External Meetings: Meeting with Southern California Edison and Southern

Participants discussed the CFTC’s interpretations in the product definitions final release regarding forwards with volumetric options and lease-like commercial transactions.  SCE and Southern expressed concern about the 7th factor in the forwards with volumetric optionality interpretation, specifically the requirement that volumetric optionality be due to physical factors outside of the control of the parties.  They asserted that contracting parties would not know at the point of execution of their contracts whether volumetric optionality would be due to physical factors, making the requirement impracticable.  They also believed that it was unclear what would be considered “outside the control of the parties.”  SCE also stated its belief that resource adequacy arrangements should fall within the definition of non-financial commodity, rather than be considered forwards under the forwards with volumetric optionality interpretation.   In addition, SCE and Southern expressed the view that the “however” paragraph (regarding certain 2-part fee structures in agreements that would cause them to be considered commodity options) in the CFTC’s interpretation concerning lease-like commercial agreements would cause many of such agreements to be commodity options.  With respect to the CFTC’s interpretation concerning oral bookouts, Southern indicated that it believed that it generally would be in compliance with the requirement that an oral bookout be followed by a confirmation in some type of written or electronic form consistent with the interpretation.