CFTC Exempts Capacity Purchases from Swap Rules

The Commodity Futures Trading Commission (CFTC) proposed Monday that electric capacity purchases and natural gas peaking supply contracts be exempt from regulation as swaps.

The commission unanimously approvedproposed guidance that said such contracts should not be considered swaps under the Commodity Exchange Act because they are “customary commercial arrangements” intended to meet regulatory commitments. The commission will accept comments on its proposal for 30 days.

“These contracts are entered into to assure availability of a commodity, not to hedge against risks arising from a future change in price of that commodity or for speculative or investment purposes,” Chairman Timothy Massad said in a statement supporting the guidance. “They are typically entered into in response to regulatory requirements, the need to maintain reliable energy supplies and practical considerations of storage or transport.”

The exemptions apply to:

  • Load-serving entities’ contracts to purchase electric capacity to comply with state or federal resource adequacy rules; and
  • Peaking supply contracts that allow an electric utility to purchase natural gas from another provider if its local distribution company curtails its delivery in order to preserve fuel for heating customers.

Massad said the proposed guidance, which complements the commission’s final rule regarding trade options, “will reduce burdens on end users and allow them to better address commercial risk.”

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