On March 28, 2013, the CFTC issued two final orders, providing exemptive relief to certain energy-related transactions between municipals and electric cooperatives and to certain transactions that are offered or sold in Regional Transmission Organizations (RTO) or Independent System Operators (ISO). Notwithstanding the relief granted through each of the final orders, the CFTC has reserved its general anti-fraud and anti-manipulation authority.

  1. CFTC issues Final Order Exempting Certain Transactions between Entities Described in Section 201(f) of the Federal Power Act and Other Electric Cooperatives

The CFTC's final order exempts certain transactions between entities described in Section 201(f) of the FPA and other electric cooperatives from the CFTC's requirements under Dodd Frank. Under the order, "Exempt Entities" include:

  1. any entity under Section 201(f) of the FPA, which includes government-owned electric utilities and electric cooperatives that receive financing from the Rural Utilities Service or that sell less than four million megawatt hours of electric energy in a given year;
  2. the small number of electric cooperatives that do not qualify under Section 201(f) in a given year (either because they sell in excess of four million megawatt hours of electricity in a given year or do not receive funding from the Rural Utilities Service);
  3. federally-recognized Indian tribes; and
  4. any other entity that is wholly owned, directly or indirectly, by any of the foregoing.

The Final Order defines an "Exempt Non-Financial Energy Transaction" as a transaction between any of the above Exempt Entities that would not have been entered into, but for an Exempt Entity's need to manage supply and/or price risks arising from its existing or anticipated public service obligations to physically generate, transmit and/or deliver electric service to customers. The "but-for" test is the result of the CFTC's recognition that not all Exempt Non-Financial Energy Transactions will result in making or taking physical delivery of the commodity. In other words, while some Exempt Non-Financial Energy Transactions may not result in physical delivery, all such transactions must result from the public service role an Exempt Entity has in physical electricity markets. The CFTC stressed that the definition of an Exempt Non- Financial Energy Transaction does not allow for transactions that are purely financial arrangements lacking any essential relationship to a physical generation, transmission, and/or delivery obligation of electric energy service to customers.

The CFTC described six categories of energy transactions that would meet this but-for test. The categories are Electric Energy Delivered transactions; Generation Capacity transactions; Transmission Services transactions; Fuel Delivered transactions, Cross-Commodity Pricing transactions, and Other Goods and Services transactions.

  1. CFTC issues final order exempting certain transactions in ISOs/RTOs

The CFTC's final order exempts four classes of ISO/RTO transactions from the CFTC's requirements under Dodd Frank, including: (1) financial transmission rights; (2) energy transactions in day-ahead and real time markets; (3) forward capacity transactions; and (4) reserve or regulation transactions. The transactions will qualify for exemptive relief if they are entered into between eligible parties pursuant to tariffs, rate schedules or protocols approved by FERC or, in the case of the Electric Reliability Council of Texas, the Public Utility Commission of Texas.