81 FR 20583 - Certain Natural Gas and Electric Power Contracts

COMMODITY FUTURES TRADING COMMISSION
SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 68 (April 8, 2016)

In accordance with section 712(d)(4) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the ``Dodd-Frank Act''), the Commodity Futures Trading Commission (the ``CFTC'') and the Securities and Exchange Commission (``SEC''), after consultation with the Board of Governors of the Federal Reserve System (``Board of Governors''), are jointly issuing the CFTC's proposed guidance on certain contracts that provide for rights and obligations with respect to electric power and natural gas. The CFTC invites public comment on all aspects of its proposed guidance.

[Federal Register Volume 81, Number 68 (Friday, April 8, 2016)]
[Proposed Rules]
[Pages 20583-20587]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-08076]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 1

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 241

[Release No. 33-10062; 34-77506; File No. S7-05-16]
RIN 3235-AL93


Certain Natural Gas and Electric Power Contracts

AGENCY: Commodity Futures Trading Commission; Securities and Exchange 
Commission.

ACTION: Proposed guidance.

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SUMMARY: In accordance with section 712(d)(4) of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act (the ``Dodd-Frank Act''), the 
Commodity Futures Trading Commission (the ``CFTC'') and the Securities 
and Exchange Commission (``SEC''), after consultation with the Board of 
Governors of the Federal Reserve System (``Board of Governors''), are 
jointly issuing the CFTC's proposed guidance on certain contracts that 
provide for rights and obligations with respect to electric power and 
natural gas. The CFTC invites public comment on all aspects of its 
proposed guidance.

DATES: Comments must be received on or before May 9, 2016.

ADDRESSES: You may submit comments by any of the following methods:
     CFTC Web site: http://comments.cftc.gov. Follow the 
instructions for submitting comments through the Comments Online 
process on the Web site.
     Mail: Send to Christopher Kirkpatrick, Secretary of the 
Commission, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street NW., Washington, DC 20581.
     Hand Delivery/Courier: Same as Mail, above.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    Please submit your comments using only one of these methods.
    All comments must be submitted in English, or if not, accompanied 
by an English translation. Comments will be posted as received to 
www.cftc.gov. You should submit only information that you wish to make 
available publicly. If you wish the CFTC to consider information that 
you believe is exempt from disclosure under the Freedom of Information 
Act, a petition for confidential treatment of the exempt information 
may be submitted according to the procedures established in Sec.  145.9 
of the CFTC's regulations, 17 CFR 145.9.
    The CFTC reserves the right, but shall have no obligation, to 
review, pre-screen, filter, redact, refuse or remove any or all of a 
submission from www.cftc.gov that it may deem to be inappropriate for 
publication, such as obscene language. All submissions that have been 
redacted or removed that contain comments on the merits of the notice 
will be retained in the public comment file and will be considered as 
required under all applicable laws, and may be accessible under the 
Freedom of Information Act.

FOR FURTHER INFORMATION CONTACT: CFTC: David N. Pepper, Special 
Counsel, Division of Market Oversight, at (202) 418-5565 or 
[email protected]; or Mark Fajfar, Assistant General Counsel, Office of 
the General Counsel, at (202) 418-6636 or [email protected], Commodity 
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street 
NW., Washington, DC 20581. SEC: Carol McGee, Assistant Director, Office 
of Derivatives Policy, Division of Trading and Markets, at (202) 551-
5870, Securities and Exchange Commission, 100 F Street NE., Washington, 
DC 20549.

SUPPLEMENTARY INFORMATION:

I. Introduction

    In the final rule further defining the term ``swap,'' the CFTC and 
the SEC adopted an interpretation regarding the facts and circumstances 
in which certain agreements, contracts, or transactions entered into by 
commercial and non-profit entities should be considered not to be swaps 
because they are customary commercial arrangements.\1\ Following 
adoption of this interpretation, the CFTC received public comments 
describing certain types of contracts that are closely tied to 
regulatory obligations in the markets for electric power and natural 
gas.\2\
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    \1\ See Further Definition of ``Swap,'' Security-Based Swap,'' 
and ``Security-Based Swap Agreement''; Mixed Swaps; Security-Based 
Swap Agreement Recordkeeping, 77 FR 48207, 48246 (Aug. 13, 2012) 
(the ``Products Release'').
    \2\ The comments were received in response to the CFTC's 
proposed interpretation on Forward Contracts With Embedded 
Volumetric Optionality, 79 FR 69073 (Nov. 20, 2014) (comments 
available at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=1541), and the CFTC's notice of proposed 
rulemaking on Trade Options, 80 FR 26200 (May 7, 2015) (comments 
available at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=1580). In addition, the CFTC's Energy and 
Environmental Markets Advisory Committee discussed related issues at 
its meeting on July 29, 2015 (transcript available at http://www.cftc.gov/PressRoom/Events/opaevent_eemac072915).

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[[Page 20584]]

    Having reviewed these comments, the CFTC proposes to issue guidance 
regarding particular facts and specific circumstances in which these 
contracts should be considered not to be ``swaps'' for purposes of the 
Commodity Exchange Act (``CEA'').\3\ This proposed guidance applies the 
interpretation in the Products Release to the contracts described in 
Part II.A. of this document and the CFTC preliminarily concludes that 
such contracts should be considered not to be swaps because they are 
customary commercial arrangements.
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    \3\ See 7 U.S.C. 1a(47). This proposed guidance is being issued 
jointly with the SEC pursuant to section 712(d)(4) of the Dodd-Frank 
Act but, given the specific types of contracts at issue, pertains 
only to the CFTC and swaps. Because the proposed guidance is limited 
to the particular facts and circumstances of the contracts at issue, 
the proposed guidance, if adopted, would not pertain to the SEC or 
security-based swaps.
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II. Proposed Guidance

A. Commenters' Description of Certain Contracts

    Commenters described two types of contracts that are similar in 
some respects, but are used in different situations to provide for 
rights and obligations that are suitable to the parties' particular 
needs in those situations, and which are closely tied to compliance 
with certain regulatory requirements and frameworks. Each is described 
briefly below.
1. Certain Capacity Contracts--Electric Power
    The CFTC understands that certain types of capacity contracts in 
electric power markets are used in situations where regulatory 
requirements from a state public utility commission (``PUC'') obligate 
load serving entities (``LSEs'') and load serving electric utilities in 
that state to purchase ``capacity'' (sometimes referred to as 
``resource adequacy'') \4\ from suppliers to secure grid management and 
on-demand deliverability of power to consumers. A commenter explained 
that the LSE or load serving electric utility will be recognized by the 
PUC and the Federal Energy Regulatory Commission (``FERC'') as having 
purchased capacity and, therefore, having satisfied that portion of its 
obligation to purchase the ability to supply the electricity when and 
as needed.\5\ In each of these instances, a commenter asserted, the 
purchaser, as required by law, will be considered to have purchased the 
supplier's capacity to generate, produce and deliver electric power, 
regardless of whether the electricity underlying the capacity contract 
is called upon and delivered.\6\
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    \4\ The resource adequacy framework adopted by the California 
Public Utilities Commission (``CPUC'') is an illustrative example. 
The CPUC adopted a resource adequacy policy framework in 2004 in 
order to ensure the reliability of electric service in California. 
The CPUC established resource adequacy obligations applicable to all 
LSEs within the CPUC's jurisdiction. The CPUC's resource adequacy 
policy framework--implemented as the Resource Adequacy program--
guides resource procurement and promotes infrastructure investment 
by requiring that LSEs procure capacity so that capacity is 
available to the California Independent System Operator (``ISO'') 
when and where needed. See generally the discussion of resource 
adequacy available at http://www.cpuc.ca.gov/ra/.
    \5\ See letter from International Energy Credit Association 
(``IECA'') (June 22, 2015) at 9. The CFTC understands that this type 
of contract enables a Regional Transmission Organization (``RTO'') 
or ISO to call on resource adequacy capacity to ensure the 
reliability of electric service to end users or consumers. The LSE 
or load serving electric utility, which is required to purchase 
capacity contracts, cannot itself call on the supplier to deliver 
electricity--only the RTO or ISO can.
    \6\ See id.
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    A commenter said the purchaser does not treat this type of capacity 
contract as a ``hedge'' in the same sense as it would otherwise use a 
commodity option as a financial hedge.\7\ In this type of capacity 
contract, the commenter contended, the purchaser is not procuring the 
right to profit from a change in the value of the underlying commodity, 
which the purchaser will then financially settle in order to offset the 
price volatility risk of some underlying physical transaction in the 
cash market.\8\ Rather, the purchaser is purchasing a supplier's 
capacity to produce, generate, and deliver the underlying electricity, 
thereby ensuring its ability to supply electricity in compliance with a 
regulatory requirement.\9\ Certain commenters explained that they do 
not view these contracts as financial instruments, but rather as 
commercial agreements that enable the purchaser of capacity to ensure 
that the underlying electricity is delivered when needed by the 
purchaser to meet state- and/or federally-required reliability 
objectives.\10\ One commenter stated that state PUCs and the FERC 
generally do not treat a purchase of capacity in this context as a 
purchase of a financial instrument or an option, but rather as a 
purchase of the ability to ensure delivery of the underlying physical 
commodity.\11\
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    \7\ See id.
    \8\ See id.
    \9\ One commenter contended that although this type of capacity 
contract may not impose a binding obligation on the parties to make 
and take delivery of a specific quantity of electricity, it does 
impose a binding obligation on the parties to make and take delivery 
of the capacity. See id. at 10.
    \10\ See letter from IECA (June 22, 2015) at 10, and letter from 
Coalition for Derivatives End-Users (``CDEU'') (Dec. 22, 2014) at 7-
8.
    \11\ See letter from IECA (June 22, 2015) at 10.
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    A commenter explained how the payment structure under a capacity 
contract for resource adequacy is different from the payment structure 
under a financially-settled commodity option. According to this 
commenter, capacity contracts do not involve payment of a nominal 
option premium, followed by payment of the full market price of the 
electric power if and when the ``option'' is exercised.\12\ Instead, 
the initial payment under the capacity contract frequently recovers for 
the seller the entire fixed cost of producing, generating, supplying or 
transmitting the electric power.\13\
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    \12\ See id. at 11.
    \13\ See id. Resource adequacy capacity is not tied to a 
specific power price and the purchaser of capacity does not have 
access to the energy tied to the capacity requirement. The capacity 
purchased is essentially conferred or assigned to the RTO or ISO, 
and these entities can call the capacity.
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2. Certain Peaking Supply Contracts--Natural Gas
    Commenters requested further guidance on whether certain natural 
gas contracts, which commenters labeled as ``peaking supply 
contracts,'' and which are entered into by electric utilities (with or 
without a minimum gas delivery requirement) should be regulated as 
swaps.\14\ The CFTC understands a peaking supply contract in this 
context to be a contract that enables an electric utility to purchase 
natural gas from another natural gas provider on those days when its 
local natural gas distribution companies (``LDCs'') curtail its natural 
gas transportation service. For example, one commenter, Linden, 
explained that it procures sufficient natural gas and gas 
transportation services to operate its cogeneration facility in the 
ordinary course through natural gas service agreements with its 
LDCs.\15\ Linden

[[Page 20585]]

explained that its natural gas service agreements require Linden to 
take natural gas from the LDCs if they supply it. However, to ensure 
that the LDCs are able to meet their regulatory commitments to 
prioritize and serve residential demand for natural gas, the local 
board of public utilities (``BPU'') requires that the service 
agreements permit the LDCs to interrupt natural gas transportation 
service to Linden during certain specified conditions.\16\ Due to the 
LDCs' tariff-based commitments to serve residential natural gas demand, 
the BPU will not allow the LDCs to provide a ``firmer'' category of 
natural gas service to Linden.\17\ Because of the possibility of these 
interruptions of transportation service, Linden uses peaking supply 
contracts to ensure it has sufficient natural gas to operate its 
cogeneration facility during the interruptions.\18\
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    \14\ See letter from American Gas Association (``AGA'') (Dec. 
22, 2014) at 9-11, letter from AGA (June 22, 2015) at 2-5; and 
letter from Cogen Technologies Linden Venture, L.P. (``Linden'') 
(June 22, 2015) at 2-3. For purposes of this proposed guidance, the 
term electric utility means ``all enterprises engaged in the 
production and/or distribution of electricity for use by the public, 
including investor-owned electric utility companies; cooperatively-
owned electric utilities; government-owned electric utilities 
(municipal systems, federal agencies, state projects, and public 
power districts).'' See Federal Energy Regulatory Commission (FERC) 
Glossary, available at http://ferc.gov/resources/glossary.asp.
    \15\ Linden is an exempt wholesale generator selling electric 
power at market-based rates under the jurisdiction of the FERC, and 
owns and operates a combined cycle natural gas-fired cogeneration 
facility located in Linden, New Jersey. The electricity produced 
from Linden's generator is sold, under a long-term power purchase 
agreement, to Consolidated Edison Company, which then uses the power 
to serve the electricity needs of consumers in New York City. Steam 
from Linden's operation is sold, also under a long-term contract, to 
the co-located Bayway Refinery, the largest refinery on the East 
Coast, for its industrial processes. See letter from Linden (June 
22, 2015) at 1-3.
    \16\ See id.
    \17\ See id.
    \18\ See id.
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    Linden represented that, under its natural gas service agreements, 
the LDCs determine when the conditions for interrupting Linden's 
service are present, and Linden therefore has no control over such 
conditions. Thus, Linden does not have discretion as to whether and 
when an interruption of service as described above will occur.\19\
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    \19\ See id. at 3.
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    Linden explained that, under the terms of its natural gas service 
agreements, Linden is required to take natural gas from the LDCs if 
they supply it. There is no ability for financial settlement under 
Linden's peaking supply contracts, and natural gas supplied under those 
peaking supply contracts cannot be re-sold by Linden.\20\ Linden 
represented that the price for natural gas in its peaking supply 
contracts is based on the market cost of fuel at specified delivery 
points, plus a specified adjustment depending on delivery point.\21\ 
Thus, since Linden could not use that natural gas for any purpose other 
than to fuel its facility when an interruption of service occurs, 
Linden represented that it is practically limited to exercising its 
right to take delivery under its peaking supply contracts only in the 
event of an interruption of service, and that it has no discretion as 
to whether and when it will exercise the right to take delivery under 
its natural gas peaking supply contracts.\22\
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    \20\ See letter from Linden (Dec. 22, 2014) at 6.
    \21\ See letter from Linden (June 22, 2015) at 4, n. 12.
    \22\ See id. at 3-4.
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3. Common Characteristics Described by Commenters
    As they have been described by commenters, the natural gas and 
electric power contracts discussed above are all entered into by 
commercial market participants, who contemplate physical settlement of 
the transactions, in response to regulatory requirements, the need to 
maintain reliable supplies, and practical considerations of storage or 
transport.\23\ In each case, the particular commodities covered by the 
contract are needed by at least one of the parties for the normal 
operation of its business, and the specific identity of the 
counterparty is an important consideration because of, for example, 
concerns about reliability or the practicability of supply.\24\
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    \23\ See letter from CDEU (Dec. 22, 2014) at 7, letter from EDF 
Trading North America, LLC (Dec. 22, 2014) at 13.
    \24\ See letter from AGA (Dec. 22, 2014) at 9.
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B. Products Release Discussion of Commercial Contracts

    In the Products Release, the CFTC and the SEC (the ``Commissions'') 
adopted an interpretation to assist commercial and non-profit entities 
in understanding whether certain agreements, contracts, or transactions 
that they enter into would or would not be regulated as swaps.\25\ To 
that end, the Products Release listed several specific types of 
commercial agreements, contracts, and transactions that involve 
customary business arrangements (whether or not involving a for-profit 
entity) that will not be considered swaps, including: Employment 
contracts; sales, servicing, or distribution arrangements; certain 
fixed or variable interest rate commercial loans or mortgages; and 
certain agreements, contracts, or transactions related to business 
combination transactions, real property, intellectual property, and 
warehouse lending arrangements.\26\ The Commissions stated their intent 
that this interpretation should ``allow commercial and non-profit 
entities to continue to operate their businesses and operations without 
significant disruption and provide that the swap . . . definition [is] 
not read to include commercial and non-profit operations that 
historically have not been considered to involve swaps.'' \27\
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    \25\ See Products Release, 77 FR at 48246.
    \26\ See id., 77 FR at 48247.
    \27\ See id.
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    The Commissions also explained that the list provided in the 
Products Release was not intended to be exhaustive and that there may 
be other, similar types of agreements, contracts, and transactions that 
also should not be considered to be swaps.\28\ The Commissions said 
that in determining whether similar types of agreements, contracts, and 
transactions entered into by commercial entities should not be 
considered swaps, they intend to consider the characteristics and 
factors that are common to the commercial transactions listed in the 
Products Release, which are:
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    \28\ See id.
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     They do not contain payment obligations, whether or not 
contingent, that are severable from the agreement, contract, or 
transaction;
     They are not traded on an organized market or over-the-
counter; and . . .
     In the case of commercial arrangements, they are entered 
into:
    --By commercial or non-profit entities as principals (or by their 
agents) to serve an independent commercial, business, or non-profit 
purpose, and
    --Other than for speculative, hedging, or investment purposes.\29\
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    \29\ See id.
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    The Commissions concluded that in determining whether an agreement, 
contract, or transaction not enumerated in the Products Release is a 
swap, the agreement, contract, or transaction will be evaluated based 
on its particular facts and circumstances,\30\ and the representative 
characteristics and factors set out in the Products Release ``are not 
intended to be a bright-line test for determining whether a particular 
. . . commercial arrangement is a swap.'' \31\
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    \30\ See id., 77 FR at 48248.
    \31\ See id., 77 FR at 48250.
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    In the Products Release, the CFTC also addressed certain capacity 
contracts and peaking supply contracts in the context of the CFTC's 
interpretation of when an agreement, contract, or transaction with 
embedded volumetric optionality would be considered a forward 
contract.\32\ The CFTC stated that depending on the relevant facts and 
circumstances, capacity contracts and peaking supply contracts may 
qualify as forward contracts with embedded volumetric optionality if 
they met the elements of the CFTC's interpretation of that 
provision.\33\ This remains the case; the CFTC does not intend that the 
proposed

[[Page 20586]]

guidance herein would affect the interpretation of when an agreement, 
contract, or transaction with embedded volumetric optionality would be 
considered a forward contract.\34\
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    \32\ See id., 77 FR at 48238.
    \33\ See id., 77 FR at 48240.
    \34\ The CFTC has clarified this interpretation. See Forward 
Contracts With Embedded Volumetric Optionality, 80 FR 28239 (May 18, 
2015). In this clarification, the CFTC addressed certain retail 
electric market demand-response programs, under which electric 
utilities have the right to interrupt or curtail service to a 
customer to support system reliability. See id., 80 FR at 28242, 
citing letter from the National Rural Electric Cooperative 
Association, the American Public Power Association, the Large Public 
Power Association, and the Transmission Access Policy Study Group 
(Oct. 12, 2012) at 9.
    The CFTC clarified that since a key function of an electricity 
system operator is to ensure grid reliability, demand response 
agreements, even if not specifically mandated by a system operator, 
may be properly characterized as the product of regulatory 
requirements within the meaning of the seventh element of the CFTC's 
interpretation regarding forward contracts with embedded volumetric 
optionality. For the avoidance of doubt, the CFTC reiterates that 
the proposed guidance herein would not affect this interpretation.
    Also, the CFTC's interpretations regarding full requirements and 
output contracts, as provided in the Products Release, would be 
unaffected by the proposed guidance herein. See Products Release, 77 
FR at 48239-40.
    Furthermore, the CFTC does not intend that the proposed guidance 
would supersede or modify a document issued by the CFTC's Office of 
General Counsel--``Response to Frequently Asked Questions Regarding 
Certain Physical Commercial Agreements for the Supply and 
Consumption of Energy,'' available at http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/leaselike_faq.pdf--which 
continues to be the position of the CFTC's Office of General Counsel 
on the issues discussed in that document.
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C. Proposed Guidance on Whether Certain Contracts Should Be Considered 
To Be Swaps

    In response to the comments, described above, which were provided 
by market participants regarding certain capacity contracts for 
electric power and certain peaking supply contracts for natural gas, 
the CFTC has considered the specific facts and circumstances of these 
contracts in light of the interpretation in the Products Release of 
when a contract would be considered not to be a swap because it is a 
customary commercial arrangement.
    The CFTC understands, based on the commenters' descriptions, that 
the contracts described in Part II.A. above are not traded on an 
organized market or over-the-counter, and do not have severable payment 
obligations. Thus, the CFTC preliminarily believes that the contracts 
described in Part II.A. are consistent with the first two elements of 
the interpretation in the Products Release.\35\
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    \35\ See Products Release, 77 FR at 48247 (the contracts ``do 
not contain payment obligations, whether or not contingent, that are 
severable from the agreement, contract, or transaction; [and] . . . 
are not traded on an organized market or over-the-counter'').
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    The CFTC has also considered the contracts described in Part II.A. 
in light of the statement in the Products Release that, in order not to 
be considered swaps, the contracts should be entered into ``[b]y 
commercial or non-profit entities as principals (or by their agents) to 
serve an independent commercial, business, or non-profit purpose, and 
[o]ther than for speculative, hedging, or investment purposes.'' \36\ 
In view of all the facts and circumstances of the contracts described 
in Part II.A., the CFTC preliminarily believes that such contracts 
would satisfy this element of the Products Release, and therefore 
should be considered not to be swaps under the interpretation set forth 
in the Products Release because they are customary commercial 
arrangements of the type described in the Products Release.
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    \36\ See id.
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    The CFTC notes that commenters have represented that the contracts 
described in Part II.A. are entered into in response to regulatory 
requirements, the need to maintain reliable supplies, and practical 
considerations of storage or transport which arise in the course of the 
normal operation of at least one party's business. In this respect, the 
CFTC preliminarily believes that the contracts described in Part II.A. 
are similar to certain contracts--namely, sales, servicing and 
distribution arrangements, and contracts for the purchase of equipment 
or inventory--listed in the Products Release as commercial contracts 
that will not be considered swaps.\37\ Also, in the Products Release 
the Commissions addressed commenters' assertion that all commercial 
merchandising transactions hedge an enterprise's commercial risks by 
stating that a commercial arrangement undertaken for hedging purposes 
may or may not be a swap depending on the particular facts and 
circumstances of the arrangement.\38\
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    \37\ See id.
    \38\ See id., 77 FR at 48249.
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    The CFTC observes that when an entity enters into a purchase 
contract, it is assured of a supply of the equipment or inventory it 
will need in the future. Similarly, a service contract assures the 
availability of a needed service in the future. The contracts described 
in Part II.A. are similar to the purchase and service contracts 
enumerated in the Products Release because they appear to satisfy the 
elements of commercial contracts, transactions or arrangements that are 
not considered swaps, including that they are entered into by 
commercial or non-profit entities to assure availability of a 
commodity, not to hedge against risks arising from a future change in 
price for the commodity or to serve a speculative or investment 
purpose.
    As stated in the Products Release, whether a particular commercial 
arrangement is a swap depends on the particular facts and circumstances 
of the arrangement.\39\ This proposed guidance would not apply to any 
agreement, contract or transaction other than those described in Part 
II.A., and would not preclude the CFTC from issuing further guidance 
considering other commodity contracts under the interpretation in the 
Products Release.
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    \39\ See id., 77 FR at 48248.
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III. Request for Comment

    The CFTC believes that it would benefit from public comment about 
its proposed guidance, and therefore requests public comment on all 
aspects of its proposed guidance set forth above, and on the following 
questions:
    1. Are there natural gas and electric power contracts that would 
not qualify as trade options within the scope of CFTC regulation 32.3 
but which would be covered by the proposed guidance? If so, should the 
proposed guidance be limited so that it encompasses only contracts that 
do qualify as trade options? Why or why not?
    2. Does the proposed guidance provide sufficient clarity on whether 
the specific types of natural gas and electric power contracts in 
question should or should not be considered to be swaps? If not, how 
should the guidance be revised to provide more clarity?
    3. Are there other facts and circumstances that the CFTC should 
consider in determining whether the contracts described in Part II.A. 
are swaps? If so, what are these factors and how should they be 
considered?
    4. Are there contracts (other than those described in Part II.A.) 
that are entered into by participants in the electric power and natural 
gas markets and necessitated by, or closely tied to, compliance with 
regulatory obligations or frameworks that are similar to those 
described in Part II.A.?
    5. Are there other types of commodity contracts, outside of the 
electric power and natural gas markets, which are necessitated by, or 
closely tied to, compliance with regulatory obligations or frameworks 
that should be considered under the interpretation in the Products 
Release? If so, please describe these contracts and the regulatory 
obligations and frameworks to which they are closely tied.
    6. Are there public interest considerations regarding the natural 
gas

[[Page 20587]]

and electric power contracts in question that should be reflected in 
the proposed guidance? If so, why and how?
    7. Does the proposed guidance provide sufficient clarity that it 
does not supersede or modify the CFTC OGC FAQ referenced in footnote 
34? Is there any potential overlap between the proposed guidance and 
the CFTC OGC FAQ that should be further clarified? If so, what elements 
of the proposed guidance should be clarified to indicate that the 
proposed guidance does not supersede or modify the CFTC OGC FAQ?
    8. With respect to natural gas peaking contracts, are there natural 
gas providers other than LDCs, such as Intrastate and Interstate 
Natural Gas Pipelines (as those terms are defined by the Energy 
Information Administration),\40\ which are subject to regulatory 
obligations to prioritize and serve residential demand for natural gas, 
such that the providers are obligated to curtail service to electric 
utilities under certain circumstances? If so, please explain.
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    \40\ See Distribution of Natural Gas: The Final Step in the 
Transmission Process, Energy Information Administration, Office of 
Oil and Gas, June 2008, available at https://www.eia.gov/pub/oil_gas/natural_gas/feature_articles/2008/ldc2008/ldc2008.pdf.

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    By the Securities and Exchange Commission.

    Dated: April 4, 2016.
Brent J. Fields,
Secretary.
    Issued in Washington, DC, on April 4, 2016, by the Commodity 
Futures Trading Commission.
Christopher J. Kirkpatrick,
Secretary of the Commission.

Commodity Futures Trading Commission (CFTC) Appendices to Certain 
Natural Gas and Electric Power Contracts--Commission Voting Summary and 
Chairman's Statement

Appendix 1--Commodity Futures Trading Commission Voting Summary

    On this matter, Chairman Massad and Commissioners Bowen and 
Giancarlo voted in the affirmative. No Commissioner voted in the 
negative.

Appendix 2--Statement of CFTC Chairman Timothy G. Massad

    Today, the CFTC and the Securities and Exchange Commission 
(SEC), have jointly proposed guidance relating to the appropriate 
treatment of certain peaking supply and capacity contracts. We are 
issuing this guidance after considering the useful input we have 
received from market participants expressing concern about this 
issue. I support this proposal, as it will properly clarify the 
treatment of contracts used by many businesses with respect to the 
supply and delivery of electric power and natural gas.
    We have proposed that certain electric power and natural gas 
contracts should not be considered ``swaps'' under the Commodity 
Exchange Act. We have done so because we believe they are examples 
of customary commercial arrangements as described in the final rule 
defining the term ``swap.''
    For example, 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. They are typically entered into in response to 
regulatory requirements, the need to maintain reliable energy 
supplies, and practical considerations of storage or transport. All 
of these factors are consistent with what has been set forth in 
previous commission guidance.
    Today's proposed guidance is an important complement to our 
final rule regarding Trade Options, which will reduce burdens on 
end-users and allow them to better address commercial risk. I thank 
my fellow Commissioners Bowen and Giancarlo for joining me in 
unanimously approving this proposal as well as that final rule.
[FR Doc. 2016-08076 Filed 4-7-16; 8:45 am]
 BILLING CODE 6351-01-P;8011-01-P