify hold harmless commitments in
applications pending at the time of
issuance of this Policy Statement.

Finally, we decline EEI’s request that
the Commission refine and reissue the
Proposed Policy Statement to allow for
additional feedback. The Policy
Statement has incorporated and
addressed suggestions by commenters,
clarifies the scope and definition of the
costs that should be subject to hold
harmless commitments, and provides
general guidance to be implemented on
a case-by-case basis.
III. Information Collection Statement
101. The Paperwork Reduction Act
(PRA) 199 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.200 Upon approval of a
collection(s) of information, OMB will
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 numbers. The following table
shows the Commission’s estimates for
the additional burden and cost,201 as
contained in the Policy Statement:

REVISIONS, IN THE 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

Total burden hours & total
cost

(1)

(2)

(1) * (2) = (3)

(4)

(3) * (4)

FERC–519 (FPA Section 203 Filings) 202.
FERC–516 (FPA Section 205,
Rate and Tariff Filings).
FERC–555, Record Retention .......

18

1

18

20 hrs.; $1,440 .................

360 hrs.; $25,920.

1

1

203 1

103.26 hrs.; $7,434.72 .....

103.26 hrs.; $7,434.72.

18

1

18

4 hrs.; $288 ......................

72 hrs.; $5,184.

Total ........................................

........................

........................

........................

...........................................

535.26 hrs.; $38,538.72.

sradovich on DSK3TPTVN1PROD with NOTICES

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.
191 EEI

Comments at 3
at 5.
193 Id. at 6.
194 Id. at 20.
195 Id.
196 Id.; EPSA Comments at 6.
197 EEI Comments at 20.
198 EPSA Comments at 6–7.

199 44

U.S.C. 3501–3520.
5 CFR 1320.
201 The hourly cost figures are based on data for
salary plus benefits. The Commission staff thinks
that industry is similarly situated to FERC in terms
of the average cost of a full time employee.
Therefore, we are using the 2015 FERC hourly
average for salary plus benefits of $72 per hour.

192 Id.

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18:47 May 25, 2016

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.
200 See

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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
202 Commission staff estimates that, due to the
Policy Statement, 18 of the FPA Section 203 filings
will take 20 additional burden hours. The estimated
number of filings is not changing.
203 Commission staff estimates that one FPA
section 205 filing may be made annually subject to
the Policy Statement.

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Federal Register / Vol. 81, No. 102 / Thursday, May 26, 2016 / Notices

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
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:
[email protected], Phone: (202)
502–8663, fax: (202) 273–0873].
IV. Document Availability

sradovich on DSK3TPTVN1PROD with NOTICES

102. 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
FERC’s Home Page (http://
www.ferc.gov) and in FERC’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.
103. From FERC’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.
104. User assistance is available for
eLibrary and the FERC’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
[email protected], or the
Public Reference Room at (202) 502–
8371, TTY (202)502–8659. Email the
Public Reference Room at
[email protected].
By the Commission.
Issued: May 19, 2016.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2016–12426 Filed 5–25–16; 8:45 am]
BILLING CODE 6717–01–P

(866) 208–3676 (toll free). For TTY, call
(202) 502–8659.
Comment Date: 5:00 p.m. Eastern
Time on May 25, 2016.

DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
[Docket No. EL00–95–291; EL00–98–263]

San Diego Gas & Electric Company v.
Sellers of Energy and Ancillary
Services Into Markets Operated by the
California Independent System
Operator Corporation and the
California Power Exchange;
Investigation of Practices of the
California Independent System
Operator and the California Power
Exchange; Notice of Compliance Filing
Take notice that on May 4, 2016, the
California Independent System Operator
Corporation submitted its Refund Rerun
Compliance Filing pursuant to the
Federal Energy Regulatory
Commission’s (Commission) July 15,
2011 Order Accepting Compliance
Filings and Providing Guidance.1
Any person desiring to intervene or to
protest this filing must file in
accordance with Rules 211 and 214 of
the Commission’s Rules of Practice and
Procedure (18 CFR 385.211, 385.214).
Protests will be considered by the
Commission in determining the
appropriate action to be taken, but will
not serve to make protestants parties to
the proceeding. Any person wishing to
become a party must file a notice of
intervention or motion to intervene, as
appropriate. Such notices, motions, or
protests must be filed on or before the
comment date. On or before the
comment date, it is not necessary to
serve motions to intervene or protests
on persons other than the Applicant.
The Commission encourages
electronic submission of protests and
interventions in lieu of paper using the
‘‘eFiling’’ link at http://www.ferc.gov.
Persons unable to file electronically
should submit an original and 5 copies
of the protest or intervention to the
Federal Energy Regulatory Commission,
888 First Street NE., Washington, DC
20426.
This filing is accessible on-line at
http://www.ferc.gov, using the
‘‘eLibrary’’ link and is available for
review in the Commission’s Public
Reference Room in Washington, DC.
There is an ‘‘eSubscription’’ link on the
Web site that enables subscribers to
receive email notification when a
document is added to a subscribed
docket(s). For assistance with any FERC
Online service, please email
[email protected], or call
1 San Diego Gas & Elec. Co. v. Sellers of Energy
and Ancillary Servs., 136 FERC ¶ 61,036 (2011).

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Dated: May 20, 2016.
Kimberly D. Bose,
Secretary.
[FR Doc. 2016–12409 Filed 5–25–16; 8:45 am]
BILLING CODE 6717–01–P

DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
[Project No. 14776–000]

Town of Payson, AZ; Notice of
Application Accepted for Filing and
Soliciting Comments, Motions To
Intervene, Protests,
Recommendations, and Terms and
Conditions
Take notice that the following
hydroelectric application has been filed
with the Commission and is available
for public inspection.
a. Type of Application: Conduit
Exemption.
b. Project No.: 14776–000.
c. Date filed: April 20, 2016.
d. Applicant: Town of Payson, AZ.
e. Name of Project: C.C. Cragin Raw
Water Supply Line Small Conduit
Hydroelectric Project.
f. Location: The proposed C.C. Cragin
Raw Water Supply Line Small Conduit
Hydroelectric Project would be located
on the Payson Water supply line in Gila
County, Arizona.
g. Filed Pursuant to: Federal Power
Act 16 U.S.C. 791a–825r.
h. Applicant Contact: Mr. LaRon
Garrett, Payson Public Works, 303
Beeline Hwy, Payson, AZ 85541; phone
(928) 474–5242, lgarrett@
ci.payson.az.us.
i. FERC Contact: Robert Bell, (202)
502–6062, [email protected].
j. Status of Environmental Analysis:
This application is ready for
environmental analysis at this time, and
the Commission is requesting
comments, reply comments,
recommendations, terms and
conditions, and prescriptions.
k. Deadline for filing responsive
documents: The Commission directs,
pursuant to section 4.34(b) of the
Regulations (see Order No. 533, issued
May 8, 1991, 56 FR 23,108 (May 20,
1991)) that all comments, motions to
intervene, protests, recommendations,
terms and conditions, and prescriptions
concerning the application be filed with
the Commission: 60 days from the
issuance of this notice. All reply

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