On January 22, 2015, FERC issued a proposed policy statement to clarify FERC’s policy regarding the use of hold harmless commitments in Federal Power Act section 203 applications.  Under the proposed policy statement, applicants will still be required to demonstrate that the proposed transaction does not have an adverse effect on rates, but FERC will define with greater specificity what costs will be considered transaction-related costs and how hold harmless commitments will apply.

Specifically, FERC intends to provide the following clarifications:

  • Duration – FERC proposes to no longer  accept hold harmless commitments that are limited in duration;
  • Scope – FERC provided a lengthy list of costs that should be subject to hold harmless commitments in both merger and non-merger settings;
  • Controls – FERC proposes to require applicants to provide “detailed descriptions” to identify the types of controls and procedures that applicants offering hold harmless commitments must implement; and
  • Reporting – FERC proposes to require applicants to detail their hold harmless implementation in their post-closing accounting entries.

FERC also proposed to clarify that not all section 203 applications require hold harmless commitments.  FERC proposes not to require such commitments in certain cases dealing with asset acquisitions required to provide utility service.  Also of note, the Commission proposes that the costs of transactions that are pursued but never completed should also not be recovered from ratepayers.

In proposing the policy, FERC encouraged applicants to engage their customers with issues related to potential rate impacts and crafting appropriate ratepayer protections.

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.