Lingering Questions Regarding Certain Energy Transportation And Storage Arrangements Require CFTC Action

Keywords: energy transportation, storate, CFTC, swap product rule

The energy industry was able to heave a collective sigh of relief based on the treatment of energy transactions under the so-called Swap Product Rule1 jointly adopted on August 13, 2012, by the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) and, in particular, the forward contract exclusion2 contained in the rule. However, subsequent actions by the CFTC suggest that not all energy transactions are being treated appropriately in the views of some energy market participants—who note the potential for CFTC intrusion into areas traditionally reserved to the jurisdiction of the Federal Energy Regulatory Commission (FERC) and other regulators.

For example, in early October, the CFTC has issued at least five interpretation and no-action letters dealing with a variety of issues for certain energy transactions, including:

No-action relief preserving the regulatory status quo for regional transmission organizations, independent system operators and their participants, pending CFTC action on proposed exemptions for specified transactions in electricity markets regulated by FERC or the Public Utility Commission of Texas (which has jurisdiction over transmission within ERCOT) from certain provisions of the Commodity Exchange Act;3 No-action relief preserving the regulatory status quo for certain government and cooperatively owned public utilities;4 and No-action relief for any non-financial entity that regularly transacts in the physical energy markets but does not apply to be registered as a swap dealer, if the entity limits its swaps connected with its dealing activities with publicly owned, government-owned and federal agency utilities to no more than $800 million per year and other requirements set out in the letter are met.5 Not all energy industry concerns have been addressed by the CFTC. In particular, the CFTC has not yet acted on the request by several industry trade groups for clarification and no-action relief for natural gas and other physical commodity transportation and storage arrangements.

This request was made by letter dated October 11, 2012,6 signed by the American Gas Association (AGA), American Petroleum Institute (API), the Independent Petroleum Association of America (IPAA) and the Natural Gas Supply Association (NGSA and, together with the AGA, API and IPAA collectively, the Associations), requesting that the CFTC...