Regulatory Developments: Proposed Order to Exempt Certain Non-Financial Energy Derivative Transactions That Affect the Delivery of Electricity
On August 17, 2012, the Commodity Futures Trading Commission (CFTC) unanimously approved a Proposed Order to exempt certain non-financial energy derivative transactions between not-for-profit electric utilities from many of the requirements of the Commodity Exchange Act. To be eligible for the proposed exemption, such transactions must be between exempt entities which are defined as (1) government-owned electric utilities described by section 201(f) of the Federal Power Act (FPA); (2) electric utilities owned by Federally-recognized Indian tribes, otherwise subject to regulation as public utilities under the FPA; and (3) 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. The transaction must 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. Pursuant to the Proposed Order, the CFTC's rules on anti-fraud, anti-manipulation, enforcement, and books and records inspection would still apply to such exempted transactions. This exemption is intended to be responsive to the mandate from the Dodd-Frank Act to create an exemption for derivative transactions between electric utilities if it would be in the public interest, such as not-for-profit electric utilities charged with the public service mission of providing customers with reliable, affordable electric energy. The comment period with respect to the Proposed Order is open for 30 days from the date of publication of the Proposed Order in the Federal Register.
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