FERC Issues Proposed Policy Statement on “Hold Harmless” Commitments in Federal Power Act Section 203 Proceedings

Jan 27, 2015

Reading Time : 4 min

Hold harmless commitments arise under the second prong of the public-interest analysis (i.e., the assessment of a proposed transaction’s effect on rates). To demonstrate that a transaction will not adversely affect rates, Section 203 applicants commonly commit not to recover through jurisdictional rates any “transaction-related costs” for a period of five years, unless the applicants demonstrate in a separate rate filing that those costs are exceeded by transaction-related savings. FERC routinely accepts such commitments as proof that a proposed transaction will not adversely impact rates.

Proposed Policy Statement

Overall, the proposed policy statement affirms the established principle that hold harmless commitments can be used to satisfy the “effect on rates” prong of FERC’s Section 203 public-interest analysis. Importantly, however, the policy statement would add requirements to further ensure that applicants demonstrate how they will implement the hold harmless commitment to the Section 203 application and related post-closing filings. 

FERC proposes to make changes in four areas:

  • to clarify the scope and definition of transaction-related costs that are subject to hold harmless commitments
  • to clarify that applicants offering hold harmless commitments must implement procedures to track the costs from which customers will be held harmless, and document this tracking plan in the Section 203 application
  • to reject hold harmless commitments that are limited in duration
  • to clarify that applicants may demonstrate that, under certain circumstances, transactions will not have an adverse effect on rates without relying on hold harmless commitments or other ratepayer protection mechanisms.

Transaction-Related Costs

FERC’s proposed policy statement provides significant guidance on what types of costs the agency deems to be transaction-related and, thus, typically excluded from rate recovery under a hold harmless commitment. FERC delineates a long list of costs that it typically will deem to be transaction-related in the policy statement, including many types of “costs incurred to explore, agree to, and consummate a transaction” and “costs to integrate individuals and assets into the acquiring utility and costs to achieve merger synergies.” In addition, FERC reaffirms its prohibitions on the recovery of goodwill derived from acquisition premiums, unless a showing of offsetting benefits is demonstrated in a separate rate filing. FERC further explains that costs associated with transactions that are pursued but never completed should not be recovered from ratepayers.

Tracking Procedures and Controls

Perhaps the most significant changes relate to the requirement that an applicant demonstrate how it intends to protect ratepayers from transaction-related costs as part the Section 203 application. Applicants typically include in applications boilerplate language asserting that transaction-related costs will not be passed on to ratepayers for a period of five years. If the new policy is adopted, it is unlikely that such short assurances would be sufficient to meet an applicant’s burden going forward.

Specifically, FERC clarifies that applicants offering hold harmless commitments should implement appropriate internal controls and procedures to ensure the proper identification, accounting, and rate treatment of transaction-related costs incurred prior to and subsequent to the announcement of a proposed transaction, including transition costs. Applicants then would be required to include in the Section 203 application 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.

In practice, these requirements would mean augmenting the application and supporting witness testimony to include more significant detail about how the hold harmless commitment will be implemented than Section 203 applicants typically provide today. FERC’s proposed policy statement also would require applicants to provide additional detail and narrative analysis in their post-transaction accounting entries to demonstrate proper implementation of the hold harmless commitment.

Time Limitation

To eliminate the potential for utilities to game the system by time-shifting certain costs, FERC also proposes to no longer accept hold harmless commitments that are limited in duration. As a result, the proposed policy statement would eliminate applicants’ customary five-year limitation on the tracking and recovery of transaction-related costs.

Hold Harmless Commitments Not Always Required

Finally, FERC reiterates that applicants do not always have to make a hold harmless commitment to demonstrate that a proposed transaction will not adversely affect rates, and it further suggests circumstances where such commitments may be unnecessary. Specifically, FERC states that utilities may not need to make a hold harmless commitment where the transaction is being entered into to satisfy resource adequacy requirements at the state level, to improve system reliability and/or meet other regulatory requirements. FERC explains that 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,” likely falls within the range of transactions not required to rely on a hold harmless commitment to demonstrate the absence of an adverse effect on rates.

Implementation and Opportunity to Comment

If adopted, FERC would apply the new policies on a prospective basis. Thus, any Section 203 applications currently pending or filed prior to the issuance of the final policy statement will not be subject to the new requirements. That said, because FERC considers the new guidance in many circumstances to clarify or expand upon its current policy on hold harmless commitments, applicants would be wise to review closely FERC’s delineation of transaction-related costs and consider providing additional details in Section 203 applications demonstrating that these costs would be accurately tracked and excluded from rate recovery mechanisms.

FERC is accepting comments on all of the proposed changes until March 30, 2015.


1 16 U.S.C. § 824b(a)(4).

2 See, e.g., 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).

Share This Insight

Previous Entries

Speaking Energy

June 25, 2025

On June 4–5, 2025, the Federal Energy Regulatory Commission (FERC or Commission) hosted a commissioner-led technical conference to discuss resource adequacy challenges facing regional transmission organizations and independent system operators (RTO). The conference is a response to the growing concern that multiple RTO regions across the country may not have sufficient supply available in the coming years to meet demand due to resource retirements, the pace of new generation entry and higher load growth arising from the construction of data centers and reindustrialization.

...

Read More

Speaking Energy

June 12, 2025

We are pleased to share the presentation slide deck and a recording of Akin’s recently presented webinar, “Navigating U.S. Policy Shifts in the Critical Minerals Sector.”

...

Read More

Speaking Energy

June 10, 2025

On June 4, 2025, the U.S. Department of Transportation’s (DOT) Pipeline and Hazardous Materials Safety Administration (PHMSA) announced revisions to its procedures for pipeline safety enforcement actions. The changes, outlined in two new policy memoranda from PHMSA’s Office of the Chief Counsel (PHC), aim to enhance due process protections for pipeline operators by clarifying how civil penalties are calculated and expanding the disclosure of agency records in enforcement proceedings.

...

Read More

Speaking Energy

May 22, 2025

On May 19, 2025, the Department of Energy (DOE) finalized its 2024 LNG Export Study: Energy, Economic and Environmental Assessment of U.S. LNG Exports (the 2024 Study) through the release of a Response to Comments on the 2024 Study. The Response to Comments concludes that the 2024 Study, as augmented through public comments submitted on or before March 20, 2025, supporting a finding that liquefied natural gas (LNG) exports serve the public interest. With the comment process complete, DOE will move forward with final orders on pending applications to export LNG to non-free trade agreement (non-FTA) countries.

...

Read More

Speaking Energy

May 20, 2025

On Thursday, May 15, the Senate Commerce, Science & Transportation Subcommittee on Surface Transportation, Freight, Pipelines and Safety held a hearing titled, “Pipeline Safety Reauthorization: Ensuring the Safe and Efficient Movement of American Energy.” The hearing examined legislative priorities for reauthorizing the Pipeline and Hazardous Materials Safety Administration (PHMSA).

...

Read More

Speaking Energy

April 15, 2025

On April 9, 2025, President Trump issued an executive order (EO)1 directing several federal agencies and subagencies that regulate energy, environmental, and conservation matters,2 including the Federal Energy Regulatory Commission (FERC) and the Department of Energy (DOE), to establish conditional sunset dates for “regulations governing energy production.” The stated objective of the EO is to require agencies to periodically reexamine their regulations to ensure that they continue to serve the public good. For FERC, the order covers regulations promulgated under the Federal Power Act (FPA), the Natural Gas Act (NGA) and the Powerplant and Industrial Fuel Use Act (FUA)3, as amended, while DOE must consider regulations promulgated under the Atomic Energy Act (AEA), the National Appliance Energy Conservation Act, the Energy Policy Act of 1992 (EPAct 1992), the Energy Policy Act of 2005 (EPAct 2005) and the Energy Independence and Security Act of 2007 (EISA), as amended (collectively the Covered Regulations).4 To the extent the DOE has been directed to promulgate regulations under various sections of the NGA, FPA and FUA, and FERC has been directed to promulgate regulations specific to the statutes attributed to the DOE in the EO, the EO is silent. The EO expressly does not apply to those “regulatory permitting regimes authorized by statute.”5

...

Read More

Speaking Energy

April 10, 2025

On April 8, 2025, President Trump issued an Executive Order (EO) directing the Department of Energy (DOE) to take steps to expand the use of its emergency authority under Federal Power Act (FPA) Section 202(c) to require the retention of generation resources deemed necessary to maintain resource adequacy within at risk-regions of the bulk power system regulated by the Federal Energy Regulatory Commission (FERC).1 The EO appears to envision a more active role for DOE in overseeing and supporting the resource adequacy of the grid that deviates from the historic use of Section 202(c) and touches on issues at the intersection of state and federal authority over resource planning.

...

Read More

Speaking Energy

March 10, 2025

On March 5, 2025, the United States Department of Energy (DOE) approved Golden Pass LNG Terminal LLC’s (GPLNG) request to extend a deadline to begin exporting liquefied natural gas (LNG) from its terminal facility currently under construction in Sabine Pass, Texas for 18 months, from September 30, 2025, to March 31, 2027 (the Order). The Order amends GPLNG’s two existing long-term orders authorizing the export of domestically produced LNG to countries with which the United States does and does not have free trade agreements (FTA).1  The Order does not amend the authorizations’ end date, which remains December 31, 2050. Under section 3 of the Natural Gas Act (NGA), the DOE may authorize exports to non-FTA countries following completion of a “public interest” review, whereas exports to FTA countries are deemed to be in the public interest and the DOE is directed to issue authorizations without modification or delay.

...

Read More

© 2025 Akin Gump Strauss Hauer & Feld LLP. All rights reserved. Attorney advertising. This document is distributed for informational use only; it does not constitute legal advice and should not be used as such. Prior results do not guarantee a similar outcome. Akin is the practicing name of Akin Gump LLP, a New York limited liability partnership authorized and regulated by the Solicitors Regulation Authority under number 267321. A list of the partners is available for inspection at Eighth Floor, Ten Bishops Square, London E1 6EG. For more information about Akin Gump LLP, Akin Gump Strauss Hauer & Feld LLP and other associated entities under which the Akin Gump network operates worldwide, please see our Legal Notices page.