2016-08076
Federal Register, Volume 81 Issue 68 (Friday, April 8, 2016)
[Federal Register Volume 81, Number 68 (Friday, April 8, 2016)]
[Proposed Rules]
[Pages 20583-20587]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08076]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 1
SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 241
[Release No. 33-10062; 34-77506; File No. S7-05-16]
RIN 3235-AL93
Certain Natural Gas and Electric Power Contracts
AGENCY: Commodity Futures Trading Commission; Securities and Exchange
Commission.
ACTION: Proposed guidance.
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SUMMARY: In accordance with section 712(d)(4) of the Dodd-Frank Wall
Street Reform and Consumer Protection Act (the ``Dodd-Frank Act''), the
Commodity Futures Trading Commission (the ``CFTC'') and the Securities
and Exchange Commission (``SEC''), after consultation with the Board of
Governors of the Federal Reserve System (``Board of Governors''), are
jointly issuing the CFTC's proposed guidance on certain contracts that
provide for rights and obligations with respect to electric power and
natural gas. The CFTC invites public comment on all aspects of its
proposed guidance.
DATES: Comments must be received on or before May 9, 2016.
ADDRESSES: You may submit comments by any of the following methods:
CFTC Web site: http://comments.cftc.gov. Follow the
instructions for submitting comments through the Comments Online
process on the Web site.
Mail: Send to Christopher Kirkpatrick, Secretary of the
Commission, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street NW., Washington, DC 20581.
Hand Delivery/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 of these methods.
All comments must be submitted in English, or if not, accompanied
by an English translation. Comments will be posted as received to
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, 17 CFR 145.9.
The CFTC reserves the right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse or remove any or all of a
submission from 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 the notice
will be retained in the public comment file and will be considered as
required under all applicable laws, and may be accessible under the
Freedom of Information Act.
FOR FURTHER INFORMATION CONTACT: CFTC: David N. Pepper, Special
Counsel, Division of Market Oversight, at (202) 418-5565 or
[email protected]; or Mark Fajfar, Assistant General Counsel, Office of
the General Counsel, at (202) 418-6636 or [email protected], Commodity
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street
NW., Washington, DC 20581. SEC: Carol McGee, Assistant Director, Office
of Derivatives Policy, Division of Trading and Markets, at (202) 551-
5870, Securities and Exchange Commission, 100 F Street NE., Washington,
DC 20549.
SUPPLEMENTARY INFORMATION:
I. Introduction
In the final rule further defining the term ``swap,'' the CFTC and
the SEC adopted an interpretation regarding the facts and circumstances
in which certain agreements, contracts, or transactions entered into by
commercial and non-profit entities should be considered not to be swaps
because they are customary commercial arrangements.\1\ Following
adoption of this interpretation, the CFTC received public comments
describing certain types of contracts that are closely tied to
regulatory obligations in the markets for electric power and natural
gas.\2\
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\1\ See Further Definition of ``Swap,'' Security-Based Swap,''
and ``Security-Based Swap Agreement''; Mixed Swaps; Security-Based
Swap Agreement Recordkeeping, 77 FR 48207, 48246 (Aug. 13, 2012)
(the ``Products Release'').
\2\ The comments were received in response to the CFTC's
proposed interpretation on Forward Contracts With Embedded
Volumetric Optionality, 79 FR 69073 (Nov. 20, 2014) (comments
available at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=1541), and the CFTC's notice of proposed
rulemaking on Trade Options, 80 FR 26200 (May 7, 2015) (comments
available at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=1580). In addition, the CFTC's Energy and
Environmental Markets Advisory Committee discussed related issues at
its meeting on July 29, 2015 (transcript available at http://www.cftc.gov/PressRoom/Events/opaevent_eemac072915).
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[[Page 20584]]
Having reviewed these comments, the CFTC proposes to issue guidance
regarding particular facts and specific circumstances in which these
contracts should be considered not to be ``swaps'' for purposes of the
Commodity Exchange Act (``CEA'').\3\ This proposed guidance applies the
interpretation in the Products Release to the contracts described in
Part II.A. of this document and the CFTC preliminarily concludes that
such contracts should be considered not to be swaps because they are
customary commercial arrangements.
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\3\ See 7 U.S.C. 1a(47). This proposed guidance is being issued
jointly with the SEC pursuant to section 712(d)(4) of the Dodd-Frank
Act but, given the specific types of contracts at issue, pertains
only to the CFTC and swaps. Because the proposed guidance is limited
to the particular facts and circumstances of the contracts at issue,
the proposed guidance, if adopted, would not pertain to the SEC or
security-based swaps.
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II. Proposed Guidance
A. Commenters' Description of Certain Contracts
Commenters described two types of contracts that are similar in
some respects, but are used in different situations to provide for
rights and obligations that are suitable to the parties' particular
needs in those situations, and which are closely tied to compliance
with certain regulatory requirements and frameworks. Each is described
briefly below.
1. Certain Capacity Contracts--Electric Power
The CFTC understands that certain types of capacity contracts in
electric power markets are used in situations where regulatory
requirements from a state public utility commission (``PUC'') obligate
load serving entities (``LSEs'') and load serving electric utilities in
that state to purchase ``capacity'' (sometimes referred to as
``resource adequacy'') \4\ from suppliers to secure grid management and
on-demand deliverability of power to consumers. A commenter explained
that the LSE or load serving electric utility will be recognized by the
PUC and the Federal Energy Regulatory Commission (``FERC'') as having
purchased capacity and, therefore, having satisfied that portion of its
obligation to purchase the ability to supply the electricity when and
as needed.\5\ In each of these instances, a commenter asserted, the
purchaser, as required by law, will be considered to have purchased the
supplier's capacity to generate, produce and deliver electric power,
regardless of whether the electricity underlying the capacity contract
is called upon and delivered.\6\
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\4\ The resource adequacy framework adopted by the California
Public Utilities Commission (``CPUC'') is an illustrative example.
The CPUC adopted a resource adequacy policy framework in 2004 in
order to ensure the reliability of electric service in California.
The CPUC established resource adequacy obligations applicable to all
LSEs within the CPUC's jurisdiction. The CPUC's resource adequacy
policy framework--implemented as the Resource Adequacy program--
guides resource procurement and promotes infrastructure investment
by requiring that LSEs procure capacity so that capacity is
available to the California Independent System Operator (``ISO'')
when and where needed. See generally the discussion of resource
adequacy available at http://www.cpuc.ca.gov/ra/.
\5\ See letter from International Energy Credit Association
(``IECA'') (June 22, 2015) at 9. The CFTC understands that this type
of contract enables a Regional Transmission Organization (``RTO'')
or ISO to call on resource adequacy capacity to ensure the
reliability of electric service to end users or consumers. The LSE
or load serving electric utility, which is required to purchase
capacity contracts, cannot itself call on the supplier to deliver
electricity--only the RTO or ISO can.
\6\ See id.
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A commenter said the purchaser does not treat this type of capacity
contract as a ``hedge'' in the same sense as it would otherwise use a
commodity option as a financial hedge.\7\ In this type of capacity
contract, the commenter contended, the purchaser is not procuring the
right to profit from a change in the value of the underlying commodity,
which the purchaser will then financially settle in order to offset the
price volatility risk of some underlying physical transaction in the
cash market.\8\ Rather, the purchaser is purchasing a supplier's
capacity to produce, generate, and deliver the underlying electricity,
thereby ensuring its ability to supply electricity in compliance with a
regulatory requirement.\9\ Certain commenters explained that they do
not view these contracts as financial instruments, but rather as
commercial agreements that enable the purchaser of capacity to ensure
that the underlying electricity is delivered when needed by the
purchaser to meet state- and/or federally-required reliability
objectives.\10\ One commenter stated that state PUCs and the FERC
generally do not treat a purchase of capacity in this context as a
purchase of a financial instrument or an option, but rather as a
purchase of the ability to ensure delivery of the underlying physical
commodity.\11\
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\7\ See id.
\8\ See id.
\9\ One commenter contended that although this type of capacity
contract may not impose a binding obligation on the parties to make
and take delivery of a specific quantity of electricity, it does
impose a binding obligation on the parties to make and take delivery
of the capacity. See id. at 10.
\10\ See letter from IECA (June 22, 2015) at 10, and letter from
Coalition for Derivatives End-Users (``CDEU'') (Dec. 22, 2014) at 7-
8.
\11\ See letter from IECA (June 22, 2015) at 10.
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A commenter explained how the payment structure under a capacity
contract for resource adequacy is different from the payment structure
under a financially-settled commodity option. According to this
commenter, capacity contracts do not involve payment of a nominal
option premium, followed by payment of the full market price of the
electric power if and when the ``option'' is exercised.\12\ Instead,
the initial payment under the capacity contract frequently recovers for
the seller the entire fixed cost of producing, generating, supplying or
transmitting the electric power.\13\
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\12\ See id. at 11.
\13\ See id. Resource adequacy capacity is not tied to a
specific power price and the purchaser of capacity does not have
access to the energy tied to the capacity requirement. The capacity
purchased is essentially conferred or assigned to the RTO or ISO,
and these entities can call the capacity.
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2. Certain Peaking Supply Contracts--Natural Gas
Commenters requested further guidance on whether certain natural
gas contracts, which commenters labeled as ``peaking supply
contracts,'' and which are entered into by electric utilities (with or
without a minimum gas delivery requirement) should be regulated as
swaps.\14\ The CFTC understands a peaking supply contract in this
context to be a contract that enables an electric utility to purchase
natural gas from another natural gas provider on those days when its
local natural gas distribution companies (``LDCs'') curtail its natural
gas transportation service. For example, one commenter, Linden,
explained that it procures sufficient natural gas and gas
transportation services to operate its cogeneration facility in the
ordinary course through natural gas service agreements with its
LDCs.\15\ Linden
[[Page 20585]]
explained that its natural gas service agreements require Linden to
take natural gas from the LDCs if they supply it. However, to ensure
that the LDCs are able to meet their regulatory commitments to
prioritize and serve residential demand for natural gas, the local
board of public utilities (``BPU'') requires that the service
agreements permit the LDCs to interrupt natural gas transportation
service to Linden during certain specified conditions.\16\ Due to the
LDCs' tariff-based commitments to serve residential natural gas demand,
the BPU will not allow the LDCs to provide a ``firmer'' category of
natural gas service to Linden.\17\ Because of the possibility of these
interruptions of transportation service, Linden uses peaking supply
contracts to ensure it has sufficient natural gas to operate its
cogeneration facility during the interruptions.\18\
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\14\ See letter from American Gas Association (``AGA'') (Dec.
22, 2014) at 9-11, letter from AGA (June 22, 2015) at 2-5; and
letter from Cogen Technologies Linden Venture, L.P. (``Linden'')
(June 22, 2015) at 2-3. For purposes of this proposed guidance, the
term electric utility means ``all enterprises engaged in the
production and/or distribution of electricity for use by the public,
including investor-owned electric utility companies; cooperatively-
owned electric utilities; government-owned electric utilities
(municipal systems, federal agencies, state projects, and public
power districts).'' See Federal Energy Regulatory Commission (FERC)
Glossary, available at http://ferc.gov/resources/glossary.asp.
\15\ Linden is an exempt wholesale generator selling electric
power at market-based rates under the jurisdiction of the FERC, and
owns and operates a combined cycle natural gas-fired cogeneration
facility located in Linden, New Jersey. The electricity produced
from Linden's generator is sold, under a long-term power purchase
agreement, to Consolidated Edison Company, which then uses the power
to serve the electricity needs of consumers in New York City. Steam
from Linden's operation is sold, also under a long-term contract, to
the co-located Bayway Refinery, the largest refinery on the East
Coast, for its industrial processes. See letter from Linden (June
22, 2015) at 1-3.
\16\ See id.
\17\ See id.
\18\ See id.
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Linden represented that, under its natural gas service agreements,
the LDCs determine when the conditions for interrupting Linden's
service are present, and Linden therefore has no control over such
conditions. Thus, Linden does not have discretion as to whether and
when an interruption of service as described above will occur.\19\
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\19\ See id. at 3.
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Linden explained that, under the terms of its natural gas service
agreements, Linden is required to take natural gas from the LDCs if
they supply it. There is no ability for financial settlement under
Linden's peaking supply contracts, and natural gas supplied under those
peaking supply contracts cannot be re-sold by Linden.\20\ Linden
represented that the price for natural gas in its peaking supply
contracts is based on the market cost of fuel at specified delivery
points, plus a specified adjustment depending on delivery point.\21\
Thus, since Linden could not use that natural gas for any purpose other
than to fuel its facility when an interruption of service occurs,
Linden represented that it is practically limited to exercising its
right to take delivery under its peaking supply contracts only in the
event of an interruption of service, and that it has no discretion as
to whether and when it will exercise the right to take delivery under
its natural gas peaking supply contracts.\22\
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\20\ See letter from Linden (Dec. 22, 2014) at 6.
\21\ See letter from Linden (June 22, 2015) at 4, n. 12.
\22\ See id. at 3-4.
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3. Common Characteristics Described by Commenters
As they have been described by commenters, the natural gas and
electric power contracts discussed above are all entered into by
commercial market participants, who contemplate physical settlement of
the transactions, in response to regulatory requirements, the need to
maintain reliable supplies, and practical considerations of storage or
transport.\23\ In each case, the particular commodities covered by the
contract are needed by at least one of the parties for the normal
operation of its business, and the specific identity of the
counterparty is an important consideration because of, for example,
concerns about reliability or the practicability of supply.\24\
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\23\ See letter from CDEU (Dec. 22, 2014) at 7, letter from EDF
Trading North America, LLC (Dec. 22, 2014) at 13.
\24\ See letter from AGA (Dec. 22, 2014) at 9.
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B. Products Release Discussion of Commercial Contracts
In the Products Release, the CFTC and the SEC (the ``Commissions'')
adopted an interpretation to assist commercial and non-profit entities
in understanding whether certain agreements, contracts, or transactions
that they enter into would or would not be regulated as swaps.\25\ To
that end, the Products Release listed several specific types of
commercial agreements, contracts, and transactions that involve
customary business arrangements (whether or not involving a for-profit
entity) that will not be considered swaps, including: Employment
contracts; sales, servicing, or distribution arrangements; certain
fixed or variable interest rate commercial loans or mortgages; and
certain agreements, contracts, or transactions related to business
combination transactions, real property, intellectual property, and
warehouse lending arrangements.\26\ The Commissions stated their intent
that this interpretation should ``allow commercial and non-profit
entities to continue to operate their businesses and operations without
significant disruption and provide that the swap . . . definition [is]
not read to include commercial and non-profit operations that
historically have not been considered to involve swaps.'' \27\
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\25\ See Products Release, 77 FR at 48246.
\26\ See id., 77 FR at 48247.
\27\ See id.
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The Commissions also explained that the list provided in the
Products Release was not intended to be exhaustive and that there may
be other, similar types of agreements, contracts, and transactions that
also should not be considered to be swaps.\28\ The Commissions said
that in determining whether similar types of agreements, contracts, and
transactions entered into by commercial entities should not be
considered swaps, they intend to consider the characteristics and
factors that are common to the commercial transactions listed in the
Products Release, which are:
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\28\ See id.
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They do not contain payment obligations, whether or not
contingent, that are severable from the agreement, contract, or
transaction;
They are not traded on an organized market or over-the-
counter; and . . .
In the case of commercial arrangements, they are entered
into:
--By commercial or non-profit entities as principals (or by their
agents) to serve an independent commercial, business, or non-profit
purpose, and
--Other than for speculative, hedging, or investment purposes.\29\
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\29\ See id.
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The Commissions concluded that in determining whether an agreement,
contract, or transaction not enumerated in the Products Release is a
swap, the agreement, contract, or transaction will be evaluated based
on its particular facts and circumstances,\30\ and the representative
characteristics and factors set out in the Products Release ``are not
intended to be a bright-line test for determining whether a particular
. . . commercial arrangement is a swap.'' \31\
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\30\ See id., 77 FR at 48248.
\31\ See id., 77 FR at 48250.
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In the Products Release, the CFTC also addressed certain capacity
contracts and peaking supply contracts in the context of the CFTC's
interpretation of when an agreement, contract, or transaction with
embedded volumetric optionality would be considered a forward
contract.\32\ The CFTC stated that depending on the relevant facts and
circumstances, capacity contracts and peaking supply contracts may
qualify as forward contracts with embedded volumetric optionality if
they met the elements of the CFTC's interpretation of that
provision.\33\ This remains the case; the CFTC does not intend that the
proposed
[[Page 20586]]
guidance herein would affect the interpretation of when an agreement,
contract, or transaction with embedded volumetric optionality would be
considered a forward contract.\34\
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\32\ See id., 77 FR at 48238.
\33\ See id., 77 FR at 48240.
\34\ The CFTC has clarified this interpretation. See Forward
Contracts With Embedded Volumetric Optionality, 80 FR 28239 (May 18,
2015). In this clarification, the CFTC addressed certain retail
electric market demand-response programs, under which electric
utilities have the right to interrupt or curtail service to a
customer to support system reliability. See id., 80 FR at 28242,
citing letter from the National Rural Electric Cooperative
Association, the American Public Power Association, the Large Public
Power Association, and the Transmission Access Policy Study Group
(Oct. 12, 2012) at 9.
The CFTC clarified that since a key function of an electricity
system operator is to ensure grid reliability, demand response
agreements, even if not specifically mandated by a system operator,
may be properly characterized as the product of regulatory
requirements within the meaning of the seventh element of the CFTC's
interpretation regarding forward contracts with embedded volumetric
optionality. For the avoidance of doubt, the CFTC reiterates that
the proposed guidance herein would not affect this interpretation.
Also, the CFTC's interpretations regarding full requirements and
output contracts, as provided in the Products Release, would be
unaffected by the proposed guidance herein. See Products Release, 77
FR at 48239-40.
Furthermore, the CFTC does not intend that the proposed guidance
would supersede or modify a document issued by the CFTC's Office of
General Counsel--``Response to Frequently Asked Questions Regarding
Certain Physical Commercial Agreements for the Supply and
Consumption of Energy,'' available at http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/leaselike_faq.pdf--which
continues to be the position of the CFTC's Office of General Counsel
on the issues discussed in that document.
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C. Proposed Guidance on Whether Certain Contracts Should Be Considered
To Be Swaps
In response to the comments, described above, which were provided
by market participants regarding certain capacity contracts for
electric power and certain peaking supply contracts for natural gas,
the CFTC has considered the specific facts and circumstances of these
contracts in light of the interpretation in the Products Release of
when a contract would be considered not to be a swap because it is a
customary commercial arrangement.
The CFTC understands, based on the commenters' descriptions, that
the contracts described in Part II.A. above are not traded on an
organized market or over-the-counter, and do not have severable payment
obligations. Thus, the CFTC preliminarily believes that the contracts
described in Part II.A. are consistent with the first two elements of
the interpretation in the Products Release.\35\
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\35\ See Products Release, 77 FR at 48247 (the contracts ``do
not contain payment obligations, whether or not contingent, that are
severable from the agreement, contract, or transaction; [and] . . .
are not traded on an organized market or over-the-counter'').
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The CFTC has also considered the contracts described in Part II.A.
in light of the statement in the Products Release that, in order not to
be considered swaps, the contracts should be entered into ``[b]y
commercial or non-profit entities as principals (or by their agents) to
serve an independent commercial, business, or non-profit purpose, and
[o]ther than for speculative, hedging, or investment purposes.'' \36\
In view of all the facts and circumstances of the contracts described
in Part II.A., the CFTC preliminarily believes that such contracts
would satisfy this element of the Products Release, and therefore
should be considered not to be swaps under the interpretation set forth
in the Products Release because they are customary commercial
arrangements of the type described in the Products Release.
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\36\ See id.
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The CFTC notes that commenters have represented that the contracts
described in Part II.A. are entered into in response to regulatory
requirements, the need to maintain reliable supplies, and practical
considerations of storage or transport which arise in the course of the
normal operation of at least one party's business. In this respect, the
CFTC preliminarily believes that the contracts described in Part II.A.
are similar to certain contracts--namely, sales, servicing and
distribution arrangements, and contracts for the purchase of equipment
or inventory--listed in the Products Release as commercial contracts
that will not be considered swaps.\37\ Also, in the Products Release
the Commissions addressed commenters' assertion that all commercial
merchandising transactions hedge an enterprise's commercial risks by
stating that a commercial arrangement undertaken for hedging purposes
may or may not be a swap depending on the particular facts and
circumstances of the arrangement.\38\
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\37\ See id.
\38\ See id., 77 FR at 48249.
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The CFTC observes that when an entity enters into a purchase
contract, it is assured of a supply of the equipment or inventory it
will need in the future. Similarly, a service contract assures the
availability of a needed service in the future. The contracts described
in Part II.A. are similar to the purchase and service contracts
enumerated in the Products Release because they appear to satisfy the
elements of commercial contracts, transactions or arrangements that are
not considered swaps, including that they are entered into by
commercial or non-profit entities to assure availability of a
commodity, not to hedge against risks arising from a future change in
price for the commodity or to serve a speculative or investment
purpose.
As stated in the Products Release, whether a particular commercial
arrangement is a swap depends on the particular facts and circumstances
of the arrangement.\39\ This proposed guidance would not apply to any
agreement, contract or transaction other than those described in Part
II.A., and would not preclude the CFTC from issuing further guidance
considering other commodity contracts under the interpretation in the
Products Release.
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\39\ See id., 77 FR at 48248.
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III. Request for Comment
The CFTC believes that it would benefit from public comment about
its proposed guidance, and therefore requests public comment on all
aspects of its proposed guidance set forth above, and on the following
questions:
1. Are there natural gas and electric power contracts that would
not qualify as trade options within the scope of CFTC regulation 32.3
but which would be covered by the proposed guidance? If so, should the
proposed guidance be limited so that it encompasses only contracts that
do qualify as trade options? Why or why not?
2. Does the proposed guidance provide sufficient clarity on whether
the specific types of natural gas and electric power contracts in
question should or should not be considered to be swaps? If not, how
should the guidance be revised to provide more clarity?
3. Are there other facts and circumstances that the CFTC should
consider in determining whether the contracts described in Part II.A.
are swaps? If so, what are these factors and how should they be
considered?
4. Are there contracts (other than those described in Part II.A.)
that are entered into by participants in the electric power and natural
gas markets and necessitated by, or closely tied to, compliance with
regulatory obligations or frameworks that are similar to those
described in Part II.A.?
5. Are there other types of commodity contracts, outside of the
electric power and natural gas markets, which are necessitated by, or
closely tied to, compliance with regulatory obligations or frameworks
that should be considered under the interpretation in the Products
Release? If so, please describe these contracts and the regulatory
obligations and frameworks to which they are closely tied.
6. Are there public interest considerations regarding the natural
gas
[[Page 20587]]
and electric power contracts in question that should be reflected in
the proposed guidance? If so, why and how?
7. Does the proposed guidance provide sufficient clarity that it
does not supersede or modify the CFTC OGC FAQ referenced in footnote
34? Is there any potential overlap between the proposed guidance and
the CFTC OGC FAQ that should be further clarified? If so, what elements
of the proposed guidance should be clarified to indicate that the
proposed guidance does not supersede or modify the CFTC OGC FAQ?
8. With respect to natural gas peaking contracts, are there natural
gas providers other than LDCs, such as Intrastate and Interstate
Natural Gas Pipelines (as those terms are defined by the Energy
Information Administration),\40\ which are subject to regulatory
obligations to prioritize and serve residential demand for natural gas,
such that the providers are obligated to curtail service to electric
utilities under certain circumstances? If so, please explain.
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\40\ See Distribution of Natural Gas: The Final Step in the
Transmission Process, Energy Information Administration, Office of
Oil and Gas, June 2008, available at https://www.eia.gov/pub/oil_gas/natural_gas/feature_articles/2008/ldc2008/ldc2008.pdf.
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By the Securities and Exchange Commission.
Dated: April 4, 2016.
Brent J. Fields,
Secretary.
Issued in Washington, DC, on April 4, 2016, by the Commodity
Futures Trading Commission.
Christopher J. Kirkpatrick,
Secretary of the Commission.
Commodity Futures Trading Commission (CFTC) Appendices to Certain
Natural Gas and Electric Power Contracts--Commission Voting Summary and
Chairman's Statement
Appendix 1--Commodity Futures Trading Commission Voting Summary
On this matter, Chairman Massad and Commissioners Bowen and
Giancarlo voted in the affirmative. No Commissioner voted in the
negative.
Appendix 2--Statement of CFTC Chairman Timothy G. Massad
Today, the CFTC and the Securities and Exchange Commission
(SEC), have jointly proposed guidance relating to the appropriate
treatment of certain peaking supply and capacity contracts. We are
issuing this guidance after considering the useful input we have
received from market participants expressing concern about this
issue. I support this proposal, as it will properly clarify the
treatment of contracts used by many businesses with respect to the
supply and delivery of electric power and natural gas.
We have proposed that certain electric power and natural gas
contracts should not be considered ``swaps'' under the Commodity
Exchange Act. We have done so because we believe they are examples
of customary commercial arrangements as described in the final rule
defining the term ``swap.''
For example, these contracts are entered into to assure
availability of a commodity, not to hedge against risks arising from
a future change in price of that commodity or for speculative, or
investment purposes. They are typically entered into in response to
regulatory requirements, the need to maintain reliable energy
supplies, and practical considerations of storage or transport. All
of these factors are consistent with what has been set forth in
previous commission guidance.
Today's proposed guidance is an important complement to our
final rule regarding Trade Options, which will reduce burdens on
end-users and allow them to better address commercial risk. I thank
my fellow Commissioners Bowen and Giancarlo for joining me in
unanimously approving this proposal as well as that final rule.
[FR Doc. 2016-08076 Filed 4-7-16; 8:45 am]
BILLING CODE 6351-01-P;8011-01-P