On February 20, 2014, FERC proposed a policy statement regarding section 305(a) of the Federal Power Act (“FPA”) that would allow the payment of dividends from funds included in capital accounts by a public utility that (1) has a market-based rate tariff on file with FERC; (2) does not have captive customers; and (3) does not provide transmission or local distribution services. Whereas such payments are generally prohibited under section 305(a), FERC reasoned that its proposed exception would not trigger the concerns underlying FPA section 305(a). FERC is inviting comments on the proposed policy.
In its proposed policy statement, FERC posited that Congress passed FPA section 305(a) to preclude exploitation of utilities by their directors or officers. Currently, in order for FERC to declare that a transaction does not violate FPA section 305(a), a utility must show that (1) the utility clearly identifies the sources from which dividends will be paid; (2) the dividends will not be excessive; and (3) the proposed transaction will not have an adverse effect on the value of the shareholders’ interests. If it adopts the proposed policy statement, FERC would interpret FPA section 305(a) not to apply to public utilities that have market-based rate tariffs, do not have captive customers, and do not provide transmission or local distribution services. FERC decided to propose this policy after it ultimately concluded in its statement that eligible utilities do not implicate the concerns underlying FPA section 305(a) because the distribution of dividends would have no effect on the financial integrity of public utilities or its customers.
Comments on the proposed policy statement may be made within 60 days after publication in the Federal Register. A copy of the proposal is available here.