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Dodd-Frank and Electric Utilities

Understanding the new mosaic of commodities trading regulations.

Fortnightly Magazine - December 2013
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Protection Act , 75 Fed. Reg. 51,429 (Aug. 20, 2010).

5. See Testimony of Chairman G. Gensler, before the U.S. Senate Committee on Agriculture, Nutrition & Forestry, (March 3, 2011) available at  http://www.cftc.gov/PressRoom/SpeechesTestimony/opagensler-72.

6. See, e.g., 7 U.S.C. §§ 2, 6, 6b, 6c, 6o, 6s, 9, 9a, 12, 13, 13a-1, 13a-2, 13b and 13c.

7. See, n. 4, supra.

8. As discussed in detail below regarding the End-User Exception to the Clearing Requirement for Swaps , 77 Fed. Reg. 42560 (July 19, 2012) , the term “end-user” refers to a counterparties to a swap that “(i) is not a financial entity; (ii) is using swaps to hedge or mitigate commercial risk; and (iii) notifies the Commission, … , how it generally meets its financial obligations associated with entering into non-cleared swaps.” 7 U.S.C. § 2(h)(7)(A).

9. See the March 1, 2012 joint letter of Edison Electric Institute, American Gas Association, and the Electric Power Supply Association, supporting the Petition for Exemptive Relief for Certain Bona Fide Hedging Transactions Under Section 4a(a)(7) of the Commodity Exchange Act.

10. Exemption for Certain Contracts Involving Energy Products , 58 Fed. Reg. 21286 (April 20, 1993) (1993 Energy Exemption).

11. See, e.g., Interstate Commerce Act, 49 U.S.C. App. § 1, et seq .; Natural Gas Act 15 U.S.C. 717, et seq .; Federal Power Act, 16 U.S.C. 791a, et seq .

12. See 1993 Energy Exemption. As previously discussed, even if a transaction is exempt from certain requirements, the CFTC’s general anti-fraud and anti-manipulation authority, and scienter-based prohibitions under CEA continue to apply. Notably, Section 720 of Dodd-Frank requires that the CFTC and FERC negotiate a memorandum of understanding to establish procedures for applying their respective authorities; resolving conflicts concerning overlapping jurisdiction; and avoiding conflicting or duplicative regulation. The CFTC and FERC have yet to enter into such a memorandum of understanding. Therefore, the exact jurisdiction of the two agencies concerning energy related transactions is still an open question. In Hunter v. FERC , 711 F.3d 155 (D.C. Cir. 2013), however, the court held that the CFTC has exclusive jurisdiction over futures contracts and, therefore, FERC lacked jurisdiction to charge a market participant with manipulation of natural gas futures contracts.

13. See “Financial reform bill wins final approval in Senate, now awaits president’s signature,” Inside FERC, (July 19, 2010) (discussing how the energy industry had concerns that end-users would be caught up in a requirement to clear trades and be subject to stricter requirements).

14. See “Energy industry groups urge CFTC to limit reform’s impact, reach deal with FERC,” Inside FERC, (June 13, 2011).

15. Letter from Senator C. Dodd and Senator B. Lincoln to Rep. B. Frank and Rep. C. Peterson (Dated June 30, 2010) (Dodd-Lincoln Letter).

16. Dodd-Frank, § 721.

17. 7 U.S.C. § 1a(47). A swap includes, inter alia , any transaction that is a “put, call, cap, floor, collar, or similar option of any kind that is for the purchase or sale, or based on the value, of 1 or more interest or other rates, currencies, commodities, securities, instruments

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