Federal Register, Volume 77 Issue 164 (Thursday, August 23, 2012)[Federal Register Volume 77, Number 164 (Thursday, August 23, 2012)]
[Notices]
[Pages 50998-51020]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-20589]
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COMMODITY FUTURES TRADING COMMISSION
Proposal To Exempt Certain Transactions Involving Not-for-Profit
Electric Utilities; Request for Comments
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice.
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SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or the
``Commission'') is proposing to exempt certain transactions between
not-for-profit utilities (entities described in section 201(f) of the
Federal Power Act (``FPA'')), and other electric utility cooperatives,
from the provisions of the Commodity Exchange Act (``CEA'' or ``Act'')
and the regulations there under, subject to certain antifraud, anti-
manipulation, and recordkeeping conditions. Authority for this
exemption is found in section 4(c) of the CEA. The Commission is
requesting comment on every aspect of this Notice of Proposed Order
(``Notice'').
DATES: Comments must be received on or before September 24, 2012.
ADDRESSES: You may submit comments by any of the following methods:
Agency Web site, via its Comments Online process: http://comments.cftc.gov. Follow the instructions for submitting comments
through the Web site.
Mail: David A. Stawick, Secretary of the Commission,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street NW., Washington, DC 20581.
Courier: Same as mail above.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Please submit your comments using only one method.
All comments must be submitted in English, or if not, accompanied
by an English translation. Comments will be posted as received to
http://www.cftc.gov. You should submit only information that you wish
to make available publicly. If you wish the CFTC to consider
information that you believe is exempt from disclosure under the
Freedom of Information Act, a petition for confidential treatment of
the exempt information may be submitted according to the procedures
established in Sec. 145.9 of the CFTC's regulations.\1\
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\1\ 17 CFR 145.9.
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The CFTC reserves the right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse or remove any or all of your
submission from http://www.cftc.gov that it may deem to be
inappropriate for publication, such as obscene language. All
submissions that have been redacted or removed that contain comments on
the merits of this action will be retained in the public comment file
and will be considered as required under the Administrative Procedure
Act and other applicable laws, and may be accessible under the Freedom
of Information Act.
FOR FURTHER INFORMATION CONTACT: David Van Wagner, Chief Counsel, (202)
418-5481, [email protected], or Graham McCall, Attorney Advisor,
(202) 418-6150, [email protected], Division of Market Oversight,
Commodity Futures Trading Commission, Three Lafayette
[[Page 50999]]
Centre, 1155 21st Street NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
A. CEA Section 4(c)
B. FPA Section 201(f)
II. Petition
A. Relief Requested
B. Definition and Scope of Electric Operations-Related
Transactions
1. Electric Energy Delivered
2. Generation Capacity
3. Transmission Services
4. Fuel Delivered
5. Cross-Commodity Transaction
6. Other Goods and Services Agreements, Contracts and
Transactions
7. Environmental Rights, Allowances or Attributes
C. Definition and Scope of NFP Electric Entities
1. FPA 201(f) Entities
a. Government and Cooperatively Owned Electric Utilities
Described by FPA Section 201(f)
b. Federally-Recognized Indian Tribes
2. Non-FPA 201(f) Electric Cooperatives
III. Commission Determinations
A. Scope of the Proposed Order
1. Exempt Entities
a. Electric Utilities Owned by Federal, State, or Local
Government
b. Electric Utilities Owned by an Indian Tribe
c. Electric Utilities Owned as Cooperative Organizations
2. Exempt Non-Financial Energy Transactions
3. Conditions
B. CEA Section 4(c) Considerations
1. Responsible Economic or Financial Innovation and Fair
Competition
2. Applicability of CEA Section 4(a)
3. Public Interest and Purposes of the CEA
a. Public Interest
b. Purposes of the CEA
4. Appropriate Persons
5. Ability to Discharge Regulatory or Self-Regulatory Duties
IV. Proposed Order
V. Request for Comment
VI. Related Matters
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Consideration of Costs and Benefits
I. Introduction
On June 8, 2012, the Commission received a petition (``Petition'')
\2\ from a group of trade associations that represent government and/or
cooperatively-owned electric utilities requesting relief from the
requirements of the CEA \3\ and Commission's regulations thereunder,\4\
pursuant to CEA section 4(c),\5\ for certain electric energy-related
transactions between not-for-profit electric energy utilities. In this
Notice, after summarizing and reviewing the representations made in the
Petition, the Commission proposes conditional relief pursuant to CEA
section 4(c) for non-financial energy transactions between not-for-
profit utilities described in FPA section 201(f) and other electric
cooperatives.
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\2\ The Petition is available on the Commission's Web site at
http://www.cftc.gov/stellent/groups/public/@rulesandproducts/documents/ifdocs/nrecaetalltr060812.pdf.
\3\ 7 U.S.C. 1 et seq.
\4\ The Commission's regulations are set forth in title 17 of
the Code of Federal Regulations (``CFR'').
\5\ 7 U.S.C. 6(c).
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A. CEA Section 4(c)
Section 4(c) of the CEA provides the Commission with broad
authority to exempt certain transactions and market participants from
the requirements of the Act. When adding section 4(c) to the CEA,
Congress noted that the goal of the provision ``is to give the
Commission a means of providing certainty and stability to existing and
emerging markets so that financial innovation and market development
can proceed in an effective and competitive manner.'' \6\ The House-
Senate Conference Committee reconciling the provision's language noted
that:
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\6\ House Conf. Report No. 102-978, 1992 U.S.C.C.A.N. 3179, 3213
(``4(c) Conf. Report'').
The Conferees do not intend that the exercise of exemptive
authority by the Commission would require any determination
beforehand that the agreement, instrument, or transaction for which
an exemption is sought is subject to the [CEA]. Rather, this
provision provides flexibility for the Commission to provide legal
certainty to novel instruments where the determination as to
jurisdiction is not straightforward. Rather than making a finding as
to whether a product is or is not a futures contract, the Commission
in appropriate cases may proceed directly to issuing an
exemption.\7\
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\7\ 4(c) Conf. Report at 3214-3215.
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Specifically, CEA section 4(c)(1) empowers the CFTC to ``promote
responsible economic or financial innovation and fair competition'' by
exempting any transaction (or class thereof) that otherwise would be
subject to CEA section 4(a), or any person (or class thereof) dealing
in such transaction(s), from any or all of the provisions of the CEA
where the Commission determines that the exemption would be consistent
with the public interest.\8\ The Commission may grant such an exemption
by rule, regulation or order, after notice and opportunity for hearing,
and may do so on application of any person \9\ or on its own
initiative.
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\8\ Section 4(c)(1) of the CEA, 7 U.S.C. 6(c)(1), provides in
full that:
In order to promote responsible economic or financial innovation
and fair competition, the Commission by rule, regulation, or order,
after notice and opportunity for hearing, may (on its own initiative
or on application of any person, including any board of trade
designated or registered as a contract market or derivatives
transaction execution facility for transactions for future delivery
in any commodity under section 7 of this title) exempt any
agreement, contract, or transaction (or class thereof) that is
otherwise subject to subsection (a) of this section (including any
person or class of persons offering, entering into, rendering advice
or rendering other services with respect to, the agreement,
contract, or transaction), either unconditionally or on stated terms
or conditions or for stated periods and either retroactively or
prospectively, or both, from any of the requirements of subsection
(a) of this section, or from any other provision of this chapter * *
* if the Commission determines that the exemption would be
consistent with the public interest.
\9\ CEA section 1a(38) defines ``person'' to include
``individuals, associations, partnerships, corporations, and
trusts.'' 7 U.S.C. 1a(38).
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CEA section 4(c)(2) provides that the Commission shall not grant
any exemption under section 4(c)(1) from any of the requirements of
section 4(a) unless the Commission determines, among other things,
that: (i) the exemption would be consistent with the public interest
and the purposes of the CEA; (ii) the exempt agreement, contract, or
transactions will be entered into solely between ``appropriate
persons;'' and (iii) the exemption will not have a material adverse
effect on the ability of the Commission or any contract market to
discharge its regulatory or self-regulatory duties under the CEA.\10\
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\10\ See 7 U.S.C. 6(c)(2).
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CEA section 4(c)(3) outlines which entities may constitute
``appropriate person[s]'' for purposes of a CEA section 4(c) exemption,
including (as relevant to this Notice): (i) Any governmental entity
(including the United States, any State, or any foreign government) or
political subdivision thereof, or any multinational or supranational
entity or any instrumentality, agency, or department of any of the
foregoing; \11\ or (ii) such other persons that the Commission
determines to be appropriate in light of their financial or other
qualifications, or the applicability of appropriate regulatory
protections.\12\
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\11\ See 7 U.S.C. 6(c)(3)(H).
\12\ See 7 U.S.C. 6(c)(3)(K).
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The Dodd-Frank Wall Street Reform and Consumer Protection Act
(``Dodd-Frank Act'') \13\ added new subparagraph
[[Page 51000]]
4(c)(6)(C) to the CEA.\14\ CEA section 4(c)(6)(C) builds upon the
Commission's general exemptive authority in section 4(c)(1) as follows:
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\13\ Pub. L. 111-203, 124 Stat. 1376 (2010). The text of the
Dodd-Frank Act may be accessed at http://www.cftc.gov/LawRegulation/DoddFrankAct/index.htm. Title VII of the Dodd-Frank Act amended the
CEA to establish a comprehensive new regulatory framework for swaps
and security-based swaps. The legislation was enacted to reduce
risk, increase transparency, and promote market integrity within the
financial system by, among other things: (1) providing for the
registration and comprehensive regulation of swap dealers (``SDs'')
and major swap participants (``MSPs''); (2) imposing clearing and
trade execution requirements on standardized derivative products;
(3) creating robust recordkeeping and real-time reporting regimes;
and (4) enhancing the Commission's rulemaking and enforcement
authorities with respect to, among others, all registered entities
and intermediaries subject to the Commission's oversight.
\14\ 7 U.S.C. 6(c)(6)(C) (as added by section 722(f) of the
Dodd-Frank Act).
(6) If the Commission determines that the exemption would be
consistent with the public interest and the purposes of this Act,
the Commission shall, in accordance with [CEA sections 4(c)(1) and
4(c)(2)], exempt from the requirements of this Act an agreement,
contract, or transaction that is entered into--
[* * *]
(C) between entities described in section 201(f) of the Federal
Power Act (16 U.S.C. 824(f)).
Thus, section 4(c)(6)(C) explicitly spotlights transactions between
entities within the scope of FPA section 201(f) as being eligible for
exemption pursuant to the Commission's 4(c) authority. However, whether
an exemption is considered under 4(c)(1), 4(c)(6)(C), or both,\15\ the
CFTC must first determine that the proposed exemption meets certain
threshold criteria including, for example, that the exemption would be
consistent with the public interest and the purposes of the Act.
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\15\ For any exemption involving CEA section 4(c)(6), the
Commission believes ``both'' is the correct characterization because
CEA section 4(c)(6) explicitly directs the Commission to consider
any exemption proposed under 4(c)(6) ``in accordance with [sections
4(c)(1) and 4(c)(2)].''
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B. FPA Section 201(f)
The FPA \16\ authorizes and, along with other statutes, governs the
Federal Energy Regulatory Commission (``FERC''), the federal agency
that regulates the interstate transmission and sale at wholesale in
interstate commerce of electric energy by public utilities, as well as
natural gas and hydropower projects.\17\ Section 201(f) of the FPA,
which Congress referenced in new CEA section 4(c)(6)(C), provides
broad-based relief from most provisions of Part II \18\ of the FPA for
certain government and cooperatively-owned electric utility companies
and states that:
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\16\ 16 U.S.C. 791a et seq.
\17\ See www.ferc.gov.
\18\ Part II of the FPA governs the transmission and sale at
wholesale of electric energy in interstate commerce, including the
facilities used for such transmission or sale. See 16 U.S.C. 824 et
seq. Section 201(f) does not, however, provide an exemption from FPA
parts I or III. Part I of the FPA deals with the establishment and
functioning of FERC and the regulation of hydroelectric resources.
See 16 U.S.C. 792 et seq. Part III of the FPA deals with
recordkeeping and reporting requirements and FERC's procedural rules
concerning complaints, investigations, and hearings. See 16 U.S.C.
825 et seq. Additionally, section 201(f) does not provide an
exemption from FERC's refund authority, 16 U.S.C. 824e, reliability
standards, 16 U.S.C. 824o(b)(1), or jurisdiction over transmission
facilities and services, 16 U.S.C. 824(i)-(j).
[n]o provision in this subchapter [Part II of the FPA] shall apply
to, or be deemed to include, the United States, a State or any
political subdivision of a State, an electric cooperative that
receives financing under the Rural Electrification Act of 1936 (7
U.S.C. 901 et seq.) or that sells less than 4,000,000 megawatt hours
of electricity per year, or any agency, authority, or
instrumentality of any one or more of the foregoing, or any
corporation which is wholly owned, directly or indirectly, by any
one or more of the foregoing, or any officer, agent, or employee of
any of the foregoing acting as such in the course of his official
duty, unless such provision makes specific reference thereto.\19\
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\19\ 16 U.S.C. 824(f).
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II. Petition
A. Relief Requested
As noted above, on June 8, 2012, the Commission received the
Petition \20\ from a group of trade associations representing
government and/or cooperatively-owned electric utilities. Those
Petitioners consisted of the National Rural Electric Cooperative
Association (``NRECA''),\21\ the American Public Power Association
(``APPA''),\22\ the Large Public Power Council (``LPPC''),\23\ the
Transmission Access Policy Study Group (``TAPS''),\24\ and the
Bonneville Power Administration (``BPA'') \25\ (collectively, the
``Petitioners''). The Petition requests that the Commission provide
categorical exemptive relief from the requirements of the CEA, pursuant
to CEA section 4(c)(6), in accordance with CEA sections 4(c)(1) and
4(c)(2), for all ``Electric Operations-Related Transactions'' between
``NFP Electric Entities,'' retroactive to the enactment of Dodd-Frank,
outstanding now, or that may be developed and executed in the
future.\26\ The Petitioner's definition and scope of the terms
``Electric Operations-Related Transactions'' and ``NFP Electric
Entities'' is summarized below.\27\
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\20\ The Petition is available on the Commission's Web site at
http://www.cftc.gov/stellent/groups/public/@rulesandproducts/documents/ifdocs/nrecaetalltr060812.pdf.
\21\ According to the Petition, NRECA is the national service
organization for more than 900 not-for-profit rural electric
cooperatives and government-owned power districts. NRECA's members
provide electric energy to approximately 42 million consumers in 47
states, or thirteen percent of the nation's population. See Petition
at 3.
\22\ According to the Petition, APPA is the national trade
association that represents the interests of government-owned
electric utilities in the United States. APPA's member utilities are
not-for-profit utility systems that were created by state or local
governments to serve the public interest. Approximately 2,000
government-owned electric utilities provide over fifteen percent of
all kilowatt hour (``KWh'') sales to retail electric customers. See
Petition at 3-4.
\23\ According to the Petition, LPPC is an organization
representing 24 of the largest government-owned electric utilities
in the nation. LPPC members own and operate over 86,000 megawatts of
generation capacity and nearly 35,000 circuit miles of high voltage
transmission lines, representing nearly 90 percent of the
transmission investment owned by non-Federal government-owned
electric utilities in the United States. See Petition at 4.
\24\ According to the Petition, TAPS is an association of
transmission dependent electric utilities located in more than 30
states. All of TAPS member electric utilities except one are FPA
section 201(f) entities. See Petition at 4.
\25\ According to the Petition, BPA is a self-financed, non-
profit Federal agency created in 1937 by Congress that primarily
markets electric power from 31 federally owned and operated
projects, and supplies 35 percent of the electricity used in the
Pacific Northwest. BPA also owns and operates 75 percent of the
high-voltage transmission in the Pacific Northwest. BPA's primary
statutory responsibility is to market its Federal system power at
cost-based rates to its ``preference customers.'' Per the Petition,
BPA has 130 preference customers made up of electric utilities which
are not subject to the jurisdiction of FERC, including Indian
tribes, electric cooperatives, and state and municipally chartered
electric utilities, and other Federal agencies located in the
Pacific Northwest. See Petition at 4.
\26\ See Petition at 1-2; 4 (emphasis added). The Petition also
requests that the Commission determine that no Electric Operations-
Related Transaction will affect any NFP Electric Entity's regulatory
status under the CEA (e.g., as a swap dealer or major swap
participant). Id. at 28. The Petition specifically asks that, if the
Commission declines to provide the categorical relief as requested,
the Commission would i) include an additional category of approved
Electric Operations-Related Transactions that includes all ``trade
options'' referencing the goods or services described in the
categories of transactions currently outstanding between Exempt
Entities (see infra sections II.B.1-7), and ii) delegate to
Commission staff the authority to review on an expedited basis and
approve as eligible for the benefit of the exemptive order any new
Electric Operations-Related Transactions between NFP Electric
Entities. Id. at 13. Finally, the Petition invites the Commission to
determine that any Electric Operations-Related Transaction described
in the Petition does not need an exemption because such transaction
is not a ``swap,'' is a ``commercial merchandising arrangement'' or
``trade option,'' or is not an agreement, contract or transaction
involving a ``commodity.'' See id. at 13, note 26.
\27\ In this Notice, the Commission describes the Petition by
referencing Petitioners' defined terms. Such references, however,
are not to be interpreted as the Commission proposing to adopt such
terms for the purpose of the exemption proposed herein. Rather, the
proposed exemption establishes its own defined entities and
transactions for which relief is being provided.
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B. Definition and Scope of Electric Operations-Related Transactions
The Petition defines Electric Operations-Related Transactions to
mean:
Any agreement, contract or transaction involving a ``commodity''
(as such term is defined in the CEA) and whether or not such
agreement, contract or transaction is a
[[Page 51001]]
``swap,'' so long as the NFP Electric Entity is entering into any
such agreement, contract or transaction ``to hedge or mitigate
commercial risks'' (as such phrase is used in CEA Section
2(h)(7)(A)(ii)) intrinsically related to the electric facilities or
electric operations (or anticipated facilities or operations) of the
NFP Electric Entity, or intrinsically related to the NFP Electric
Entity's public service obligation to deliver reliable, affordable
electric energy service to electric customers. For the avoidance of
doubt, ``intrinsically related'' shall include all transactions
related to (i) the generation, purchase or sale, and transmission of
electric energy by the NFP Electric Entity, or the delivery of
reliable, affordable electric energy service to the NFP Electric
Entity's electric customers, (ii) all fuel supply for the NFP
Electric Entity's electric facilities or operations, (iii)
compliance with electric system reliability obligations applicable
to the NFP Electric Entity, its electric facilities or operations,
(iv) compliance with energy, conservation or renewable energy or
environmental statutes, regulations or government orders applicable
to the NFP Electric Entity, its electric facilities or operations,
or (v) any other electric operations-related agreement, contract or
transaction to which the NFP Electric Entity is a party. Electric
Operations-Related Transactions shall not include agreements,
contracts or transactions executed, traded, or cleared on a
registered entity, nor shall such defined term include an agreement,
contract or transaction based or derived on, or referencing, a
``commodity'' in the interest rate, credit, equity or currency asset
class, or of a product type or category in the ``Other Commodity''
asset class that is based or derived on, or referencing, metals, or
agricultural commodities or crude oil or gasoline commodities of any
grade not used as fuel for electric generation.\28\
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\28\ Petition at 4-5.
In general, the Petitioners represent that all Electric Operations-
Related Transactions covered by the proposed definition are
intrinsically related to the needs of both NFP Electric Entities
engaged in a transaction ``to hedge or mitigate commercial risks''
which arise from their respective electric facilities and ongoing
electric operations and public service obligations.\29\ The Petitioners
state that, at the time two NFP Electric Entities enter into an
Electric Operations-Related Transaction, the terms of the transaction
contemplate performance of an electric operations-related obligation by
one party, in exchange for payment or reciprocal performance of an
electric operations-related function by the other party.\30\
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\29\ See Petition at 12.
\30\ See id. The Petition notes that the terms ``physically-
settled,'' ``financially-settled,'' and ``cash-settled,'' as such
terms are used in the futures industry, do not translate easily into
a commercial context where NFP Electric Entities enter into
bilateral contracts governed by state law or by FERC, PUCT or state
public utility tariffs to buy and sell goods and services. It is not
readily apparent to the Commission why the terms do not translate
conceptually. Nevertheless, as previously noted, the Petition
represents that Electric Operations-Related Transactions between NFP
Electric Entities are always intrinsically related to the electric
facilities and operations, and/or the public service obligations, of
each of the NFP Electric Entities involved. See id. at 12, n. 24.
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The Petition, which is summarized herein, specifically describes
seven categories of transactions that currently occur between NFP
Electric Entities, and which are covered by the Petition's proposed
definition.\31\
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\31\ The following transaction category descriptions come from
the Petition at 6-12.
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1. Electric Energy Delivered
In these transactions, NFP Electric Entities agree for one such
entity to provide another such entity with electric energy delivered to
an identified geographic service territory, load,\32\ or electric
system. Petitioners note that since electric energy is not currently
storable in commercial quantities, the delivery location is critical to
the transaction--electric energy delivered elsewhere is not usable or
valuable for the receiving entity's operational needs.
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\32\ The Commission understands that ``load'' is an energy
industry term for ``demand.'' See, e.g., Current Energy, Supply of
and Demand for Electricity in California, available at http://currentenergy.lbl.gov/ca/index.php
(explaining that ``[t]he current demand (or `load') depends on how
much power consumers are using right now'').
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As described by the Petitioners, this transaction type includes the
most prevalent type of Exempt Electric Operations-Related Transaction
between NFP Electric Entities, i.e., the ``full requirements''
contract, or ``all requirements'' agreement or arrangement \33\ that is
often executed between a generation and transmission (``G&T'')
cooperative (i.e., a cooperative that generates and transmits
electricity) and each of its constituent NFP Electric Entity members/
owners, or between a Joint Action Agency (an agency formed under state
law to provide wholesale power supply and transmission service to
member entities) and each of its constituent NFP Electric Entity
members. In some instances, the G&T cooperative or the Joint Action
Agency is formed by its constituent members for the singular purpose of
providing its constituent members with their ``full requirements''
obligations to deliver electric energy over an agreed delivery period
at one or multiple delivery points or locations to their retail
electric customers).
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\33\ Per the Petition, the ``full'' or ``all'' requirements
contract is a bilateral commercial arrangement that is customized to
the two NFP Electric Entities that are parties thereto.
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In such an arrangement, the provider NFP Electric Entity agrees by
bilateral contract or, in some long-standing relationships established
by governing or legal documents of the G&T cooperative or Joint Action
Agency as the provider NFP Electric Entity, that it will provide for a
recipient NFP Electric Entity's ``full requirements'' to provide
reliable electric service to the recipient's fluctuating electric
energy load over an agreed delivery period at one or multiple delivery
points or locations. In some cases, the delivery period, term, or
``tenor'' of such agreements can be for thirty years or more.
In addition to providing the recipient's full requirements for
electric energy, the arrangement may also include providing services
that are ancillary to the delivery of the electric energy, such as
operating or dispatching one or more of the recipient's owned
generation units, generation capacity or balancing services, or any of
the other goods, services, or commodities required by the recipient
described under other categories below.
The Petition notes that quantities of electric energy will also
vary during the delivery period. If a recipient NFP Electric Entity
owns some generation itself, the quantity of supplemental electric
energy or capacity to meet its ``full requirements'' during some
seasons, months, or days of the year (net of its owned generation) may
be zero. Some ancillary services or ``commodities'' under such a
transaction may be optional. Pricing may vary on a seasonal, monthly,
daily or on-peak/off-peak basis, or may be tied to the cost at which
the provider NFP Electric Entity can generate or purchase electric
energy. Alternatively, the price may be tied to the fuel that the
provider uses for generating the electric energy provided.
2. Generation Capacity
In describing this transaction category, the Petition initially
notes that the term ``capacity,'' in connection with generation
capacity transactions, has varying meanings across the electric
industry, and that electric operations professionals may reference any
of a number of ``capacity'' agreements, contracts, transactions, or
arrangements.\34\ More generally, the
[[Page 51002]]
Petition notes that when two NFP Electric Entities agree that one will
provide ``generation capacity'' or ``capacity'' for another, either a
mutual understanding of the engineering context or a customized
bilateral commercial contract further defines the parties' respective
rights and obligations. Generation capacity is always location-specific
and is monitored by the regional transmission organization (``RTO'') or
independent system operator (``ISO'') \35\ or, outside the RTO/ISO
regions, by balancing authorities or reliability coordinators under the
supervision of the North American Electric Reliability Corporation
(``NERC'') and FERC.\36\ Deliverability of generation capacity to a
particular geographic point or electric system interface is such an
important concept that FERC requires each RTO, ISO, and balancing
authority to establish a framework of engineering studies to
demonstrate/confirm that a particular generation unit's electrical
energy output is deliverable. If generation capacity from a particular
unit does not satisfy the relevant RTO, ISO or balancing authority's
deliverability requirements, that generation capacity has no value in
meeting reliability requirements in that reliability area. If
generation capacity is purchased from a generation unit located outside
the relevant reliability area, the correlated electric energy (which,
if ``called on,'' must be delivered) nonetheless must be deliverable to
the relevant reliability area.
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\34\ Counsel for Petitioners represented in subsequent
conversations that generation capacity, generally, can mean the
capability or adequacy of specific owned generation units to supply
fluctuating load requirements within a defined geographic region
(e.g., an RTO region or an electric utility system) at an estimated
or capacity rating level measured in megawatts. The basic concept of
generation capacity can be understood as a separate ``commodity''
from electric energy delivered (or other ancillary service or
reserve), such that the purchase and sale of generation capacity may
exist as a stand-alone transaction or as one component of a
``bundled energy'' service or transaction, such as a full
requirements contract. When viewed as an ``option-like'' commodity
transaction, generation capacity can be ``delivered'' if the
``holder'' (or relevant reliability authority) calls on the
corollary electric energy to be delivered. In some circumstances,
the ``premium'' component can be priced separately and referred to
as a ``demand charge.'' In others, the generation capacity component
can be a contingent or option-like aspect of a seller's obligation
to provide the ``full requirements'' that a load serving entity
(``LSE'') needs to serve the electric consumers and businesses in
its regions, including fulfillment of any generation capacity
obligations that the LSE has to its local reliability authority.
\35\ More information is available at http://www.ferc.gov/industries/electric/indus-act/rto.asp. The current ISO/RTO entities
operating in North America are PJM Interconnection, Midwest
Independent Transmission System Operator, Southwest Power Pool, ISO
New England, California ISO, New York Independent System Operator
and the Electric Reliability Council of Texas (ERCOT). Each of these
entities, other than ERCOT, was either formed at the direction of
FERC or designated by FERC to direct the operation of the regional
electric transmission grid in its specific geographic area. ERCOT is
fully regulated by the Public Utility Commission of Texas (the
``PUCT'').
\36\ Counsel for Petitioners in subsequent conversations
represented that generation capacity can be a reliability
requirement that, in some areas, owners of generation units must
maintain in order to provide voltage and frequency support to the
electric grid for reliability purposes. In other areas, generation
capacity reliability requirements may be imposed on LSEs that must,
if they own no generation assets, purchase generating capacity from
third-party generators to fulfill the LSEs' reliability
requirements.
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Some generation capacity agreements or arrangements among NFP
Electric Entities may include operational reserves attributable to the
identified generation unit. A generation capacity arrangement or
transaction also may be called a ``shared resources agreement,''
whereby NFP Electric Entities agree conditionally to share capacity
resources as needed. The contract may relate to multiple identified
units owned or operated by both NFP Electric Entities. For example,
some state or regional programs to manage limited generation capacity
and maintain voltage support for the electric grid in a geographic area
may allow NFP Electric Entities subject to such program to utilize
``demand-side resources'' as part of the generation capacity required
by the specific balancing authority, or to meet the reliability
authority's requirements in the relevant geographic region.
In general, a generation capacity transaction between two NFP
Electric Entities in one region cannot be presumed to be fungible with
any other generation capacity transaction between two other NFP
Electric Entities, even in the same region.
3. Transmission Services
As with the other transaction categories described by the
Petitioners, the Petition notes that electric transmission services
transactions between NFP Electric Entities will vary by geographic
region and by assets owned and transmission services required by the
operations of different NFP Electric Entities. In some cases, these
transmission services agreements include congestion management
services, system losses, and ancillary services.\37\ Some NFP Electric
Entities own significant transmission facilities (e.g., BPA owns 75
percent of the transmission lines in the Pacific Northwest). In some
cases, Federal law and the regulations pursuant to which the Federal
power agencies are formed and operate require a particular Federal
power agency to allocate a portion of the transmission to particular
electric entities, including NFP Electric Entities, located within its
geographic area.
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\37\ The Petition notes that the concept of generation capacity
is distinguishable from ``transmission capacity,'' which relates to
the limited amount of electric energy transmission available over
the interconnected electric transmission grid, and which is
generally defined as a measure of the transfer capability or
``capacity'' remaining in the physical electric energy transmission
network for further commercial activity over and above already
committed uses. Additionally, Exhibit 2 of the Petition provides the
following example:
Federal power agency K sells to G&T cooperative J 100 MWs of
monthly ``firm point-to-point transmission service'' from location X
to location Y in the southeast U.S. for a term of 3 months at the
tariff rate of $2,000/MW-Month for a total transaction value of
$600,000. The geographic area in which such transmission service
takes place is outside the ``footprint'' of an RTO, and therefore
the transmission service is reserved on the Open Access Same Time
Information System (``OASIS'') Web site of the transmission owner,
K. J intends to use the transmission service to deliver wholesale
electric power to its distribution cooperative member-owners to
supply a portion of its distribution cooperative constituents'
retail electric load.
Petition Exhibit 2 at 3.
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In certain areas of the country, the RTOs/ISOs control allocation
of transmission assets, rights and services, and the individual owners
of transmission assets do not have the ability to engage in bilateral
services arrangements involving those transmission assets, which are
under RTO/ISO management and control. In other areas of the country,
historical transmission services agreements, including those between
NFP Electric Entities, are ``grandfathered'' from the RTO/ISO rules and
procedures otherwise applicable to electric transmission services in
that region.
4. Fuel Delivered
The Petition describes a fourth category of transactions in which
one NFP Electric Entity delivers to another NFP Electric Entity fuel to
power electric generation facilities. The electric facilities owned and
operated by NFP Electric Entities vary widely in terms of the fuel used
by such facilities for generation. Fuel types may include nonfinancial
commodities such as coal, natural gas, uranium products, heating oil,
and biomass or waste products including wood chips, tires, and manure.
In addition to the fuel, one NFP Electric Entity may provide to another
NFP Electric Entity other services related to the fuel commodity, such
as fuel procurement, fuel transportation over pipeline, rail, barge and
truck, fuel storage, or fuel waste handling and storage services.\38\
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\38\ Petitioners also described a scenario in which one NFP
Electric Entity may agree to manage for another NFP Electric Entity
the operational basis or exchange (location/time of delivery) risk
that arises from the recipient's NFP Electric Entity's location-
specific, seasonal, or otherwise variable operational need for fuel
delivered. Another example from Exhibit 2 of the Petition provides
that:
Joint power agency L supplies to municipal utility M a long-term
supply of natural gas from a natural gas project (Project Entity Z)
developed by L and other NFP Electric Entities for the purpose of
fueling L's and M's (and other NFP Electric Entity owners of Project
Entity Z's) natural gas-fired electric generating facilities in the
California ISO market. M pays L for the cost of acquiring,
developing and improving the natural gas Project Entity Z through
direct ``capital contributions'' to Project Entity Z. In addition M
pays L a monthly fee for the natural gas supplied from the natural
gas project, composed of an operating cost fee component, an
interstate pipeline transportation cost fee component and an
operating reserve cost fee component. The natural gas-fired electric
generating facility is to be used by M to supply a portion of its
expected retail electric load.
Petition Exhibit 2 at 3-4.
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[[Page 51003]]
5. Cross-Commodity Transactions
The Petition describes such transactions as commercial agreements
entered into between two NFP Electric Entities, including options, heat
rate transactions and tolling arrangements, whereby the electric energy
delivered to the recipient NFP Electric Entity is priced by reference
to the fuel source used or useable by the provider NFP Electric Entity
for generating such electric energy. Alternatively, the price paid for
the fuel by the recipient NFP Electric Entity may be calculated by
reference to the amount of electricity that the recipient NFP Electric
Entity generates using such fuel.
6. Other Goods and Services
The Petition notes that these agreements may involve sharing
property rights, equipment, supplies and services, including
construction, operation, and maintenance agreements, facilities
management, construction management, energy management or other energy-
related services tied to the electric facilities owned by, or
operations of, one or both of the NFP Electric Entities, including
emergency assistance or ``mutual aid'' arrangements.
In some regions of the country, state regulators or RTOs/ISOs have
established ``demand side management programs'' to assist utilities in
managing the supply/demand balance that is essential to delivering
reliable electric energy (which is not currently storable in commercial
quantities). Therefore, some NFP Electric Entities engage in joint
demand-side management programs with their retail electric customers
whereby the customers agree to reduce service/load requirements during
certain weather or emergency conditions. NFP Electric Entities may
agree with each other to engage in joint demand-side management
programs to conserve their collective generation resources and reduce
costs, and to comply with their collective obligations to RTOs/ISOs,
regional balancing authorities, and state or local regulators.
The Petition also notes that NFP Electric Entities may provide each
other with services related to the generation, transmission, and/or
distribution facilities owned by each, or with respect to the
maintenance (ongoing, outage, or emergency) or dispatch of generation
units. Especially when there is a weather event or other unexpected
outage which interrupts electric energy service to an NFP Electric
Entity's customers, other NFP Electric Entities (and other electric
utilities) in the geographic area will provide goods and services on an
immediate basis, often without the opportunity of negotiating pricing
or payment terms until the electric energy service has been restored to
retail electric energy customers. These agreements between NFP Electric
Entities may involve operating each other's facilities, sharing
equipment, supplies and employees (e.g., line crews), and interfacing
on each other's behalf with suppliers/vendors, regulators and
reliability authorities and customers.
7. Environmental Rights, Allowances or Attributes
The last category of transactions described in the Petition relates
to a wide variety of Federal, regional, state, and local environmental
rights, allowances or attributes required to operate a particular NFP
Electric Entity's electric facilities or operations, or to fulfill a
particular NFP Electric Entity's regulatory requirements. NFP Electric
Entities may transact among themselves in environmental emissions
allowances, offsets or credits (including carbon), renewable energy,
distributed generation, clean energy or energy efficiency credits or
attributes (which can be regional or state specific in nature,
including ``green tags''). NFP Electric Entities in a particular
geographic region, whose available allowances may be directly useable
to fulfill the needs of another NFP Electric Entity in the same region,
often will directly transact with each other, rather than go to a non-
NFP Electric Entity to negotiate a particular transaction.
C. Definition and Scope of NFP Electric Entities
The Petition defines NFP Electric Entities as:
(i) The United States, a State or any political subdivision of a
State, or (ii) an ``electric cooperative'' that receives financing
under the Rural Electrification Act of 1936 (7 U.S.C. 901 et seq.)
or that sells less than 4,000,000 megawatt hours of electricity per
year, or [(iii) any other electric cooperative, whether or not such
electric cooperative meets the requirements of clause (ii)
above,]\1\ or (iv) any agency, authority, instrumentality or
department of any one or more of the foregoing, or a federally-
recognized Indian tribe, or (v) any entity which is wholly owned,
directly or indirectly, by any one or more of the foregoing. For
purposes of this definition, an ``electric cooperative'' shall mean
an ``electric membership corporation'' or an ``electric power
association'' organized under State law, a ``rural electric
cooperative,'' ``cooperative providing electric services to
consumers and farmers'' or any similar entity referenced in other
Federal, State and local laws and regulations, so long as any such
entity is formed and continues to operate for the primary purpose of
providing electric service to its members on a not-for-profit,
cooperative basis, and is treated as a cooperative under the Federal
tax law.\39\
\39\ Petition at 14 (internal citations omitted).
Generally, the Petition represents that all NFP Electric Entities are
``nonfinancial end users of Electric Operations-Related Transactions,
and enter into such transactions only to hedge or mitigate commercial
risks.'' \40\ Summarized herein, the Petition describes in detail the
specific classes of entities it believes fall within its proposed NFP
Electric Entity definition, and justifies inclusion of each specific
class based upon a common public interest rationale.
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\40\ Petition at 33. Petitioners explain that the term
``nonfinancial end users'' means an NFP Electric Entity that does
not fall within the definition of a ``financial entity'' in CEA
2(h)(7)(C)(i) and that no NFP Electric Entity falls within that
definition. See id. at 33-34.
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1. FPA 201(f) Entities
``FPA 201(f) entities'' is the first class of NFP Electric Entities
defined by Petitioners. These entities include i) certain government
and cooperatively-owned electric utilities (as described in FPA section
201(f)) and ii) federally-recognized Indian tribes that own or operate
electric facilities (as determined by FERC case law).
a. Government and Cooperatively-Owned Electric Utilities Described by
FPA Section 201(f)
Petitioners seek relief from the CEA and Commission regulations
there under for those entities explicitly described by FPA section
201(f) \41\ as being exempt from the plenary jurisdiction of FERC. Per
the Petition, the first category of these entities includes certain
government-owned electric utilities, including Federal electric
utilities such as BPA and other Federal agencies that operate electric
generating or transmission facilities,\42\
[[Page 51004]]
and state-chartered electric utilities such as the New York Power
Authority. Other examples of government-owned electric utilities
include state or county utility boards or public utility districts
formed under state or local law, joint action agencies or joint power
agencies formed under state law to provide wholesale power supply and
transmission services to member entities (each a Joint Action Agency),
and other political subdivisions of a state.\43\ Finally, municipal
utilities ranging in size from LPPC members such as the Los Angeles
Department of Water and Power and the Sacramento Municipal Utility
District, to the smallest municipal electric utilities with fewer than
500 electric meters, are also contemplated as government electric
utilities under FPA section 201(f).\44\
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\41\ See supra note 19 and accompanying text.
\42\ Per the Petition, there are nine Federal electric utilities
in the United States, which are part of several agencies of the
United States Government:
The Army Corps of Engineers;
The Bureau of Indian Affairs and the Bureau of
Reclamation in the Department of the Interior,
The International Boundary and Water Commission in the
Department of State,
The Power Marketing Administrations in the Department
of Energy (BPA, Western Area Power Administration, Southwestern Area
Power Administration, and Southeastern Area Power Administration),
and
The Tennessee Valley Authority (TVA).
In addition, three Federal agencies operate electric generating
facilities:
TVA, the largest Federal power producer;
The U.S. Army Corps of Engineers; and
The U.S. Bureau of Reclamation.
\43\ Per the Petition, a public power district or public utility
district may be owned and operated by a city, county, state or
regional agency. See, e.g., Public Utility District No. 1 of Chelan
County, Washington (http://www.chelanpud.org/your-PUD.html). An
irrigation district is a utility organized under state law which
generates electricity in the course of supplying water. For example,
Imperial Irrigation District in California was formed in 1911 under
the California Irrigation District Act, as described at http://www.iid.com/index.aspx?page=39. Government-owned utilities are
accountable to elected and/or appointed officials and focus on
providing reliable and safe electricity service, keeping costs low
and predictable for its customers, while practicing good
environmental stewardship.
\44\ Per the Petition, a government owned or operated electric
utility may be a department of the governmental entity, or may be
organized as a separate agency, authority or instrumentality
thereof.
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Per the Petition, the second category of entities described by FPA
section 201(f) are electric cooperatives that either are financed by
the U.S. Department of Agriculture's Rural Utilities Service (``RUS''),
sell less than 4,000,000 megawatt hours of electricity per year, or
meet the requirements of an ``aggregated FPA 201(f) entity.'' These
electric cooperatives generally consist of (i) distribution
cooperatives, which distribute electric energy service directly to
their owner/member customers, and (ii) G&T cooperatives, which are
owned by distribution cooperatives and generate or purchase electricity
and transmit it to their constituent distribution cooperatives for
delivery to the distribution cooperatives' owner/member customers.
Aggregated entities most commonly consist of a G&T cooperative formed
by its constituent distribution cooperative (NFP Electric Entity)
members or, comparably, a Joint Action Agency which is formed by its
constituent government-owned (NFP Electric Entity) utility members.
As background, Petitioners explain that the FPA originally was
enacted ``to remedy rampant abuses in the investor-owned electric
utility industry'' \45\ but that cooperatively-owned electric utilities
are easily distinguishable from investor-owned electric utilities
because they are ``effectively self-regulating.'' \46\ More
importantly, of the major abuses considered by Congress as the impetus
for the FPA legislation, ``virtually none could be associated with the
[electric] cooperative structure where ownership and control is vested
in the consumer-owners.''\47\ Based on this understanding of the
legislative history, FERC's predecessor, the Federal Power Commission
(``FPC''), concluded that electric cooperatives financed under the
Rural Electrification Act of 1936 (``REA'') \48\ were intended by
Congress to be FPA 201(f) entities and exempt from the FPC's
jurisdiction over ``public utilities.'' \49\ The FPC made such a
determination in the 1960s notwithstanding the fact that, at that time,
electric cooperatives were not expressly described in FPA section
201(f).\50\
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\45\ Salt River Project Agric. Improvement and Power District v.
Fed. Power Comm'n, 391 F. 2d 470, 475 (D.C. Cir. 1968) (emphasis
added by Petitioners).
\46\ Id. at 473 (elaborating that electric cooperatives are
``completely owned and controlled by their consumer-members and only
consumers can become members. They are non-profit. Each member has a
single vote in the affairs of the cooperative, and services are
essentially limited to members. No officer receives a salary for his
services[,] and officers and directors are prohibited from engaging
in any transactions with the cooperative from which they can earn
any profit.'') (citation omitted).
\47\ Id. at 475.
\48\ 7 U.S.C. 901 et seq. The REA established the RUS as the
body to administer financing to rural utilities.
\49\ See Dairyland Power Coop. et al, v. Fed. Power Comm'n, 37
F.P.C. 12, 27 (1967).
\50\ As part of the Energy Policy Act of 2005 (``EPAct 2005''),
Congress codified the previous interpretation by FERC in Dairyland,
id., (affirmed by the D.C. Circuit Court in Salt River, 391 F. 2d
470) that electric cooperatives that receive financing under the REA
should be considered FPA 201(f) entities. At the same time, Congress
also expanded the FPA 201(f) exemption to electric cooperatives that
sell less than 4 million megawatt hours per year, even if those
electric cooperatives do not receive any financing from the RUS. See
Public Law 109-58, 1291, 119 Stat. 594, 985 (2005), amending FPA
201(f) ``by striking ``political subdivision of a state,'' and
inserting ``political subdivision of a State, an electric
cooperative that receives financing under the Rural Electrification
Act of 1936 (7 U.S.C. 901 et seq.) or that sells less than 4,000,000
megawatt hours of electricity per year.''
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b. Federally-Recognized Indian Tribes
Federally-recognized Indian tribes that own or operate electric
facilities are not described by FPA section 201(f), and thus would be
subject to regulation as public utilities under the FPA. The Petition
notes, however, that FERC and its predecessor, the FPC, and at least
one court have determined such federally-recognized Indian tribes are
to be treated as entities described in FPA section 201(f).\51\ To
identify eligible Indian tribes, the Petition recommends that the
Commission rely on determinations made by the Secretary of the
Interior, periodically listed in the Federal Register, of Indian tribes
to be recognized by the U.S. government pursuant to Section 104 of the
Act of November 2, 1994.\52\
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\51\ Per the Petition, see City of Paris, KY vs. Fed. Power
Comm'n, 399 F.2d 983 (D.C. Cir. 1968); Sovereign Power Inc., 84 FERC
] 61,014 (1998); Confederated Tribes of the Warm Springs Reservation
of Or., a Federally Recognized Indian Tribe, and Warm Springs Power
Enterprises, a Chartered Enter. of the Confederated Tribes of the
Warm Springs Reservation of Or., 93 FERC ] 61,182 at 61,599 (2000)
(concluding that ``the Tribes are an instrumentality of the `United
States, a State or any political subdivision of a state''' and that
Warm Springs Power Enterprises, a Chartered Enterprise of the
Tribes, was entitled to Tribes' Section 201(f) exemption.).
\52\ Public Law 103-454, 108 Stat. 4791, 4792 (codified at 25
U.S.C. 479a-1).
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Petitioners note that FERC's determination that such Indian tribes
should be treated as FPA 201(f) entities was based on the fact that, in
operating such electric facilities, the Indian tribes perform
government functions--the funds generated by such electric operations
would be used for governmental purposes and would decrease the need for
federal funding. Additionally, Indian tribes are subject to Interior
Department oversight. Finally, like the other government or government-
owned electric entities described in FPA section 201(f), the Indian
tribes are tax exempt or ``not-for-profit'' entities.
2. Non-FPA 201(f) Electric Cooperatives
The Petition also requests relief for the very small number of
cooperatively-owned electric utilities that do not meet the criteria of
FPA section 201(f), either because they do not receive funding from
RUS, sell more than 4,000,000 megawatt hours of electricity in a given
year, or are not an ``aggregated NFP
[[Page 51005]]
Electric Entity.'' \53\ FERC has estimated that there were
approximately fifteen electric cooperatives (of more than 900) which do
not meet the requirements set forth in FPA section 201(f).\54\
Petitioners request that the Commission recognize such cooperatives as
``appropriate persons,'' in accordance with CEA sections 4(c)(1),
4(c)(2)(B), and 4(c)(3)(K), for purposes of an exemption under CEA
section 4(c)(6). Petitioners represent as a threshold matter that,
regardless of whether an electric cooperative meets the specific
criteria of FPA section 201(f), all cooperatively-owned electric
utilities share certain distinguishing features--a common not-for-
profit public service mission and self-regulating governance model--
that form the underlying rationale for the FPA section 201(f)
exemption.\55\
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\53\ See Petition at 23. The Petitioners note that under various
state laws, cooperatively owned electric utilities, or electric
cooperatives, are sometimes called ``electric membership
corporations'' or ``electric power associations.'' In addition,
Petitioners note that under certain sections of tax laws, state
public utility laws or regulations, the FPA or the FERC's
regulations, electric cooperatives are sometimes called ``rural
electric cooperatives'' or ``cooperatives providing electric
services to consumers and farmers,'' or by similar, but not
identical, entity names. See Petition at 2, note 5. In this Notice,
as the Petitioners did in their Petition, the Commission uses the
term ``electric cooperatives'' to encompass all of these entities,
which are formed for the primary purpose of providing electric
energy service to their owners/member customers on a not-for-profit
basis, and which are treated as cooperatives under Federal tax laws.
\54\ Statement of Cynthia A. Marlette, General Counsel of FERC,
before the Committee on Agriculture, Subcommittee on Conservation,
Credit, Energy, and Research, United States House of Representatives
(July 30, 2008) (available at http://www.ferc.gov/eventcalendar/Files/20080730104611-Marlette.pdf). NRECA believes that, of its
current members, the following six entities are non-FPA 201(f)
electric cooperatives: Pacific Northwest Generating Cooperative
(PNGC Power), Golden Spread Electric Cooperative, Old Dominion
Electric Cooperative, Wabash Valley Power Association, Wolverine
Power Cooperative, and Deseret Power Electric Cooperative.
\55\ Similarly, to be treated as a ``cooperative'' under Federal
tax law, regardless of 201(f) status, an electric cooperative must
operate on a cooperative basis. See 26 U.S.C. 501(c)(12),
1381(a)(2)(C). As explained by the United States Tax Court in the
seminal case of Puget Sound Plywood, Inc. v. Commissioner of
Internal Revenue, operating on a cooperative basis means operating
according to the cooperative principles of i) democratic member
control, ii) operation at cost, and iii) subordination of capital.
See 44 T.C. 305 (1965); see also Internal Revenue Manual Sec.
4.76.20.4 (2006) (elaborating on the cooperative principles by
explaining that each member of a cooperative has one vote, a
cooperative must allocate any excess operating revenue to its
members in proportion to the amount of business it did with each,
and that members share their interest, risk, and burden to obtain
services or benefits rather than invest as equity owners).
Additionally, for any electric cooperative to be exempt from Federal
income taxation pursuant to IRC 501(c)(12), it must collect annually
``85 percent or more of [its] income * * * from members for the sole
purpose of meeting losses and expenses.'' 26 U.S.C. 501(c)(12)(A).
Accordingly, Petitioners argue that an electric cooperative,
regardless of FPA section 201(f) status, lacks incentive or
motivation to manipulate prices, disrupt market integrity, engage in
fraudulent or abusive sales practices, or misuse customer assets
because it: (1) Is a consumer cooperative; (2) is controlled by its
members; (3) must operate at cost and ``not operate either for
profit or below cost;'' (4) may not benefit its individual members
financially; and (5) if exempt from Federal income taxation, must
collect at least 85 percent of its income from members.
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In analyzing whether an entity qualifies as an appropriate person
under CEA section 4(c)(3), Petitioners note that past Commission
determinations have focused on the financial strength and
sophistication of the persons for whom relief is being provided.
Petitioners also posit that CEA section 4(c)(3)(K) allows the
Commission to consider the operations management qualification of the
person or class of persons in relation to the exempted transactions, as
well as the person's or class of person's ability to execute the
exempted transactions without additional regulatory protection by the
Commission. When considered in light of these determinative factors,
Petitioners argue that source of financing or total electric energy
sales are not meaningful factors for purposes of differentiating
between electric cooperatives that are appropriate for an exemption
from the CEA and those that are not.\56\
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\56\ Petitioners argue that in promulgating CEA section
4(c)(6)(C), ``Congress effectively makes the determination for the
Commission that `entities described in FPA 201(f)' are `appropriate
persons' entitled to the benefits of the exemptive order.'' Petition
at 23. Thus, by extension, Petitioners argue that if non-FPA 201(f)
electric cooperatives are at least as financially sound and
operationally capable as those electric cooperatives described by
FPA section 201(f), then they should also be considered appropriate
persons.
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First, the Petition argues that whether out of necessity due to
insufficient Congressional appropriations, or by choice in order to
find more appropriate or less expensive terms for certain needs,
electric cooperatives may look to sources of financing beyond the RUS.
Other nonprofit cooperative financing entities, such as the National
Rural Utilities Cooperative Finance Corporation (``CFC'') or Co-
Bank,\57\ exist to supplement RUS financing or provide additional
financing resources and terms not available through the RUS.
Petitioners note that electric cooperatives always can choose to borrow
from private lenders or self-finance infrastructure investments and
operations with ongoing revenues and reserves. Eligibility for RUS
financing does not speak to an electric cooperative's operational
soundness or financial strength.
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\57\ Per the Petition, the CFC is a nonprofit cooperative entity
formed in 1969 by NRECA's electric cooperative members. CFC provides
access to financing to supplement the loan programs of the RUS. CFC
is the largest non-governmental lender to America's rural electric
systems, and nearly 200 electric cooperatives across the United
States rely solely on CFC for financing. CFC has separately
requested exemptive relief from the Commission for the swaps it
enters into related to providing financing to its members' electric
cooperatives. CoBank is a cooperative bank owned by electric
cooperatives and agricultural cooperatives, and is a part of the
Farm Credit Administration system.
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Next, the Petition suggests that greater electric energy sales
could result in greater financial strength. Petitioners note that while
very few electric cooperatives historically have sold 4,000,000
megawatt hours or more in a particular year, the success of the
electric cooperative model means that there may be a small number of
cooperatives in any particular year whose annual sales exceed the
threshold.\58\ Furthermore, an electric cooperative's status under the
FPA may fluctuate year-to-year depending on its annual megawatt sales,
which always will fluctuate depending on usage trends, economic
conditions, and weather patterns. Petitioners believe that Congress'
policy decision to codify 4,000,000 megawatt hours per year as a
threshold was based solely upon the fact that FERC, as well as other
agencies, already used this level to identify ``small utilities,''
``small entities,'' or ``small businesses'' that should be afforded
protection from the costs and regulatory burdens imposed on larger
entities.\59\
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\58\ Per the Petition's representation of data collected by
NRECA, fewer than one percent of distribution cooperatives exceed
the four million MWh annual sales threshold, as do approximately 24
of 66 G&T cooperatives. The Commission understands that of those G&T
cooperatives that exceed the sales threshold in a given year, the
majority are still FPA 201(f) entities because they receive
financing from RUS.
\59\ See Petition at 35-36. Counsel for Petitioners also
represent that EPAct 2005 was largely a response to the electrical
blackouts in the northeast United States during 2003 that later were
found to be attributable to generation and transmission failures of
the largest electric utility providers. Thus, Congress' chief
concern in expanding the 201(f) exemption for electric cooperatives
was ensuring that entities with substantial generation and
transmission capacity remained subject to the plenary jurisdiction
of FERC. Per the Petition, Congress did not make a policy decision
that the electric cooperatives selling 4 million megawatt hours or
more per year required regulation under FPA 201(f) and, where EPAct
2005 did give FERC additional discretionary jurisdiction over
electric cooperatives, FERC has not chosen to exercise that
discretionary authority to date. When FERC exercises its
jurisdiction in certain instances, it allows non-FPA 201(f) electric
cooperatives additional regulatory flexibility, subject to ``self-
regulation'' by such cooperatives' member/owner boards,
distinguishing the not-for-profit electric sector from investor-
owned electric utilities. The very small number of electric
cooperatives that do not meet the 4 million megawatts per year
threshold at any point in time are, nonetheless, ``self-regulating
entities,'' share the same cooperative governance structure, operate
on a cooperative basis and are not-for-profit entities.
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[[Page 51006]]
Thus, Petitioners argue that there is no implication under any of
the FPA section 201(f) criteria for electric cooperatives that non-
201(f) electric cooperatives are more or less creditworthy or
financially sound, or more or less deserving of operational deference
or regulatory preference, than electric cooperatives that meet one of
the FPA section 201(f) criteria.\60\
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\60\ Petitioners note that non-FPA 201(f) electric cooperatives
likely own more or larger generation and transmission assets, and
therefore are arguably at least as financially sound and
operationally qualified as electric cooperatives described in FPA
section 201(f). Furthermore, these non-FPA 201(f) electric
cooperatives may meet the financial criteria established in CEA
section 4(c)(3)(F) for an ``appropriate person'' by having a net
worth exceeding $1,000,000 or total assets exceeding $5,000,000.
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III. Commission Determinations
A. Scope of the Proposed Order
In the exemptive order proposed herein (the ``Proposed
Order''),\61\ the Commission is providing for a narrower scope of
eligibility than requested by Petitioners. While the proposed exemptive
relief is structured in a manner similar to the Petition's suggested
approach and incorporates many of the same parameters,\62\ the Proposed
Order uses different terminology to describe the pertinent categories
of affected entities and transactions, and limits the exempted
transactions to certain enumerated categories.\63\ The Proposed Order
identifies (i) the entities eligible to rely on the exemption for
purpose of entering into an exempt transaction (``Exempt Entities'');
(ii) the agreement, contract, or transaction for which the exemption
may be relied upon (``Exempt Non-Financial Energy Transactions''); and
(iii) the provisions of the CEA that will continue to apply to Exempt
Entities engaging in Exempt Non-Financial Energy Transactions.
Accordingly, relief from the requirements of the CEA and Commission
regulations provided in the Proposed Order will be available for only
an Exempt Entity entering into an Exempt Non-Financial Energy
Transaction with another Exempt Entity, subject to certain conditions.
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\61\ The text of the Proposed Order is set forth in section IV
of this Notice.
\62\ See Petition Exhibit 3.
\63\ The Commission believes that the open-ended relief sought
by the Petitioners makes it difficult to evaluate the full range of
transactions that would be subject to exemption and, thus, to
conduct legitimate public interest and CEA purpose determinations as
required under CEA section 4(c). As the Commission is not providing
the categorical relief requested by Petitioners at this time, it
considered the Petition's secondary requests to provide i) an
additional category for ``trade options'' and/or ii) delegated
authority to Commission staff to review and approve new categories
of exempted transactions for purposes of being eligible for the
relief provided herein. See supra note 26. Given Congressional
intent that the Commission need not determine the nature of a
product when providing 4(c) relief, the Commission does not believe
it would be appropriate to provide specific relief to trade options
as a category of transactions in the context of this proposed
relief. See supra note 7 and accompanying text. While it is possible
that the scope of the transactions eligible for the relief proposed
herein may include transactions that otherwise would qualify as
trade options, the Commission need not make such a finding in the
context of the proposed 4(c) exemption. Rather, the Commission has
determined to limit the scope of the proposed exemption to Exempt
Non-Financial Energy Transactions, as described in the Proposed
Order, and the Commission is requesting comment on this description.
As for the Petitioner's request regarding delegated authority to
CFTC staff, the Commission has never in the past delegated authority
to staff to make ad-hoc 4(c) determinations, and does not propose
such a delegation herein. Additionally, the Commission is not
providing relief retroactive to the enactment of Dodd-Frank, as
requested by Petitioners. The Commission specifically requests
comment as to whether it should provide such relief, and as to
whether such relief would be necessary to provide any relief beyond
that which has already been available via the Commission's Dodd-
Frank implementation program, related exemptive orders, and staff
no-action letters. The Commission also declines to propose, as was
requested by Petitioners, that the transactions subject to the
relief provided herein will not affect any entity's regulatory
status under the CEA and Commission regulations. The Commission
requests comment as to how the relief provided by the Proposed Order
would be incomplete without such a provision and as to whether the
Commission should include such a provision in the final exemptive
order.
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1. Exempt Entities
The Commission is proposing to include three general categories of
electric utilities as Exempt Entities in the relief provided herein:
(i) Government-owned electric utilities described by FPA section
201(f); (ii) electric utilities owned by Federally-recognized Indian
tribes, otherwise subject to regulation as public utilities under the
FPA; and (iii) cooperatively-owned electric utilities, regardless of
whether such utilities are described by FPA section 201(f), so long as
they are treated as cooperative organizations under the Internal
Revenue Code (``IRC'').\64\ Given the unique public service mission and
governance structure of government, Indian tribe, and cooperatively-
owned electric utilities (as compared to investor-owned public
utilities), the Commission believes that such Exempt Entities, when
engaged in Exempt Non-Financial Energy Transactions, have less
financial incentive to engage in market manipulation or other types of
abusive trade practices that may implicate the public interest and/or
purposes of the CEA and therefore are appropriate for section 4(c)
relief.\65\
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\64\ The Proposed Order also includes as an Exempt Entity any
not-for-profit entity that is wholly owned, directly or indirectly,
by any one or more of the entities included within the three general
categories above.
\65\ The potential for manipulation described here differs from
the situation in CFTC v. Dairy Farmers of America. In this case, a
dairy cooperative was able to have a direct effect on a small
illiquid spot cheese market that was a pricing component in the U.S.
Department of Agriculture formula used to calculate milk prices
under the Federal Milk Marketing Orders in an attempt to manipulate
the price of Class III milk futures. The electric energy market
situation is different because Exempt Entities do not report prices
of Exempt Non-Financial Energy Transactions to indexes used to
settle other derivative products that could benefit an Exempt Entity
cooperative's members.
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Generally, Exempt Entities are limited to nonfinancial commercial
end users that operate on a not-for-profit basis. The Proposed Order
defines Exempt Entities as those entities that do not meet the
definition of a ``financial entity'' in CEA section 2(h)(7)(C). The
purpose of this criterion is to prevent a cooperative that exists
primarily in order to provide financing for its members, and thus
enters into a significant number of derivative transactions to hedge
financial price risks, such as movements in interest rates, from
benefiting from the relief provided in the Proposed Order.\66\
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\66\ The Commission also is proposing, in a separate 4(c) order,
to extend the end-user exception found in CEA section 2(h)(7) to
cooperatives that are financial entities as defined in CEA section
2(h)(7)(C) (``Financial Cooperative 4(c) Order). The purpose of this
4(c) relief is to extend the benefits of the end-user exception to
cooperatives that meet the definition of a financial entity, but
whose members otherwise would qualify for the end-user exception but
choose to take advantage of the cooperative's low-cost access to
financing. See 77 FR 41940 (July 17, 2012). The Commission notes,
however, that for the policy reasons described herein as well as in
the Financial Cooperative 4(c) Order, the extension of the end-user
exception to financial cooperatives still requires reporting of swap
transactions, whereas the relief provided in this Proposed Order
does not.
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a. Electric Utilities Owned by Federal, State, or Local Government
Pursuant to the mandate in CEA section 4(c)(6)(C) and subject to
the determinations described in Section III.B below, the Commission is
proposing to include as Exempt Entities in its Proposed Order all
government-owned electric utilities that are described by FPA section
201(f). FPA section 201(f) exempts from the plenary jurisdiction of
FERC ``any agency, authority, or instrumentality of'' or ``any
corporation which is wholly owned, directly or indirectly, by'' the
federal government or a state or local government. These entities
include, but are not limited to, all federal agency-owned electric
generation and
[[Page 51007]]
transmission facilities,\67\ state-chartered electric utilities,\68\
utility boards or public utility districts formed under state or local
law,\69\ and joint action or joint power agencies formed under state
law to provide wholesale power supply and transmission services to
member entities.\70\
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\67\ See supra note 42.
\68\ These utilities include, but are not limited to, entities
such as the New York Power Authority.
\69\ These utilities include, but are not limited to, municipal
electric utilities, regardless of size.
\70\ These utilities include government-owned public power and
public utility districts such as an irrigation district organized
under state law that generates electric energy during the course of
supplying water.
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b. Electric Utilities Owned by an Indian Tribe
Based on the determinations described in Section III.B below and
pursuant to CEA section 4(c)(1), the Commission is proposing to include
as Exempt Entities in its Proposed Order all electric facilities owned
by federally-recognized Indian tribes that otherwise would be subject
to FERC's plenary jurisdiction. For purposes of the Proposed Order,
``federally-recognized'' means that the Indian tribe has been
documented by the Secretary of the Interior in the Federal Register as
having been recognized by the U.S. government, pursuant to section 104
of the Act of November 2, 1994.\71\
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\71\ Public Law 103-454, 108 Stat. 4791, 4792, as codified at 25
U.S.C. 479a-1.
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The Commission has determined that electric utilities owned by
federally-recognized Indian tribes are no different substantively than
government-owned electric utilities described immediately above for
purposes of benefiting from the relief provided in the Proposed Order.
Like government-owned electric utilities, electric utilities owned by a
federally-recognized Indian tribe use funds generated from electric
energy sales for purposes of running a tribal government. That is,
instead of accruing profits for the benefit of private investors or
shareholders, any excess operating revenues related to the generation
or transmission of electricity are used by the Indian tribe to support
the tribal governing body and reduce dependence on federal funding.
Additionally, Indian tribes are tax-exempt or not-for-profit entities.
Finally, the Commission notes that for many of the same reasons just
noted, FERC has interpreted ``instrumentalities'' of government to
include federally-recognized Indian tribes, thus treating electric
facilities owned by these Indian tribes as FPA section 201(f)
entities.\72\
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\72\ See supra note 51.
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c. Electric Utilities Owned as Cooperative Organizations
Pursuant to CEA section 4(c)(6)(C), and subject to the
determinations described in Section III.B below, the Commission is
proposing to include as Exempt Entities in its Proposed Order all
cooperatively-owned electric utilities that are described by FPA
section 201(f).\73\ Additionally, pursuant to the exemptive authority
provided in CEA section 4(c)(1) and subject to the determination
described in Section III.B below, the Commission is proposing to
include as Exempt Entities all other electric cooperatives that are not
described by FPA section 201(f).\74\ By reference to the IRC in the
Proposed Order, an ``electric cooperative'' means a non-profit or not-
for-profit entity that is organized and continues to operate primarily
to provide its members with electric energy services at the lowest cost
possible and is taxed as an electric cooperative pursuant to IRC
section 501(c)(12) or 1381(a)(2)(C).\75\ In order for an electric
utility to be taxed as a cooperative, the electric utility must
demonstrate that it operates in accordance with three principles: (i)
Democratic member control; (ii) operation at cost (i.e., allocating any
excess revenue, less cost of producing the revenue, among members in
proportion to the amount of business done with each); and (iii)
subordination of capital (i.e., no single contributor of capital to the
cooperative can control the operations or receive most of the pecuniary
benefits of operations, setting a cooperative apart from an
investor).\76\
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\73\ FPA section 201(f) exempts from the plenary jurisdiction of
FERC any electric cooperative that either is funded by the RUS,
sells less than 4,000,000 megawatt hours per year of electricity, or
qualifies as an aggregated FPA 201(f) entity. An aggregated FPA
201(f) entity consists of ``any corporation which is wholly owned,
directly or indirectly, by any one or more [FPA 201(f) entity].''
These entities include Joint Action Agencies that are formed by
constituent government-owned electric utilities described by FPA
section 201(f).
\74\ See infra Section III.B.4 for the Commission's analysis of
why non-201(f) electric cooperatives are deemed to be appropriate
persons for purposes of CEA section 4(c)(1) relief.
\75\ 26 U.S.C. 501(c)(12), 1381(a)(2)(C). For purposes of the
definition, the term ``electric cooperative'' includes a ``rural
electric cooperative.'' The Commission understands that while not
required for federal income tax status, many electric cooperatives
are organized under state cooperative statutes as well. To the
extent such laws impose requirements that conflict with those in IRC
501(c)(12), state law governs without jeopardizing 501(c)(12)
status. See Internal Revenue Manual Sec. 4.76.20.8 (2006).
\76\ The term ``cooperative'' is not defined in IRC 501(c)(12)
or 1381(a)(2)(C). Rather, common law has interpreted operation on a
cooperative basis to mean the organization demonstrates the three
principles noted above. See Puget Sound Plywood v. Commissioner, 44
T.C. 305, 307-308 (1965). Electric cooperatives receive tax-exempt
status if they meet the additional criteria of receiving at least 85
percent of revenue from their members for the sole purpose of
meeting losses and expenses. See IRC 501(c)(12)(A). Otherwise,
electric cooperatives are subject to federal income tax. See IRC
1381(a)(2)(C); Rev. Rul. 83-135.
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Exempt Entity electric cooperatives generally conform to one of two
structures. First, a G&T cooperative generates or purchases and
transmits electric energy at wholesale prices to its constituent
distribution cooperatives, which are members/owners.\77\ Second, a
distribution cooperative sells electric energy to member/owner retail
customers.\78\ Both structures are consumer cooperatives, meaning that
they were formed by consumers for the ``benefit of [such] members in
their capacity as consumers.'' \79\ As noted above, Exempt Entities do
not include cooperatives that qualify as financial entities pursuant to
CEA section 2(h)(7)(C), regardless of whether they are recognized as
FPA section 201(f) entities.\80\
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\77\ G&T cooperatives may also transmit electric energy to other
G&T cooperatives that are members based on ``generation capacity''
agreements as described by Petitioners. See supra Section II.B.2.
\78\ Retail customers, in turn, use the electric energy to power
everyday activities, whether commercial or residential in nature.
\79\ See Puget Sound Plywood, 44 T.C. at 306. Alternatively,
producer cooperatives, such as large farming cooperatives, exist for
the ``benefit of the members in their capacity as producers.'' See
id. The Commission notes that the public interest rationale for
exempting consumer electric cooperatives articulated herein would
not necessarily apply to other producer cooperatives, given
differences in operational purposes and motivations behind forming
such cooperatives.
\80\ Additionally, financial cooperatives are not tax-exempt
entities pursuant to IRC 501(c)(12). See Internal Revenue Manual
Sec. 4.76.20.5 (2006). The Commission intends for financial
cooperatives that finance electric cooperatives, such as the CFC, to
rely on the exemptive relief provided in the recently-proposed
financial cooperative 4(c) order. See supra note 66.
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2. Exempt Non-Financial Energy Transactions
The Proposed Order defines Exempt Non-Financial Energy Transactions
as those agreements, contracts, or transactions entered into between
Exempt Entities primarily in order ``to satisfy existing or anticipated
contractual obligations to facilitate the generation, transmission,
and/or delivery of electric energy service to customers at the lowest
cost possible, and the agreement, contract, or transaction is intended
for making or taking physical delivery of the commodity upon which the
agreement, contract, or transaction is based.'' \81\
[[Page 51008]]
Exempt Non-Financial Energy Transactions are limited to six categories
of agreements, contracts, or transactions, as described in further
detail in the Proposed Order,\82\ which facilitate: (i) The generation
of electric energy by an Exempt Entity, including fuel supply; (ii) the
purchase or sale and transmission of electric energy by/to an Exempt
Entity; and (iii) compliance with electric system reliability
obligations applicable to the Exempt Entity and its facilities or
operations.
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\81\ The Petition asserts that the purpose of all transactions
for which relief is sought (as described therein) must be `` `to
hedge or mitigate commercial risks' (as such phrase is used in CEA
Section 2(h)(7)(A)(ii)).'' See Petition at 4. The Commission
believes, however, that based on the general descriptions and
accompanying examples of Electric Operations-Related Transactions
provided in Petition, some types of transactions may not be
agreements, contracts, or transactions that the Commission
traditionally has viewed to ``hedge or mitigate commercial risk'' as
such phrase is used in CEA section 2(h)(7)(A)(ii). Due to the
breadth and vagueness of some of the Petition's descriptions, it is
unpractical for the Commission to identify every manifestation of an
Electric Operations-Related Transaction that does not come within
the Commission's jurisdiction, although it has attempted to do so to
the extent that the Commission has already made an affirmative
determination elsewhere as to the nature of a product described in
the Petition. See infra notes 86-90 and accompanying text. In any
case, in order to provide Exempt Entities with regulatory certainty
pursuant to CEA section 4(c), the Commission is defining Exempt Non-
Financial Energy Transactions to include all agreements, contracts,
or transactions entered into for the primary purpose of satisfying
existing or anticipated contractual obligations to fulfill an Exempt
Entity's public service mission that are intended for making or
taking physical delivery of the underlying commodity. The Commission
is seeking comments on the merits to this approach in defining
Exempt Non-Financial Energy Transactions.
\82\ The descriptions of the categories of exempted transactions
in the Proposed Order are based on the Commission's understanding of
the transaction types as commonly known to the electric industry, as
informed by the descriptions provided in the Petition and the
Commission's past experience in these markets. While the categories
are identified with the same terminology used in the Petition, the
Commission notes that these categories are not described in
identical terms and therefore do not necessarily describe the same
scope of transactions as contemplated in the Petition for exemption.
The Commission understands that many of the terms used to identify
categories of transactions in the Petition are terms of art,
commonly understood by the electric energy industry (including by
Exempt Entities).
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When combined with the requirements for Exempt Entities described
above, the Commission believes that Exempt Non-Financial Energy
Transactions, as defined under the Proposed Order, will not be used for
speculative purposes. That is, Exempt Entity counterparties to Exempt
Non-Financial Energy Transactions must contemplate ``delivery'' of the
underlying good or service at the time they enter into the agreement,
contract, or transaction, whether that be for electric energy,
generation capacity, access to transmission lines, fuel, or some
combination of the foregoing.\83\ Furthermore, these transactions
generally are not used by Exempt Entities for the primary purpose of
hedging fluctuations in the price of electric energy or any other
commodity related to the generation, transmission, and/or delivery of
electric energy to customers.\84\ Finally, the majority of Exempt Non-
Financial Energy Transactions are not suitable for trading on an
exchange such as a registered DCM or SEF due to their highly bespoke
nature, and cannot include transactions based on, derived from, or
referencing any financial commodity or any metal, agricultural, crude
oil or gasoline commodity that cannot be used as fuel to generate
electric energy. For these reasons, and for the reasons discussed in
the 4(c) analysis provided in Section III.B below, the Commission
believes that these transactions are unlikely to have an impact on
price discovery or the functioning of markets regulated by the
Commission, and thus are appropriate for conditional relief from the
requirements of the CEA and regulations thereunder, pursuant to CEA
section 4(c).
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\83\ Although some agreements may be settled through a book-out
transaction, the transaction may never be entered into for
speculative purposes.
\84\ A key component of bona fide hedging, as defined in the
Commission's regulations, is reducing the risk of fluctuations in
price. In contrast, Exempt Non-Financial Energy Transactions
primarily are used for making or taking delivery of electric energy
in the physical marketing channel.
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The unique nature of the electric energy industry, including the
unique nature of the not-for-profit utility structure, influenced the
Commission's choice of the transactions within the scope of the
exemption in the Proposed Order. Supply of reliable, affordable
electric energy has long been constrained by a limited amount of
generation and transmission capacity, particularly in rural regions,
that is capable of meeting peak demand. Unlike many physical
commodities, electric energy is not capable of being purchased in large
commercial quantities ahead of time, delivered, and stored for later
consumption or use. That is, electric energy must be used or consumed
on an as-needed basis.
Demand, on the other hand, can be subject to unpredictable
fluctuations due to emergency situations and changes in weather
patterns, usage trends, and larger macroeconomic conditions. Thus,
electric utilities, including Exempt Entities, negotiate highly
customized commercial arrangements in order to fulfill these constantly
fluctuating retail electric energy needs while still complying with
national and regional environmental and reliability standards. Each
category of Exempt Non-Financial Energy Transactions described in the
Proposed Order represents a component of these larger bespoke
commercial transactions used to fulfill an Exempt Entity's public
service mission.\85\
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\85\ Each category represents a factor in the ultimate price
paid by retail customers for electric energy. For example,
``generation capacity'' transactions represent the cost component of
acquiring and maintaining the generation assets used to produce the
electric energy. ``Electric energy delivered'' represents the actual
cost of using the generation assets to produce the electric energy.
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The Commission notes that not every transaction described by the
Petition is being included in the Commission's definition of Exempt
Non-Financial Energy Transaction. Due to the Commission's recent joint
final rule and interpretation with the SEC in which it further defined
what is (and is not) a swap (``Products Release''),\86\ the Commission
believes it would not be appropriate to provide 4(c) relief from the
requirements of the CEA and Commission regulations thereunder for
certain transactions that are not swaps.\87\
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\86\ 77 FR 48208 (August 13, 2012).
\87\ The Commission has determined to interpret the forward
exclusion from the swap definition consistently with the forward
exclusion from the ``future delivery'' definition. Id. at 48227.
Therefore, the forward exclusion from the swap definition applies
equally to the forward exclusion from the ``future delivery''
definition. See id. at 48233, note 271.
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Specifically, the Commission notes that, consistent with an example
provided in the Products Release, the example of a Fuel Delivered
transaction provided in Exhibit B of the Petition would be covered by
the forward exclusion from the swap definition.\88\ Additionally, the
Commission notes that, consistent with the general description provided
in the Products Release, agreements, contracts, and transactions
involving the category of Environmental Rights, Allowances or
Attributes as specifically described by the Petition are covered by the
forward exclusion from the swap definition.\89\ Accordingly, while
these agreements, contracts, and transactions are not covered by the
relief in the Proposed Order, they nonetheless are not subject to the
requirements of the CEA and Commission regulations thereunder otherwise
applicable to swaps, such as
[[Page 51009]]
clearing, trade execution, and reporting.\90\
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\88\ Compare Petition Exhibit 2 at 3 with 77 FR 48236.
\89\ Compare Petition at 12 and Petition Exhibit 2 at 6 with 77
FR 48233-234.
\90\ However, any agreement, contract, or transaction that is a
swap referencing one of these agreements, contracts, and
transactions may be subject to the jurisdiction of the CEA (e.g., an
option or other swap on or related to the price of an environmental
allowance).
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Finally, the descriptions of the categories of Exempt Non-Financial
Energy Transactions in the Proposed Order do not constitute official
Commission determinations as to those transactions' legal status as a
product subject to the jurisdiction of the CEA.\91\ To the extent
overlap exists between transactions described as being subject to the
forward exclusion from the swaps definition in the Products Release and
transactions described by the categories of Exempt Non-Financial Energy
Transactions in the Proposed Order, the Commission is requesting public
comment as to whether the Proposed Order should provide relief for such
transactions.
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\91\ As noted above, CEA section 4(c) does not compel the
Commission to make such a determination prior to issuing 4(c)
relief. See supra note 7 and accompanying text. In contrast, and in
addition to providing per se determinations as to the product
classification of certain transactions, the Products Release
provides interpretive guidance as to how the Commission would
analyze certain categories of transactions for purposes of
determining whether a particular transaction is a swap. Accordingly,
certain transactions covered by the categories of Exempt Non-
Financial Energy Transactions in the Proposed Order may not be
swaps. See, e.g., 77 FR 48238 (noting that the Commission will
interpret a ``full requirements'' contract with embedded volumetric
optionality as a forward and not an option if the contract exhibits
the features described in the Products Release in section
II.B.2.(b)(ii)).
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3. Conditions
Under the Proposed Order, Exempt Entities would remain subject to
certain conditions. First, the Commission's general anti-fraud, anti-
manipulation, and enforcement authority found in CEA sections
2(a)(1)(B), 4b, 4c(b), 4o, 6(c), 6(d), 6(e), 6c, 6d, 8, 9 and 13, and
Commission rules 32.4 and Part 180, which have application to both
derivative and cash market transactions, will still apply. This
condition will allow the Commission to initiate enforcement proceedings
against Exempt Entities found to be engaged in manipulative,
fraudulent, or otherwise abusive trading schemes when executing Exempt
Non-Financial Energy Transactions with other Exempt Entities.
Additionally, the Commission reserves its authority to inspect the
books and records of Exempt Non-Financial Energy Transactions already
kept in the normal course of business pursuant to the Commission's
regulatory inspection authorities, in the event that circumstances
warrant the need to gain greater visibility with respect to Exempt Non-
Financial Energy Transactions as they relate to Exempt Entities'
overall market positions and to ensure compliance with the terms of the
Proposed Order.
B. CEA Section 4(c) Considerations
The Commission is issuing the Proposed Order pursuant to authority
found in CEA sections 4(c)(1) and 4(c)(6), among other reasons, because
it believes that the proposed exemption will promote responsible
economic or financial innovation and fair competition. In addition to
criteria found in those provisions, both sources of exemptive relief
require the Commission to make certain determinations based on criteria
found in section 4(c)(2), as well.\92\ Accordingly, the Commission
considers and proposes to determine that: (i) CEA section 4(a) should
not apply to the transactions eligible for the proposed exemption (as
transacted by the entities eligible for the proposed exemption), (ii)
providing section 4(c) relief from the CEA for Exempt Non-Financial
Energy Transactions (as entered into between Exempt Entities) is
consistent with the public interest and the purposes of the CEA, (iii)
Exempt Entities are ``appropriate persons'' within the meaning of the
term as defined in CEA section 4(c)(3), and (iv) the proposed exemption
will not have a material adverse effect on the ability of the
Commission or any contract market to discharge its regulatory or self-
regulatory duties under the CEA.
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\92\ The Commission interprets the phrase, ``the Commission
shall, in accordance with [CEA section 4(c)(1) and 4(c)(2)], exempt
from the requirements of [the CEA] * * *,'' to mean that the
Commission must make the determinations required under CEA sections
4(c)(1) and 4(c)(2) prior to providing the mandated relief.
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1. Responsible Economic or Financial Innovation and Fair Competition
The Commission believes that the exemption provided in the Proposed
Order will promote financial innovation in electric energy markets
facilitated by government and cooperatively-owned utilities. Government
and cooperatively-owned electric utilities are not-for-profit entities
whose sole purpose and mission is ``to provide reliable electric energy
to retail electric customers every hour of the day and every season of
the year, keeping costs low and supply predictable, while practicing
cost-effective environmental stewardship.'' \93\ The consumer-as-owner
cooperative model of electric utility, in partnership with municipal
utilities and federal power agencies, has proven to be well-suited in
developing innovative solutions to a complex array of issues related to
extending electric energy generation and transmission resources into
geographic areas of the United States where economies of scale do not
exist, particularly those rural areas where traditional investor-owned
utilities have chosen not to invest.\94\ In order to meet these
electric energy challenges, however, the Exempt Entity business model
has depended on a flexible operating environment, facilitated over time
by other regulatory relief such as the exemption from FERC's plenary
jurisdiction provided by FPA section 201(f).
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\93\ Petition at 22.
\94\ For instance, investor-owned, private utilities lacked a
profit incentive early on to invest the vast sums of capital
necessary to expand electric energy service into rural areas where
the requisite infrastructure was not already in place. With support
from the RUS, as established under the FPA, electric cooperatives
were first established in order to serve these rural communities.
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Due to factors largely beyond the control of Exempt Entities, the
production, distribution, and usage needs of each Exempt Entity are
constantly changing and have the potential to create the substantial
commercial risk of not having enough generation, transmission, or
distribution capacity for Exempt Entities to meet peak demand. Normally
without the benefit of size and customer density, Petitioners contend
that Exempt Entities have evolved to rely largely on each other in
order to fulfill their public service mission of providing electric
energy to their member-owners and retail customers at the lowest cost
possible.\95\ The transactions listed in the Proposed Order reflect
this type of innovation. Going forward, due to the limitations of
standardized derivative contracts in providing the same type of highly
customized resources to unique energy needs, it is important that
Exempt Entities continue to have the flexibility to negotiate
innovative new arrangements bilaterally for the purpose of achieving
their mission.
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\95\ For example, many G&T cooperatives are formed exclusively
by distribution cooperatives for the purpose of providing each
distribution cooperative with its full requirements.
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Additionally, the Commission notes that, under current Commission
regulations and guidance, it is unclear whether all Exempt Entities
would qualify as eligible contract participants (``ECPs''), as such
term is defined under CEA section 1a(18).\96\ Therefore, absent
[[Page 51010]]
relief such as that proposed herein, there is a risk that some Exempt
Non-Financial Energy Transactions meeting the definition of a swap that
involve non-ECP counterparties could not be traded away from a
designated contract market.\97\ As described elsewhere in this release,
Exempt Entities engage in Exempt Non-Financial Energy Transactions with
one another on only a bilateral basis because such transactions are not
replicable on an exchange (whether due to transaction size, customized
terms, or other reasons). Therefore, the Commission is proposing the
exemption in the Proposed Order to ensure that Exempt Entities have the
regulatory certainty necessary to continue negotiating highly
customized, physically-settled agreements, contracts, and transactions
that serve their unique public service mission of providing reliable,
affordable electric energy to customers.
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\96\ 7 U.S.C. 1a(18). In a recent final interpretive rule
further defining entities under the CEA, as amended by the Dodd-
Frank Act (``Entities Release''), the Commission declined to
recognize certain entities such as not-for-profit natural gas
utilities as having per se ECP status. See Further Definition of
``Swap Dealer,'' ``Security-Based Swap Dealer,'' ``Major Swap
Participant,'' ``Major Security-Based Swap Participant'' and
``Eligible Contract Participant,'' 77 FR 30596, 30657 (May 23,
2012). The Commission noted that it was, however, considering
granting relief to FPA section 201(f) entities, pursuant to new
authority under CEA section 4(c)(6), which ``[might] address the
concerns of some commenters'' such as entities similarly situated to
the utilities represented by Petitioners. See id. The relief
provided in the Proposed Order is consistent with the Commission's
Entities Release.
\97\ See CEA section 2(e).
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The Commission also believes that the relief provided in the
Proposed Order will not distort the competitive landscape. First, the
transactions covered by the Proposed Order relate, in many instances,
to longstanding and exclusive agreements between Exempt Entities. As
such, the Commission does not believe that granting an exemption from
the requirements of the CEA either would change the nature of these
transactions, or cause an Exempt Entity to enter into an arrangement
with another Exempt Entity instead of an investor owned utility or some
other counterparty solely because the agreement would be covered by the
exemption in the Proposed Order. The benefits of the relief provided in
the Proposed Order to government utilities and electric cooperatives
will maintain the current competitive landscape, thus permitting Exempt
Entities to continue using Exempt Non-Financial Energy Transactions to
fulfill their public service mission, as opposed to providing an unfair
advantage to one group over another group.\98\
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\98\ The Commission notes that certain non-Exempt Entity
electric utilities also may qualify for the end-user exception from
the clearing and trade execution requirements for swaps under CEA
section 2(h)(7) when engaged in bona fide hedging transactions. See
7 U.S.C. 2(h)(7)-(8).
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The CFTC is requesting comment on whether the Proposed Order may
foster both financial or economic innovation and fair competition.
2. Applicability of CEA Section 4(a)
The Commission does not believe that CEA section 4(a), the
exchange-trading requirement for futures contracts, should apply to
Exempt Non-Financial Energy Transactions as defined in the Proposed
Order. When transacted between Exempt Entities, these transactions are
highly negotiated and bespoke in nature, cater specifically to the
Exempt Entities' respective electricity, fuel, or other needs, and are
intrinsically related to the Exempt Entities' public-service mission.
Accordingly, the Commission does not view Exempt Non-Financial Energy
Transactions as being suitable for on-exchange trading, in large part
because, as noted above, these transactions and markets are unlikely to
have an impact on price discovery or the functioning of markets
regulated by the Commission. Thus, CEA section 4(a) should not apply.
3. Public Interest and the Purposes of the CEA
Exempting certain physical transactions between entities described
in FPA section 201(f), and certain other electric cooperatives, from
the provisions of the CEA and the regulations there under, subject to
certain anti-fraud, anti-manipulation, and recordkeeping conditions, is
consistent with public interest and the purposes of the CEA for the
reasons discussed below.
a. Public Interest
CEA section 3(a) describes Congress' findings as to certain
national public interests facilitated by transactions subject to the
Act. These public interests include ``providing a means for managing
and assuming price risks, discovering prices, or disseminating pricing
information through trading in liquid, fair and financially secure
trading facilities.'' \99\
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\99\ CEA 3(a), 7 U.S.C. 5(a).
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Given the unique nature of each Exempt Non-Financial Energy
Transaction conducted between Exempt Entities, such transactions are
generally non-fungible and therefore cannot be traded as standardized
products on an exchange. Accordingly, the universe of Exempt Non-
Financial Energy Transactions generally occurs between Exempt Entities,
thus constituting a mostly closed-loop of bilateral transactions. These
bilateral transactions do not, by and large, face markets in which non-
Exempt Entities such as investor-owned utilities engage in similar
transactions, and therefore pose little (if any) threat of negatively
affecting the liquidity, fairness, or financial security of trading
derivative products on a registered designated contract market or swap
execution facility in a material way.
Exempt Non-Financial Energy Transactions, as they are defined and
conditioned in the Proposed Order, are not susceptible to being used as
a means for ``assuming price risk,'' or speculative activity. Rather,
Exempt Entities may engage in these transactions for purposes of
``managing'' commercial risks that arise from electric operations in
which the Exempt Entity engages to fulfill its public service mission
of providing the most affordable and reliable electric energy possible
to its members. Most of these commercial risks, however, are not
directly related to fluctuations in the price of a commodity. Rather,
Exempt Entities' main concern is a possible inability to satisfy
contractual obligations to supply electric energy service to customers,
which may arise from somewhat unpredictable fluctuations in demand for
electric energy. These fluctuations, in turn, make it difficult for
Exempt Entities to forecast their exact needs for generation and
transmission capacity, the exact amount of fuel to be used for the
generation of electric energy, and related activities necessary to
facilitate the Exempt Entity's public service mission. Exempt Non-
Financial Energy Transactions generally use variable pricing, as
opposed to fixed pricing, meaning that they are entered into primarily
to ensure that Exempt Entities are able to meet their production,
transmission, and/or distribution obligations, as opposed to serving a
traditional hedging function against the risk of price fluctuations of
electricity or some other commodity.
It is unlikely that an exchange could or would model a standardized
derivative contract to duplicate the highly-customized economic terms
of a bilaterally-negotiated Exempt Non-Financial Energy Transaction.
Accordingly, such transactions between Exempt Entities are not
susceptible to serving a price discovery function for any broader
market or markets. A market participant seeking pricing information for
a product or transaction involving the same underlying commodity would
look to a standardized product or contract traded
[[Page 51011]]
on a regulated exchange involving that commodity.\100\
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\100\ The Commission notes that FERC recently has proposed
requiring entities described in FPA 201(f) to be subject to limited
reporting requirements concerning the availability and prices of
wholesale electric energy. In EPAct 2005, Congress added Section 220
to the FPA (16 U.S.C. 824t) directing FERC to ``facilitate price
transparency in markets for the sale and transmission of electric
energy in interstate commerce'' with ``due regard for the public
interest, the integrity of those markets, fair competition, and the
protection of consumers.'' See Electricity Market Transparency
Provisions of Section 220 of the Federal Power Act, 135 FERC ]
61,053 at PP 21-23 (Notice of Proposed Rulemaking) (2011)
(collection of information from ``any market participant''
interpreted to include entities described in FPA 201(f)). The
Commission specifically seeks comment on whether, in light of this
proposal, the relief provided in the Proposed Order should be
revised in the future to require reporting to an SDR for certain
transactions.
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The CFTC is requesting comment on whether the Proposed Order is
consistent with the public interest.
b. Purposes of the CEA
Under section 3(b), in order to foster the public interests, it is
the purpose of the CEA ``to deter and prevent price manipulation or any
other disruptions to market integrity; to ensure the financial
integrity of all transactions subject to [the CEA] and the avoidance of
systemic risk; to protect all market participants from fraudulent or
other abusive sales practices and misuses of customer assets; and to
promote responsible innovation and fair competition among boards of
trade, other markets and market participants.'' \101\ The Commission
believes that the exemptive relief provided in the Proposed Order is
consistent with these purposes.\102\
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\101\ CEA 3(b); 7 U.S.C. 5(b).
\102\ As noted in section III(B)(1) above, the Commission
believes that the exemption will promote financial innovation and
fair competition.
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Exempt Entities are either government or cooperatively-owned
electric utilities organized under Federal tax laws as nonprofit or
not-for-profit entities. All Exempt Entities share a public service
mission of providing reliable electric energy to retail electric
customers at all times, keeping costs low and supply predictable, while
practicing cost-effective environmental stewardship. Elected or
appointed government officials or citizens, or cooperative members or
consumers, are directly involved in the day-to-day governance and
management of an Exempt Entity's facilities and operations. There are
no shareholders or outside investors to profit from the Exempt Non-
Financial Energy Transactions, and any revenues accruing from
operational risk management activities related to the electric
facilities and operations are used to reduce the cost of electric
service provided to cooperative members and retail customers.
Accordingly, the Commission believes that Exempt Non-Financial
Energy Transactions between Exempt Entities are less vulnerable to
fraudulent or manipulative trading activity. Congress affirmatively
recognized this in the context of wholesale electric energy markets
when it exempted government and cooperatively-owned electric utilities
from FERC's plenary jurisdiction under FPA section 201(f).\103\
Furthermore, the Proposed Order retains the Commission's general anti-
fraud, anti-manipulation, and enforcement authority,\104\ and all
Exempt Entities, regardless of status under FPA section 201(f), remain
subject to FERC's market manipulation authority.\105\ Therefore, the
relief provided in the Proposed Order does not interfere with the
Commission's ability to police markets for manipulation and fraudulent
trade practices.
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\103\ See supra notes 45-50 and accompanying text for a
discussion of the FPC's findings in its Dairyland decision, affirmed
by the federal court in Salt River, explaining the underlying
rationale for exempting non-investor owned public utilities from the
plenary jurisdiction of the FPC.
\104\ See CEA sections 2(a)(1)(B), 4b, 4c(b), 4o, 6(c), 6(d),
6(e), 6c, 6d, 8, 9 and 13, and Commission rules 32.4 and Part 180.
\105\ See FPA 222v; 16 U.S.C. 824v.
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Finally, the Commission does not view Exempt Non-Financial Energy
Transactions between Exempt Entities as posing a systemic risk to the
financial integrity or stability of markets. By definition, Exempt
Entities do not consist of interconnected ``financial institutions''
subject to prudential regulation because they are ``systemically
important.'' \106\ Exempt Non-Financial Energy Transactions do not
involve financial market professionals, intermediaries, or any other
entity registered with the Commission. Rather, Exempt Non-Financial
Energy Transactions involve counterparty credit risk between only
Exempt Entities, which share a common not-for-profit public service
mission and are obligated to pursue operational, not financial,
performance mandates. The Commission does not believe that imposing the
requirements of the CEA on these transactions would reduce systemic
risk or bolster the financial stability and soundness of the markets
that the Commission does regulate. Accordingly, the Commission does not
view the relief provided in the Proposed Order as being contrary to
this purpose of the CEA.
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\106\ Additionally, Exempt Entities do not consist of
``financial entities'' as the term is defined in CEA 2(h)(7)(C)(i).
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The CFTC is requesting comment on whether the Proposed Order is
consistent with the purposes of the CEA.
4. Appropriate Persons
Exempt Entities entering into Exempt Non-Financial Energy
Transaction are ``appropriate persons'' for purposes of satisfying CEA
section 4(c)(2) for different reasons, depending on the type of
electric utility and the corresponding section of the CEA pursuant to
which the relief in the Proposed Order is being granted. The Commission
believes that Congress, in enacting CEA section 4(c)(6)(C), implicitly
identified entities described by FPA section 201(f) as appropriate
persons for purposes of qualifying for an exemption pursuant to CEA
section 4(c)(6); otherwise, Congress would not have mandated that the
Commission ``shall * * * exempt'' such entities upon making the
required findings.\107\
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\107\ Alternatively, the Commission notes that many FPA section
201(f) entities are government-owned or sponsored, and therefore
would qualify as appropriate persons under CEA section 4(c)(3)(H):
``Any governmental entity * * * or political subdivision thereof, *
* * or any instrumentality, agency, or department of any of the
foregoing.''
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Next, for the reasons just noted, the Commission believes that
federally-recognized Indian tribes that own electric facilities are
analogous to government entities that sponsor electric facilities, and
therefore qualify as appropriate persons pursuant to CEA section
4(c)(3)(H).\108\
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\108\ See id.
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Finally, the Commission believes that non-FPA 201(f) electric
cooperatives are appropriate persons for the reasons articulated in the
Petition with respect to such cooperatives. Under CEA section
4(c)(3)(K), the Commission may determine other persons not enumerated
elsewhere in section 4(c)(3) to be appropriate in light of their
financial or other qualifications, or the applicability of appropriate
regulatory protections. As previously noted, the Commission believes
that Congress implicitly deemed FPA 201(f) entities to be appropriate
persons, thus indicating that FPA 201(f) entities have the requisite
financial soundness and operational capabilities to execute
transactions that are exempt from the requirements of the CEA.
For the purposes of a 4(c) exemption, the Commission believes that
there is no material difference in an electric cooperative's financial
soundness or operational capability based upon
[[Page 51012]]
whether or not the electric cooperative meets the criteria of FPA
section 201(f).\109\ As Petitioners note, an electric cooperative that
receives financing from a source other than the RUS or sells more than
4,000,000 megawatt hours of electricity per year is at least as
financially sound and operationally qualified as electric cooperatives
described in FPA section 201(f).\110\ The Commission notes that non-
201(f) electric cooperatives arguably are more financially sound and
operationally capable, as they likely maintain greater generation and
transmission assets capable of facilitating the excess electric energy
sales.\111\ Additionally, non-FPA 201(f) electric cooperatives that
sell more than the threshold amount of electric energy per year often
are in a position to benefit from better financing terms than those
offered by the RUS based on having greater financial assets to post as
collateral.
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\109\ As previously noted, non-FPA 201(f) electric cooperatives
are governed by the same public service mission as FPA 201(f)
electric cooperatives (i.e., providing members with electric energy
at the lowest cost possible).
\110\ In expanding the FPA 201(f) exemption to include RUS-
financed electric cooperatives, Congress went a step further in
EPAct 2005 by also including electric cooperatives that sold less
than 4,000,000 megawatt hours of electricity per year. According to
counsel for Petitioners, this provision was meant to capture certain
small, distribution-only cooperatives that did not receive financing
from the RUS.
\111\ Alternatively, certain non-FPA 201(f) electric
cooperatives may qualify as appropriate persons based on their net
worth exceeding $1,000,000 or total assets exceeding $5,000,000. See
CEA section 4(c)(3)(F).
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The CFTC is requesting comment as to whether the Exempt Entities
identified in the Proposed Order are appropriate persons.
5. Ability to Discharge Regulatory or Self-Regulatory Duties
The exemptive relief contained in the Proposed Order will not have
a material adverse effect on the ability of the Commission or any
contract market to discharge its regulatory or self-regulatory duties
under the CEA. Nothing in the Proposed Order will prevent the
Commission or any contract market from carrying out regulatory or self-
regulatory duties for markets in a commodity that may also be involved
in an Exempt Non-Financial Energy Transaction. As previously discussed,
given the bespoke nature of these transactions, they are not connected
to the pricing and market characteristics of other related derivative
products that trade on exchange. The Commission is less concerned about
the regulatory oversight of Exempt Entities as they are ``effectively
self-regulating'' bodies subject to government or cooperative-member
management.
The CFTC is requesting comment as to whether the Proposed Order
will have a material adverse effect on the ability of the Commission or
any contract market to discharge its regulatory or self-regulatory
duties under the CEA.
IV. Proposed Order
The Commission has determined, pursuant to Commodity Exchange Act
(``CEA'') sections 4(c)(1) and 4(c)(6), to exempt from all requirements
of the CEA and Commission regulations issued there under any Exempt
Non-Financial Energy Transaction entered into solely between Exempt
Entities, subject to the following definitions and conditions:
A. Exempt Entity shall mean (i) any government-owned electric
facility recognized under Federal Power Act (``FPA'') section 201(f),
16 U.S.C. 824(f); (ii) any electric facility otherwise subject to
regulation as a ``public utility'' under the FPA that is owned by an
Indian tribe recognized by the U.S. government pursuant to section 104
of the Act of November 2, 1994, 25 U.S.C. 479a-1; (iii) any
cooperatively-owned electric utility, regardless of status pursuant to
FPA section 201(f), so long as the utility is treated as a
``cooperative'' organization under Internal Revenue Code section
501(c)(12) or 1381(a)(2)(C), 26 U.S.C. 501(c)(12), 1381(a)(2)(C), and
exists for the primary purpose of providing electric energy service to
its member/owner customers at the lowest cost possible; or (iv) any
not-for-profit entity that is wholly owned, directly or indirectly, by
any one or more of the foregoing. The term ``Exempt Entity'' does not
include any ``financial entity,'' as defined in CEA section 2(h)(7)(C).
B. Exempt Non-Financial Energy Transaction means any agreement,
contract, or transaction based upon a ``commodity,'' as such term is
defined and interpreted by the CEA and regulations there under, so long
as the primary purpose of the agreement, contract, or transaction is to
satisfy existing or anticipated contractual obligations to facilitate
the generation, transmission, and/or delivery of electric energy
service to customers at the lowest cost possible, and the agreement,
contract, or transaction is intended for making or taking physical
delivery of the commodity upon which the agreement, contract, or
transaction is based. The term ``Exempt Non-Financial Energy
Transaction'' excludes agreements, contracts, and transactions based
upon, derived from, or referencing any interest rate, credit, equity or
currency asset class, or any grade of a metal, agricultural product,
crude oil or gasoline that is not used as fuel for electric energy
generation. Exempt Non-Financial Energy Transactions are limited to the
following categories, which may exist as stand-alone agreements or as
components of larger agreements that combine only the following
categories of transactions:
1. Electric Energy Delivered transactions consist of arrangements
in which a provider Exempt Entity agrees to deliver a specified amount
of electric energy to a recipient Exempt Entity within a defined
geographic service territory, load, or electric system over the course
of an agreed period of time. Such transactions include ``full
requirements'' contracts, under which one Exempt Entity becomes
obligated to provide, and the recipient Exempt Entity becomes obligated
to take, all of the electric energy the recipient needs to provide
reliable electric service to its fluctuating electric load over a
specified delivery period at one or multiple delivery points or
locations, net of any electric energy the recipient is able to produce
through generation assets that it owns.
2. Generation Capacity transactions consist of agreements in which
a recipient Exempt Entity purchases from a provider Exempt Entity the
right to call upon a specified amount of the provider Exempt Entity's
electric energy generation assets to supply electric energy within a
defined geographic area, regardless of whether such right is ever
exercised for the purposes of the recipient Exempt Entity meeting its
location-specific reliability obligations. Such transactions also may
specify certain conditions that must exist prior to exercising the
right to use an Exempt Entity's generation assets, or establish an
agreement between Exempt Entities to share pooled electric generation
assets in order to satisfy regionally-imposed demand side management
program requirements.
3. Transmission Services transactions consist of arrangements in
which a provider Exempt Entity owning transmission lines sells to a
recipient Exempt Entity the right to deliver a specified amount of the
recipient Exempt Entity's electric energy from one designated point on
the transmission lines to another, at a set price per wattage and over
a certain time period, in order for the recipient Exempt Entity to
provide electric energy to its customers. Such transactions may include
ancillary services related to transmission such as congestion
management and system losses.
[[Page 51013]]
4. Fuel Delivered transactions include arrangements used to buy,
sell, transport, deliver, or store fuel used in the generation of
electric energy by an Exempt Entity. Additionally, Fuel Delivered
transactions may include an agreement to manage the operational basis
or exchange (i.e., location or time of delivery) risk of an Exempt
Entity that arises from its location-specific, seasonal or otherwise
variable operational need for fuel to be delivered.
5. Cross-Commodity Pricing transactions include arrangements such
as heat rate transactions and tolling agreements in which the price of
electric energy delivered is based upon the price of the fuel source
used to generate the electric energy. Cross-Commodity transactions also
include fuel delivered agreements in which the price paid for fuel used
to generate electric energy is based upon the amount of electric energy
produced.
6. Other Goods and Services
Other Goods and Services transactions consist of arrangements in
which the Exempt Entities enter into an agreement to share the costs
and economic benefits related to construction, operation, and
maintenance of facilities for the purposes of generation, transmission,
and delivery of electric energy to customers. In a full requirements
contract between Exempt Entities that share ownership of generation
assets, the provider Exempt Entity may determine how generation to meet
the recipient Exempt Entity's full requirements will be allocated among
the provider's independent generation assets, the jointly-owned
generation assets, and the recipient's independent generation assets.
Other Goods and Services transactions also may include agreements
between Exempt Entities to operate each other's facilities, share
equipment and employees, and interface on each other's behalf with
third parties such as suppliers, regulators and reliability
authorities, and customers, regardless of whether such agreements are
triggered as contingencies in emergency situations only or are
applicable during the normal course of operations of an Exempt Entity.
C. Conditions. The relief provided herein is subject to the
Commission's general anti-fraud, anti-manipulation and enforcement
authority under the CEA, including but not limited to CEA sections
2(a)(1)(B), 4b, 4c(b), 4o, 6(c), 6(d), 6(e), 6c, 6d, 8, 9 and 13, and
Commission rules 32.4 and Part 180. Additionally, the Commission
reserves its authority to inspect books and records kept in the normal
course of business that relate to Exempt Non-Financial Energy
Transactions between Exempt Entities pursuant to the Commission's
regulatory inspection authorities. The relief provided herein does not
affect the jurisdiction of FERC or any other government agency over the
entities and transactions described herein. Furthermore, the Commission
reserves the right to revisit any of the terms and conditions of the
relief provided herein and alter or revoke such terms and conditions as
necessary in order for the Commission to execute its duties and advance
the public interests and purposes under the CEA, including a
determination that certain entities and transactions described herein
should be subject to the Commission's full jurisdiction.
V. Request for Comment
The Commission requests comment on all aspects of the issues
presented by this proposed order. The Commission specifically requests
comment on the scope of both the (a) transactions and (b) entities
which would be eligible to rely upon the exemption provided in the
proposed order. In addition, the Commission requests comment on the
following questions:
1. Should the Commission limit the scope of Exempt Entities to only
those electric utilities described by FPA section 201(f), given that
Congress limited CEA section 4(c)(6)(C) thereto (or, is it an
appropriate use of the Commission's general exemptive authority
pursuant to CEA section 4(c)(1) to exempt the non-FPA 201(f) electric
cooperatives)? If it is appropriate to expand the scope beyond FPA
201(f) entities, should the Commission still limit the scope of
electric cooperatives included as Exempt Entities to only those
cooperatives with tax exempt status under the IRC (i.e., those that
receive at least 85 percent of revenue from the cooperative
membership)?
2. In light of other exemptive authority that was added to the CEA
by the Dodd-Frank Act, such as the end-user exception in CEA section
2(h)(7)(A), is relief pursuant to CEA section 4(c) necessary and/or
appropriate for Exempt Non-Financial Energy Transactions between Exempt
Entities as described herein?
3. Should the Commission require that any Exempt Entity that is
described by FPA section 201(f) relying on the relief provided herein
notify the Commission of its change in status under FPA section 201(f)
as a condition of such relief? If so, what purpose(s) would this serve?
4. For the purpose of issuing this Proposed Order, the Commission
concluded that Exempt Non-Financial Energy Transactions do not serve a
price discovery purpose. Please comment on the Commission's assessment.
What facts and circumstances would require the Commission to revisit
its analysis and alter the relief proposed herein such that reporting
to an SDR should be required for certain transactions? \112\
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\112\ Commenters should consider what impact, if any, it would
have on the response to the question posed if FERC finalizes its
recent proposal to require price transparency reporting in electric
wholesale markets, even by FPA 201(f) entities. See supra note 100.
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5. The Commission believes that the Proposed Order's definition of
``Exempt Non-Financial Energy Transaction,'' in combination with the
definition of ``Exempt Entity'', should ensure that Exempt Non-
Financial Energy Transactions cannot be used for speculative purposes.
Please comment on whether the Proposed Order would so foreclose the
possibility for speculative trading and, if not, how the Proposed Order
should be modified to achieve such a goal.
6. The Commission has proposed that electric facilities owned by
only federally-recognized Indian tribes be included as Exempt Entities
for purposes of the relief provided in the Proposed Order. The
Commission specifically requests comment on every aspect of the
Proposed Order as it relates to Indian tribes.
7. The Commission has limited its definition of Exempt Non-
Financial Energy Transaction to six categories. Do any of the
transactions described by or covered under these categories fail to
come under the Commission's jurisdiction, such that relief pursuant to
CEA section 4(c) is unnecessary and/or inappropriate, either due to an
interpretation in the Products Release or otherwise?
8. Per the Petition's request, should the Commission stipulate that
the relief provided in the Proposed Order (i) applies retroactively to
the enactment of the Dodd-Frank Act and (ii) that transactions covered
by the relief will not be considered by the Commission for any purpose
which affects or may affect an Exempt Entity's regulatory status under
the CEA (e.g., in determining status as a swap dealer or major swap
participant)?
9. The Petition requested that the Commission provide categorical
relief by including ``any other agreement, contract, or transaction to
which an Exempt Entity is a party.'' Should the Commission provide such
categorical relief, so long as the primary purpose of
[[Page 51014]]
the agreement, contract, or transaction is to satisfy existing or
anticipated contractual obligations to facilitate the generation,
transmission, and/or delivery of electric energy service to customers
at the lowest cost possible, and the contract is intended to be settled
through physical delivery of the underlying commodity?
10. Can any Exempt Non-Financial Energy Transaction, as defined in
the Proposed Order, or any component of an Exempt Non-Financial Energy
Transaction, be used to hedge price risk in an underlying commodity? If
so, should the Commission explicitly exclude such price-hedging
transactions from the definition of Exempt Non-Financial Energy
Transaction?
VI. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') requires that Federal
agencies consider whether proposed rules will have a significant
economic impact on a substantial number of small entities and, if so,
provide a regulatory flexibility analysis on the impact. The relief
provided in the Proposed Order may be available to some small entities,
because they may fall within standards established by the Small
Business Administration (``SBA'') defining entities with electric
energy output of less than 4,000,000 megawatt hours per year as a
``small entity.'' \113\
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\113\ U.S. Small Business Administration, Table of Small
Business Size Standards Matched to North American Industry
Classification System Codes, footnote 1 (effective March 26, 2012),
available at http://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf.
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The Commission has considered carefully the potential effect of
this Proposed Order on small entities and has determined that the
proposed order will not have a significant economic impact on any
Exempt Entity, including any entities that may be small. Rather, the
Proposed Order relieves the economic impact that the Exempt Entities,
including any small entities that may opt to take advantage of it, by
exempting certain of their transactions from the application of
substantive regulatory compliance requirements of the CEA and
Commission regulations there under. Significantly, the Proposed Order
prevents new requirements for swaps, such as clearing, trade execution
and regulatory reporting, from affecting transactions that Exempt
Entities traditionally have engaged in to serve their unique public
service mission of providing reliable, affordable electric energy
service to customers. Absent such relief and to the extent Exempt Non-
Financial Energy Transactions would qualify as swaps, small entities
covered by the Proposed Order could be subject to compliance with all
aspects of the CEA and its implementing regulations. Accordingly, the
Chairman, on behalf of the Commission, hereby certifies pursuant to 5
U.S.C. 605(b) that the Proposed Order will not have a significant
economic impact on a substantial number of small entities.
B. Paperwork Reduction Act
Under the Paperwork Reduction Act (``PRA''), an agency may not
conduct or sponsor, and a person is not required to respond to, a
collection of information unless it displays a currently valid control
number from the Office of Management and Budget (``OMB''). The Proposed
Order does not contain any new information collection requirements that
would require approval of OMB under the PRA.\114\ While the Commission
reserves its authority to inspect books and records kept in the normal
course of business that relate to Exempt Non-Financial Energy
Transactions between Exempt Entities pursuant to the Commission's
regulatory inspection authorities, the Commission is not imposing a
recordkeeping burden with respect to the books and records of Exempt
Non-Financial Energy Transactions that already are kept in the normal
course of business. Moreover, any inspection of books and records
typically only will occur in the event that circumstances warrant the
need to gain greater visibility with respect to Exempt Non-Financial
Energy Transactions as they relate to Exempt Entities' overall market
positions and to ensure compliance with the terms of this Proposed
Order. Accordingly, each inquiry would be specific to the facts
triggering the inquiry, and thus will not involve ``answers to
identical questions posed to * * * ten or more persons,'' as the term
``collection of information'' is defined in the PRA in pertinent
part.\115\
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\114\ 44 U.S.C. 3501 et seq.
\115\ 44 U.S.C. 3502(3)(a)(1). See also 44 U.S.C.
3518(c)(1)(B)(i) and (ii) (excluding collections of information
related to administrative investigations against specific
individuals or entities, and any subsequent civil actions).
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C. Consideration of Costs and Benefits
1. Introduction
Section 15(a) of the CEA \116\ requires the Commission to consider
the costs and benefits of its actions before promulgating a regulation
under the CEA or issuing certain orders. Section 15(a) further
specifies that the costs and benefits shall be evaluated in light of
five broad areas of market and public concern: (1) Protection of market
participants and the public; (2) efficiency, competitiveness and
financial integrity of futures markets; (3) price discovery; (4) sound
risk management practices; and (5) other public interest
considerations. The Commission considers the costs and benefits
resulting from its discretionary determinations with respect to the
Section 15(a) factors.
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\116\ 7 U.S.C. 19(a).
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Prior to the passage of the Dodd-Frank Act, swap market activity
was not regulated. In the wake of the financial crisis of 2008,
Congress adopted the Dodd-Frank Act, in part, to address conditions
with respect to swap market activities.\117\ Among other things, the
Dodd-Frank Act amends the CEA to establish a comprehensive regulatory
framework for swaps.\118\ In amending the CEA, however, the Dodd-Frank
Act preserved the Commission's authority under CEA section 4(c)(1) to
``promote responsible economic or financial innovation and fair
competition'' by exempting any transaction or class of transactions,
including swaps, from select provisions of the CEA.\119\ It also added
new subparagraph 4(c)(6)(C) to the CEA specifically directing the
Commission, in accordance with 4(c)(1) and (2), to exempt agreements,
contracts, or transactions entered into between FPA 201(f) entities if
doing so ``is consistent with the public interest and the purposes of''
the CEA.\120\ For reasons explained above,\121\ the Commission proposes
to exercise its
[[Page 51015]]
authority under CEA section 4(c)(1) and 4(c)(6) with regard to Exempt
Non-Financial Energy Transactions \122\ engaged in between Exempt
Entities,\123\ subject to the Commission's general anti-fraud, anti-
manipulation, and enforcement authority pursuant to CEA sections
2(a)(1)(B), 4b, 4c(b), 4o, 6(c), 6(d), 6(e), 6c, 6d, 8, 9 and 13, and
Commission rules 32.4 and Part 180. Additionally, the Commission has
reserved its authority to inspect the books and records of Exempt Non-
Financial Energy Transactions already kept in the normal course of
business pursuant to the Commission's regulatory inspection
authorities, in the event that circumstances warrant the need to gain
greater visibility with respect to Exempt Non-Financial Energy
Transactions as they relate to Exempt Entities' overall market
positions and to ensure compliance with the terms of this Proposed
Order.
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\117\ As the Financial Crisis Inquiry Commission explained:
The scale and nature of the [OTC] derivatives market created
significant systemic risk throughout the financial system and helped
fuel the panic in the fall of 2008: millions of contracts in this
opaque and deregulated market created interconnections among a vast
web of financial institutions through counterparty credit risk, thus
exposing the system to a contagion of spreading losses and defaults.
Financial Crisis Inquiry Commission, ``The Financial Crisis
Inquiry Report: Final Report of the National Commission on the
Causes of the Financial and Economic Crisis in the United States,''
Jan. 2011, at 386, available at http://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf
\118\ See discussion above at note [13]. Dodd-Frank Act section
721 (amending the CEA to add new section 1a(47)) defines the term
``swap'' to include ``[an] option of any kind that is for the
purchase or sale, or based on the value, of 1 or more * * *
commodities * * *'').
\119\ Section 4(c)(1) of the CEA.
\120\ As discussed above in section I.A., CEA sections 4(c)(2)
and 4(c)(3) further articulate the conditions precedent to granting
an exemption under 4(c)(1) and 4(c)(6)(C), including that the
exempted agreements, contracts, or transactions be entered into
between ``appropriate persons,'' as that term is defined in
4(c)(6)(3).
\121\ See section III.B. above.
\122\ As discussed and further described above in section
III.A.2., these consist of: any agreement, contract, or transaction
based upon a ``commodity,'' as such term is defined and interpreted
by the CEA and regulations there under, so long as the primary
purpose of the agreement, contract, or transaction is to satisfy
existing or anticipated contractual obligations to facilitate the
generation, transmission, and/or delivery of electric energy service
to customers at the lowest cost possible. When entered into, Exempt
Non-Financial Energy Transactions shall always be intended for
making or taking physical delivery of the commodity upon which the
transaction is based, and such commodity shall never be based upon,
derived from, or reference any interest rate, credit, equity or
currency asset class, or any grade of a metal, agricultural product,
crude oil or gasoline that is not used as fuel for electric
generation. Exempt Non-Financial Energy Transactions are limited to
the following categories: electric energy delivered, generation
capacity, transmission services, fuel delivered, cross-commodity
pricing, and other goods and services.
\123\ As discussed and further described above in section
III.A.1, these are: (i) Any government-owned electric facility
recognized under Federal Power Act (``FPA'') section 201(f), 16
U.S.C. 824(f); (ii) any electric facility otherwise subject to
regulation as a ``public utility'' under the FPA that is owned by an
Indian tribe recognized by the U.S. government pursuant to section
104 of the Act of November 2, 1994, 25 U.S.C. 479a-1; (iii) any
cooperatively-owned electric utility, regardless of status pursuant
to FPA section 201(f), so long as the utility is treated as a
``cooperative'' organization under Internal Revenue Code section
501(c)(12) or 1381(a)(2)(C), 26 U.S.C. 501(c)(12), 1381(a)(2)(C),
and exists for the primary purpose of providing electric energy
service to its members at the lowest possible cost; or iv) any not-
for-profit entity that is wholly owned, directly or indirectly, by
any one or more of the foregoing.
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In the discussion that follows, the Commission considers the costs
and benefits of the exemptive order proposed herein (the ``Proposed
Order'') to the public and market participants generally, and to Exempt
Entities specifically. As earlier discussed in sections I.A. and
III.A.2., to exempt transactions under CEA section 4(c), the Commission
need not first determine--and is not determining--whether the
transactions subject to the exemption fall within the CEA. However, to
capture all potential costs and benefits, this consideration assumes
that the transactions may now or in the future be swaps.\124\ In the
event the subject transactions would not be subject to the Commission's
jurisdiction, the costs and benefits of this Proposed Order relative to
the baseline scenario discussed below would be zero.
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\124\ Accord note 81, supra.
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2. Baseline
The Commission considers the costs and benefits of this Proposed
Order against a baseline scenario of non-action. In other words, the
proposed baseline is the alternative situation that would result if the
Commission declines to exercise its exemptive authority under CEA 4(c).
This means that to the extent Exempt Non-Financial Energy Transactions
engaged in between Exempt Entities qualify as a transaction subject to
regulation under the CEA, they are subject to the regulatory regime
that the CEA, as amended by the Dodd-Frank Act, and Commission
regulations prescribes.
Under the post-Dodd-Frank Act regulatory regime for swaps, Exempt
Entity swap counterparties that, as represented in the Petition, are
``nonfinancial end-users of [Exempt Non-Financial Energy Transactions
entered into] only to hedge or mitigate commercial risks'' \125\ are
subject to the Commission's general anti-fraud, anti-manipulation, and
enforcement authority,\126\ as well as requirements for swap data
reporting \127\ and recordkeeping.\128\ CEA section 2(h)(7) (the ``end-
user exception''), excepts a swap from swap clearing \129\ and trade
execution,\130\ requirements if one counterparty is ``not a financial
entity; * * * is using swaps to hedge or mitigate commercial risk; and
* * * notifies the Commission, in a manner set forth by the Commission,
how it generally meets its financial obligations associated with
entering into non-cleared swaps.'' However, unless both Exempt Entity
counterparties are ``eligible contract participants'' (``ECPs''),\131\
CEA section 2(e) prohibits them from executing a swap other than on a
registered DCM, including directly transacting the swap
bilaterally.\132\ Against this baseline scenario, with respect to an
Exempt Non-Financial Energy Transaction that is a swap, the public and
market participants, including Exempt Entities, would experience the
costs and benefits related to the regulations, noted above, for them as
swaps. As considered below, the Proposed Order could alter these costs
and benefits.
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\125\ Petition at 33.
\126\ See CEA sections 2(a)(1)(B), 4b, 4c(b), 4o, 6(c), 6(d),
6(e), 6c, 6d, 8, 9 and 13, and Commission rules 32.4 and Part 180.
\127\ The CEA as amended by the Dodd-Frank Act contemplates two
types of reporting to swap data repositories (``SDRs''). First, is
real-time reporting: For every swap executed, certain transaction
information, including price and volume, is to be reported to an
SDR'') ``as soon as technologically practicable.'' CEA section
2(a)(13)(A) & (C); see also Real-Time Public Reporting of Swap
Transaction Data, 77 FR 1182 (Jan. 9, 2012) (adopting 17 CFR part 43
regulations to implement real-time reporting). For swaps executed
off of a DCM or SEF and for which neither counterparty is a swap
dealer or major swap participant--as the Commission expects Exempt
Non-Financial Energy Transactions engaged in between Exempt Entities
would be--the real-time reporting obligation for the transaction
falls to one of the counterparties, as agreed between themselves. 17
CFR Sec. 43.3(a)(3) Second, for each swap, additional information
beyond that required in real-time reports must be reported to an SDR
in a ``timely manner as may be prescribed by the Commission.'' CEA
section 2(a)(13)(G); see also Swap Data Recordkeeping and Reporting
Requirements 77 FR 2136 (Jan. 13, 2012) (adopting 17 CFR part 45);
Swap Data Recordkeeping and Reporting Requirements: Pre-enactment
and Transition Swaps 77 FR 35200 (June 12, 2012) (adopting 17 CFR
part 46).
\128\ Swap Data Recordkeeping and Reporting Requirements 77 FR
2136 (Jan. 13, 2012) (adopting 17 CFR part 45); Swap Data
Recordkeeping and Reporting Requirements: Pre-enactment and
Transition Swaps 77 FR 35200 (June 12, 2012) (adopting 17 CFR part
46).
\129\ CEA section 2(h)(1)(A)(it ``shall be unlawful for any
person to engage in a swap unless that person submits such swap for
clearing * * * if the swap is required to be cleared'').
\130\ Transactions subject to the clearing requirement of CEA
section 2(h)(1) must be executed on either a designated contract
market (``DCM'') or a swap execution facility (``SEF''). CEA section
2(h)(8).
\131\ The term is defined in CEA section 1a(18). See also
Further Definition of ``Swap Dealer,'' ``Security-Based Swap
Dealer,'' ``Major Swap Participant,'' ``Major Security-Based Swap
Participant,'' and ``Eligible Contract Participant,'' 77 FR 30596
(May 23, 2012).
\132\ CEA section 2(e).
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Also, the post-Dodd-Frank Act regulatory regime retains
requirements applicable to ``contract[s] of sale of a commodity for
future delivery'' within the meaning of CEA section 4(a) (commonly
referred to as futures contracts), including that section's exchange-
trading requirement for such contracts. Though the Commission need not
first determine whether the transactions subject to exemption under CEA
section 4(c) are futures or swaps, it has defined the boundaries for
inclusion within the Exempt Non-Financial Energy Transaction category
in a way that comports with the distinctions between futures contracts
subject to CEA section 4(a) and non-
[[Page 51016]]
futures transactions.\133\ For this reason, the Commission foresees no
costs or benefits relative to the baseline attributable to exempting
Exempt Non-Financial Energy Transactions as proposed from CEA section
4(a).
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\133\ See, e.g., Statement of Policy Concerning Swap
Transactions, 54 Fed. Reg. 30694 (CFTC July 21, 1989). For example,
the transactions encompassed by this proposed exemption would be
limited to those that are highly bespoke and thus not suitable for
exchange trading, executed exclusively bilaterally, off-exchange
between counterparties, and undertaken with the intent of making or
taking physical delivery of the commodity upon which the transaction
is based.
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The Commission is also cognizant of the regulatory landscape as it
existed before the Dodd-Frank Act's enactment. Any Exempt Non-Financial
Energy Transactions engaged in between Exempt Entities that now would
qualify as swaps (excluding options) were not regulated prior to Dodd-
Frank. Thus, measured against a pre-Dodd-Frank Act reference point,
Exempt Entities engaging in such swaps could experience costs
attributable to the conditions placed upon the Proposed Order. For
example, Exempt Entities were not subject to the Commission's
regulatory inspection authorities with respect to swap transaction
records prior to the enactment and effectiveness of the Dodd-Frank Act.
As a general matter, in its cost-benefit considerations, where
reasonably feasible, the Commission endeavors to estimate quantifiable
dollar costs. The costs and benefits of the Proposed Order, however,
are not presently susceptible to meaningful quantification.
Accordingly, the Commission discusses proposed costs and benefits in
qualitative terms.
3. Costs
To Exempt Entities
The proposed rule is exemptive and would provide Exempt Entities
with relief from regulatory requirements of the CEA for the narrow
category of Exempt Non-Financial Energy Transactions engaged in between
them. As with any exemptive rule or order, the proposed rule is
permissive, meaning that potentially eligible affiliates are not
required to elect it. Accordingly, the Commission assumes that an
entity would rely on the Proposed Order only if the anticipated
benefits warrant the costs. Here, the Proposed Order provides for the
continued application of the anti-fraud, anti-manipulation, and
enforcement provisions of the CEA and its implementing regulations, and
additionally reserves the Commission inspection authority for books and
records that the Exempt Entities currently prepare and retain \134\--
all continuations of the baseline regulatory scheme established in the
CEA. Accordingly, they generate no incremental costs.
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\134\ For example, Exempt Entities that receive financing from
the Rural Utilities Service (``RUS'') are required to keep records
of all master agreements and term contracts for the procurement of
goods and services. See 18 CFR 125.3 (Schedule of records and
periods of retention); RUS Bulletin 180-2. Under the books and
records inspection authority contained in the Proposed Order, the
Commission could request any of these procurement agreements that
document an Exempt Non-Financial Energy Transaction for the purchase
or sale of ``electric energy delivered,'' as such term is defined in
the Proposed Order.
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To Market Participants and the Public
The Commission has considered whether an exemption from the CEA as
proposed for Exempt Non-Financial Energy Transactions engaged in
between Exempt Entities will expose market participants and the public
to the risks that the CEA guards against--a potential cost. For a
variety of reasons, the Commission believes that it does not. These
reasons include the following:
The highly bespoke nature of Exempt Non-Financial Energy
Transactions, as well as the fact that they are used to manage unique
electricity industry operational risks, rather than price risk of an
underlying commodity, make them ill-suited for exchange trading and/or
to serve a useful price discovery function.\135\
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\135\ As explained in section III.B.3.d, above, the commercial
risks that Exempt Non-Financial Energy Transactions face generally
are not related to fluctuations in the price of a commodity, but are
rather related to electricity retail demand fluctuations. Exempt
Entities engage in Exempt Non-Financial Energy Transactions
primarily to assure their ability to meet production, transmission,
and/or distribution obligations, not to hedge against the risk of
electricity prices rising or falling.
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The incentive structure for Exempt Entities--as limited to
not-for-profit governmental, tribal, and IRC section 501(c)(12) or
section 1381(a)(2)(c) electric cooperative entities--is substantially
different than that of investor-owned entities and poses a low risk for
fraud, manipulation, or other abusive practices.\136\
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\136\ See section II.A.1. above.
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Exempt Non-Financial Energy Transactions are executed
bilaterally within a closed-loop of non-financial, not-for-profit
electric utility entities, are not market facing, and therefore have
little, if any, ability to materially impact liquidity, fairness or
financial security of derivative product trading on DCMs or SEFs.\137\
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\137\ See section III.B.3.a. above.
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This closed-loop trading characteristic, combined with the
nonfinancial nature of the transacting parties, also limits the ability
of Exempt Non-Financial Energy Transactions to create systemic
risk.\138\
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\138\ See section III.B.3.b. above.
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Moreover, besides carefully defining the boundaries for Exempt Non-
Financial Energy Transactions between Exempt Entities, the Commission's
Proposed Order incorporates conditions designed to protect the markets
subject to the Commission's jurisdiction. Specifically, the Commission
proposes to retain the general anti-fraud, anti-manipulation, and
enforcement authority contained in the CEA and its implementing
regulations. Additionally, the Commission is also retaining authority
to inspect books and records, pursuant to its regulatory inspection
authorities, in the event that circumstances warrant the need to gain
greater visibility with respect to Exempt Non-Financial Energy
Transactions as they relate to Exempt Entities' overall market
positions and compliance with this Proposed Order. Accordingly, based
on the expectations that--for the narrow subset of electric industry
transactions covered by this Proposed Order--the risk potential, at
most, is remote and the prescribed conditions appropriate to contain
them to the extent they may emerge, the Commission foresees no material
costs attributable to risk associated with the Proposed Order.
The Commission has also considered the potential for the Proposed
Order to exact a competitive cost by affording Exempt Entities an
advantage vis-[agrave]-vis other market participants that may not be
entitled to the exemption. As not-for-profit governmental, tribal, and
cooperative entities as defined in the Proposed Order, the Commission
understands that the mandate for Exempt Entities is to provide
reliable, affordable electricity for their customers. While the
Proposed Order will afford Exempt Entities flexibility and/or reduced
compliance burden to manage their operational risks relative to non-
Exempt Entities, the Commission has no basis to expect that in so doing
the Proposed Order will impose a competitive cost on the markets
subject to its jurisdiction.
4. Benefits
To Exempt Entities
Measured against the baseline scenario, the Proposed Order
expectedly will benefit Exempt Entities by lessening the likelihood
that CEA compliance would diminish their ability and/or incentive to
continue to engage in Exempt Non-Financial Energy Transactions that, as
described in the
[[Page 51017]]
Petition and above,\139\ are an operational tool relied upon by Exempt
Entities to effectively execute their public service mission. It will
also benefit them by avoiding regulatory costs to comply with CEA swap
requirements whether or not any Exempt Non-Financial Energy Transaction
actually constitutes a swap.\140\
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\139\ Petition at 12 (transactions for which exemption requested
``are intrinsically related to the needs of * * * the [not-for-
profit] Electric Entities * * * which arise from their respective
electric facilities and ongoing electric operations and public
service obligations'' (citation omitted)); section III.A.2, above
(the proposed order defines Exempt Non-Financial Energy Transactions
as any agreement, contract, or transaction entered into primarily
``to satisfy existing or anticipated contractual obligations to
facilitate the generation, transmission, and/or delivery of electric
energy service to customers at the lowest cost possible * * * .'').
\140\ As discussed below with respect to benefits to market
participants and the public, Exempt Entities' members and other
customers should be the indirect beneficiaries of these avoided
costs.
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To the extent any Exempt Non-Financial Energy Transactions are
swaps, as a threshold matter Exempt Entities could not execute them off
of a registered DCM unless both Exempt-Entity counterparties qualify as
ECPs.\141\ The relevant criteria for determining ECP status varies for
Exempt Entities that are governmental entities (or political
subdivisions of governmental entities) and those that are not. For the
former, governmental Exempt Entities must meet certain line of business
requirements,\142\ or ``own * * * and invest * * * on a discretionary
basis $50,000,000 or more in investments.\143\ For the latter, non-
governmental Exempt Entities either must have: (a) Assets exceeding
$10,000,000; (b) a guarantee for obligations; or, (c) greater than
$1,000,000 net worth and ``enter * * * into an agreement, contract, or
transaction in connection with the conduct of the entity's business or
to manage the risk associated with an asset or liability owned or
incurred or reasonably likely to be owned or incurred by the entity in
the conduct of the entity's business.'' \144\ While some of the larger
Exempt Entities in particular may meet the definitional requirements to
be ECPs, the Petition does not provide information evidencing that all
Exempt Entities for all types of Exempt Non-Financial Energy
Transaction clearly would.\145\
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\141\ CEA section 2(e).
\142\ That is, have ``a demonstrable ability, directly or
through separate contractual arrangements, to make or take delivery
of the underlying commodity [or] incur * * * risks, in addition to
price risk, related to the commodity.'' CEA section 1a(17)(A)(i) &
(2) (as referenced in CEA section 1a(18)(A)(vii)(aa)). CEA section
1a(18)(A)(vii) specifies alternative criteria to qualify for
governmental-entity ECP status that do not appear relevant given
that Exempt Entities are not SDs, MSPs, or financial entities.
\143\ CEA section 1a(18)(A)(vii)(bb).
\144\ CEA section 1a(18)(A)(v).
\145\ Furthermore, a comment letter submitted by two of the
Petitioners in connection with the Commission rulemaking on the
Further Definition of ``Swap Dealer,'' ``Security-Based Swap
Dealer,'' ``Major Swap Participant,'' ``Major Security-Based Swap
Participant,'' and ``Eligible Contract Participant,'' states that
some not-for-profit consumer-owned electric utilities ``may not meet
the financial tests listed in the definition of ECP due to the
relatively small size of their physical assets.'' Letter from NRECA,
APPA and LPPC dated February 22, 2011, RIN 3235-AK65, at 12.
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If Exempt Entities are not ECPs, and given that Exempt Non-
Financial Energy Transactions, as proposed, are bespoke to an extent
that makes them incapable of exchange trading, absent Commission action
non-ECP Exempt Entities would be unable to engage bilaterally in any
Exempt Non-Financial Energy Transactions that are swaps. Relative to a
circumstance that would preclude non-ECP Exempt Entities from
continuing to engage in Exempt Non-Financial Energy Transactions that
are swaps, the Proposed Order would afford the benefit of allowing the
use of transactions that are closely related to Exempt Entities' public
service mission to provide affordable, reliable electricity. The
Proposed Order would also save Exempt Entities the time and expense
that would be necessitated to determine if they were ECPs. For, with
the Proposed Order, ECP status becomes largely irrelevant, while
without it, Exempt Entities may have to concern themselves with ECP
status determinations as a threshold for engaging in certain
transactions.
The Proposed Order would also avoid potential costs that Exempt
Entities might incur to comply with swap data reporting and
recordkeeping requirements as articulated in Commission regulations for
any Exempt Non-Financial Energy Transactions that were swaps.\146\
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\146\ See Real-Time Public Reporting of Swap Transaction Data,
77 FR 1182, 1232-40 (Jan. 9, 2012) (adopting 17 CFR part 43
regulations to implement real-time reporting). Swap Data
Recordkeeping and Reporting Requirements 77 FR 2136, 2176-93 (Jan.
13, 2012) (adopting 17 CFR part 45); Swap Data Recordkeeping and
Reporting Requirements: Pre-enactment and Transition Swaps 77 FR
35200, 35217-25 (June 12, 2012) (adopting 17 CFR part 46).
Swap Data Recordkeeping and Reporting Requirements 77 FR 2136
(Jan. 13, 2012) (adopting 17 CFR part 45); Swap Data Recordkeeping
and Reporting Requirements: Pre-enactment and Transition Swaps 77 FR
35200 (June 12, 2012) (adopting 17 CFR part 46).
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Even for Exempt Non-Financial Energy Transactions ultimately
determined not to be swaps, if Exempt Entities perceived some potential
that they could be swaps (now or as evolved in the future), Exempt
Entities would likely need to expend resources to monitor contemplated
transactions and make status determinations as to them. Moreover, the
bespoke nature of these transactions could complicate the ability to
generalize conclusions across transactions, potentially resulting in a
need for more frequent, individualized assessments that could multiply
determination costs. While the Commission lacks a basis to meaningfully
project any such benefit in dollar terms, qualitatively it expects that
the benefit would include the avoided costs of training staff to
differentiate between swap and non-swap transactions and, in some cases
at least, to obtain an expert legal opinion to support a determination.
Additionally, uncertainty about whether a certain transaction would or
would not be deemed a swap could prompt an Exempt Entity to forego a
beneficial transaction or to substitute a transaction that served the
operational needs less effectively. Avoiding a result that would
diminish the use of operationally-efficient Exempt Non-Financial Energy
Transactions is another benefit.
To Market Participants and the Public
For reasons similar to those discussed above in the Commission's
analysis of the Proposed Order under CEA sections 4(c)(1) and (6), the
Commission expects that this Proposed Order will benefit the public
generally.\147\
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\147\ In that the impacted transactions are undertaken
exclusively in a closed-loop environment from which financial
participants are absent, the Commission does not foresee that
derivative market participants beyond Exempt Entities will realize
either a cost (as earlier discussed) or benefit impact.
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First, the Commission believes that the Proposed Order aligns with
the beneficial public interests served by the FPA, which--in addition
to granting comprehensive jurisdiction over the electric industry to
FERC--reflects, through FPA section 201(f)'s exemption, Congress'
implicit view that, with respect to certain activities, a regulatory
light-touch and avoidance of overlapping regulatory regimes for
governmental and small cooperative electric utilities serves the
public-interest objectives of the FPA.\148\ The
[[Page 51018]]
Commission interprets CEA section 4(c)(6)(C), directing the Commission
to provide an exemption for FPA 201(f) entities to the extent
consistent with the public interest and the CEA, as an extension of
that view. Accordingly, by tailoring the Proposed Order for FPA section
201(f) entities (as well as others deemed equally suitable) in a
careful manner intended to preserve the public interests protected
under the CEA, the Proposed Order accommodates the public interests of
both statutes.
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\148\ See Salt River Project Agricultural Improvement and Power
District v. Federal Power Commission, 391 F. 2d 470, 475 (D.C. Cir.
1968) (``But of the 19 major abuses summarized [in a Federal Trade
Commission report to Congress on the electric utility industry],
virtually none could be associated with the cooperative structure
where ownership and control is vested in the consumer-owners* * *
Consequently, the attention of the 74th Congress, in enacting the
Federal Power Act, was focused on the sorts of evils associated
exclusively with investor-owned utilities'') In Salt River, the
court considered whether the FPA 201(f) exemption, which at the time
did not expressly encompass REA-financed cooperatives--entities
subject to ``extensive [REA] supervision over the planning,
construction and operation of the facilities [REA] finances''--fell
within the exemption, as the FPC had interpreted that it did. Id. at
473. The court found that, among other factors, the Congressional
inaction in the face of 30 years of administrative practice
extending FPA 201(f) exemptive treatment to REA-financed
cooperatives reinforced the FPC's interpretation that REA-financed
cooperatives were exempt from FPA coverage as instrumentalities of
the Government under Section 201(f). Id. at 476.
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Second, in that the proposed Exempt Entities share the same public-
service mission of providing affordable, reliable electricity to their
customers, those aspects of the Proposed Order that benefit Exempt
Entities directly should indirectly benefit their customers as well.
For example, the Proposed Order would enable non-ECP Exempt Entities to
engage in swap Exempt Non-Financial Energy Transactions that would be
barred to them under CEA section 2(e), or facilitate the likelihood
that they would continue to engage in Exempt Non-Financial Energy
Transactions that they might choose to forego for regulatory
uncertainty or costs reasons absent the exemption. In these
circumstances, Exempt Entity customers should be the ultimate
beneficiaries (via supply reliability and affordability) of the
operational risk-management and efficiencies that Exempt Non-Financial
Energy Transactions afford. Similarly, to the extent that the Proposed
Order enables Exempt Entities to avoid compliance and/or monitoring
costs they would otherwise incur, the non-profit structure, compliance
with requisite Internal Revenue Code conditions, and public service
mission that Exempt Entities share means that the cost savings should
be passed through to members and other customers proportionately in the
form of lower electricity prices and/or higher revenue distributions to
members.
And third, the public also benefits by the promotion of economic
and financial innovation that, as explained above,\149\ the Commission
expects this Proposed Order will further. For, the unique environment
in which these electric utilities must operate to reliably serve their
customer load in the face of constantly fluctuating demand--compounded
by the fact that many of these Exempt Entities do not enjoy the same
scale economies as investor-owned utilities--places a premium on
innovative solutions to operational issues. Exempt Non-Financial Energy
Transactions represent one such innovation. The Commission envisions
the Proposed Order, as contemplated by Congress,\150\ will provide
Exempt Entities regulatory certainty important to their ability to
continue to utilize and develop innovative solutions through the use of
highly bespoke, physically settled agreements, contracts, and
transactions. Accordingly, the Commission expects the Proposed Order to
benefit the public.
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\150\ See HOUSE CONF. REPORT NO. 102-978, 1992 U.S.C.C.A.N.
3179, 3213 (``4(c) Conf. Report''), noted in section I.A. above.
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5. Costs and Benefits as Compared to Alternatives
The chief alternatives to this Proposed Order are for the
Commission to: (1) Decline to exercise its exemptive authority, or (2)
to exercise its exemptive authority more broadly and without conditions
as requested in the Petition.
With respect to the first alternative--decline to exempt--the costs
and benefit consideration is the mirror-image of that discussed above
relative to the baseline scenario. A decision not to exercise exemptive
authority in this circumstance would preserve the current post-Dodd-
Frank regulatory environment.
Relative to the second alternative of exercising its exemptive
authority more broadly and in a manner that would provide categorical
relief from all of the requirements of the CEA as requested in the
Petition, the Commission has purposefully proposed to define the
categories of exempt entities and transactions more narrowly, and to
preserve certain aspects of CEA jurisdiction for them. A potentially
material difference between the entities that the Petition sought to
exempt and how the Commission proposes to define the term Exempt
Entities is the Commission's explicit requirement that an Exempt Entity
not be a ``financial entity'' within the meaning of CEA section
2(h)(7)(C). Given, however, that the Petition expressly represents that
the not-for-profit electric entities that would be encompassed by the
requested exemption ``are all nonfinancial end users,'' \151\ the
Commission does not foresee a material cost of expressly stating this
requirement relative to the Petitioned-for alternative. Conversely, the
requirement delineates what the Commission considers an important
gating principle for the exemption's appropriateness, and stating it
explicitly reduces ambiguity that could fuel future disputes over the
issue--a benefit.
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\151\ Petition at 33.
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Also, compared to the Petition's description of transactions for
which exemption was sought, the proposed definition of Exempt Non-
Financial Energy Transactions incorporates limiting language \152\ and
articulates additional definitional elements (e.g., intent at execution
to make or take physical delivery of the commodity upon which the
transaction is based). The more open-ended, Petitioned-for transaction
description theoretically could save Exempt Entities effort that they
might otherwise need to expend to determine whether a transaction
engaged in between them is or is not exempted compared to the more
refined and limited definition of Exempt Non-Financial Energy
Transactions that the Commission proposes. That said, an equally, if
not more, persuasive case might be made that the greater certitude that
the proposed definition's more bounded approach provides should
mitigate determination costs. More importantly, given the inability to
foresee how these transactions may develop, the Commission considers it
prudent and in the public interest to ring-fence the definition within
stated parameters to restrict the potential for the transactions to
evolve in a manner incompatible with the purposes of the CEA.
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\152\ It explicitly limits covered transactions to six
articulated categories, while the Petition proposed a more open-
ended approach that would have included all transactions relating to
particular categories, but not others. See Petition at 4-5.
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Finally, as proposed, the exemption retains the Commission's
general anti-fraud, anti-manipulation, and enforcement authority, as
well as the Commission's authority to review books and records already
kept in the ordinary course of business in the event that circumstances
warrant the need to gain greater visibility with respect to Exempt Non-
Financial Energy Transactions as they relate to Exempt Entities'
overall market positions and to ensure compliance with the terms of
this Proposed Order, in contrast to the Petition's request for a
wholesale exemption from the CEA. The Commission believes that the
first two conditions serve important beneficial ends to ensure the
integrity of commodity and commodity derivatives markets within its
jurisdiction. To the
[[Page 51019]]
extent Exempt Entities incur some cost to remain compliant with the
CEA's anti-fraud, anti-manipulation, and enforcement regime, the
Commission considers such costs warranted by the importance of
maintaining commodity market and price discovery integrity. The
Commission also believes that authority to inspect books and records
kept in the ordinary course of business, pursuant to its regulatory
inspection authority, as they relate to Exempt Non-Financial Energy
Transactions is important to assure visibility into activity in such
transactions on an as-needed basis. Further, as a general matter, the
Commission expects infrequently to exert its regulatory inspection
authority with respect to Exempt Non-Financial Energy Transactions and,
as proposed, such authority would involve only records that Exempt
Entities keep in the ordinary course of business, only in the event
that circumstances warrant the need to gain greater visibility with
respect to Exempt Non-Financial Energy Transactions as they relate to
Exempt Entities' overall market positions, and only to ensure
compliance with the terms of this Proposed Order. The Commission
anticipates that any costs occasioned by this condition are relatively
insignificant.
6. Consideration of CEA Section 15(a) Factors
a. Protection of Market Participants and the Public
As explained above, the Commission does not foresee that the
Proposed Order will have any effect on the protection of market
participants and the public. More specifically, Exempt Non-Financial
Energy Transactions as transacted bilaterally and in a closed loop
between Exempt Entities in the highly specialized and unique electric-
industry circumstances proposed for exemption do not appear to the
Commission to generate risks of the nature addressed by the CEA. The
Commission has attempted to delineate the definitional boundaries for
Exempt Entities and Exempt Non-Financial Energy Transactions in a
manner that appropriately ring-fences against the possibility that they
could generating such risks, either now or as they may evolve in the
future. Moreover, the exemption incorporates conditions to counter
residual risk that conceivably, though unexpectedly, might survive
notwithstanding the Proposed Order's careful definitional crafting.
b. Efficiency, Competitiveness, and Financial Integrity of Futures
Markets
The Commission foresees no negative impact from the Proposed Order
on the efficiency, competitiveness, and financial integrity of markets
regulated under the CEA. As narrowly limited to highly bespoke
transactions, executed bilaterally between non-financial entities
primarily in order to satisfy existing or expected operations-related
contractual obligations, as opposed to speculating or hedging against
the price risk of an underlying commodity, the Commission foresees
little to no capability for Exempt Non-Financial Energy Transactions,
to the extent any are swaps, to directly impact swap market efficiency,
competitiveness, or financial integrity. Also, the Proposed Order
incorporates definitional attributes that largely eliminate the
potential for any futures market impact.
Further, as an exercise of the Commission's CEA section 4(c)
authority to provide legal certain for novel instruments as Congress
intended, the Proposed Order affords Exempt Entities transactional
flexibility that the Commission understands to be valuable to their
ability to efficiently deploy their limited resources.
c. Price Discovery
The Commission does not foresee that the Proposed Order will
directly impact price discovery. As discussed above, the highly bespoke
nature of Exempt Non-Financial Energy Transactions, as well as the fact
that they are used to manage unique electric industry operational risks
rather than price risk of an underlying commodity, appears to make them
ill-suited for exchange trading and/or to serve a useful price
discovery function.
d. Sound Risk Management Practices
The Commission expects that the Proposed Order will promote the
ability of Exempt Entities to manage the operational risks posed by
unique electric market characteristics, including the non-storable
nature of electricity and demand that can and frequently does fluctuate
dramatically within a short time-span. As discussed above, the
Commission understands that Exempt Non-Financial Energy Transactions
are an important tool facilitating the ability of Exempt Entities to
efficiently manage operational risk in fulfillment of their public
service mission to provide affordable, reliable electricity.
Also, the Commission does not anticipate that the Proposed Order
will compromise systemic risk management. The transactions proposed for
exemption are not market facing, but are executed exclusively within
closed-loops that do not include financial entities. These
characteristics, among others, limit the ability of Exempt Non-
Financial Energy Transactions to create systemic risk.
e. Other Public Interest Considerations
In utilizing its section 4(c)(1) and (6)(C) exemptive authority as
proposed herein, the Commission believes it is acting to promote the
broader public interest in an affordable, reliable electric supply as
Congress contemplated.
7. Request for Public Comment on Costs and Benefits
The Commission invites public comment on its cost-benefit
considerations, including the consideration of reasonable alternatives.
The Commission invites public comment on the magnitude of specific
costs and benefits that would result from the Proposed Order, including
data or other information to estimate the dollar value of such costs
and benefits.
The Commission invites public comment on any cost or benefit
impact, direct or indirect, that the Proposed Order may have with
respect to the factors the Commission considers under CEA section
15(a), specifically: (a) Protection of market participants and the
public; (b) efficiency, competitiveness and financial integrity of the
markets subject to the Commission's jurisdiction; (c) price discovery;
(d) sound risk management; and (e) other public interest
considerations.
Issued in Washington, DC, on August 16, 2012 by the Commission.
Sauntia S. Warfield,
Assistant Secretary of the Commission.
Appendices to Request for comment on a proposal to exempt, pursuant to
authority in section 4(c) of the Commodity Exchange Act, certain
transactions between entities described in section 201(f) of the
Federal Power Act, and other electric cooperatives --Commission Voting
Summary and Statements of Commissioners
Note: The following appendices will not appear in the Code of
Federal Regulations
Appendix 1--Commission Voting Summary
On this matter, Chairman Gensler and Commissioners Sommers,
Chilton, O'Malia and Wetjen voted in the affirmative; no
Commissioner voted in the negative.
[[Page 51020]]
Appendix 2--Statement of Chairman Gary Gensler
I support the proposed relief from the Dodd-Frank Wall Street
Reform and Consumer Protection Act (Dodd-Frank Act) swaps provisions
for certain electricity and electricity-related energy transactions
between rural electric cooperatives; state, municipal, and tribal
power authorities; and federal power authorities.
Congress directed the CFTC, when it is in the public interest,
to provide relief from the Dodd-Frank Act's swaps market reform
provisions for certain transactions between these entities.
For decades, these entities have been recognized as performing a
public service mission, a fundamentally different function than
investor-owned utilities. The purpose of these entities is to
provide their customers or cooperative members with reliable
electric energy at the lowest cost possible. They have been largely
exempt from regulation by the Federal Energy Regulatory Commission
because of their government entity status or their not-for-profit
cooperative status.
The scope of the proposed relief extends only to non-financial
electricity and electricity-related energy transactions for the
generation, transmission and delivery of electric energy to
customers. Such transactions must be intended for making or taking
physical delivery of the underlying commodity.
I look forward to receiving public comment on the proposed
relief.
[FR Doc. 2012-20589 Filed 8-22-12; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: August 23, 2012