Recently, the CFTC issued a Proposed Order in response to a 2013 request by the Southwest Power Pool (SPP) for exemption of certain SPP electric energy products from CFTC regulation.
Scope of Exemption
The Proposed Order would exempt transactions in SPP products from CFTC regulation (with the exception of the CFTC’s general anti-fraud and anti-manipulation authority and scienter-based prohibitions), provided that the following conditions are satisfied:
- Covered Products—The transaction is for “Transmission Congestion Rights,” “Energy Transactions,” and “Operating Reserve Transactions”;
- Eligible Parties—Each party to the transaction is either: (a) an “appropriate person” as defined under sections 4(c)(3)(A) through (J) of the Commodity Exchange Act (CEA); (b) an “eligible contract participant” under Section 1a(18)(a) of the CEA and CFTC regulation 1.3(m); or (c) a “person who actively participates in the generation, transmission, or distribution of electric energy”;
- Tariff Requirement—The transaction is offered or sold pursuant to SPP’s Tariff approved by the Federal Energy Regulatory Commission (FERC); and
- Access to FERC Information—Acceptable CFTC-FERC information-sharing arrangements remain in place and SPP’s Tariff and other governing documents do not require that SPP notify its members prior to providing information to the CFTC in response to a subpoena or other request.
“Energy Transactions” are limited to transactions in a “Day-Ahead Market” or “Real-Time Balancing Market” (including virtual bids and offers) that meet certain other criteria. As such, “Energy Transactions” likely do not include bilateral transactions for the sale or purchase of electrical energy that are executed outside of such markets and are merely settled or scheduled through such markets—meaning that such transactions likely require additional analysis regarding whether they might constitute “swaps” or “trade options” subject to generally applicable CFTC regulations.
The scope of the proposed exemption is substantially similar to that provided in the CFTC’s No-Action Letter Nos. 14-18, 14-109, and 15-05 regarding SPP products and to the CFTC’s final exemption order (the “RTO/ISO Order”) regarding certain transactions in the MISO, CAISO, PJM, and ISO-NE markets–although, unlike the RTO/ISO Order, the Proposed Order does not cover forward capacity transactions (which currently are not a product offering in the SPP market).
Comments on the Propose Order must be received by the CFTC on or before June 22, 2015.