CFTC Issues Two Final Rules Exempting Certain Public Power and RTO Transactions From Most Dodd-Frank Requirements
Yesterday, the Commodities Futures Trading Commission ("CFTC") issued two final rules that clarify the regulatory landscape for public power and other utilities attempting to comply with the Dodd-Frank Act. The first rule exempts energy-related transactions between public power and cooperative utilities from most Dodd-Frank requirements. The second exempts most transactions entered into in centralized RTO or ISO markets governed by FERC-approved tariffs. Together, the orders offer welcome guidance to electric utilities struggling to comply with Dodd-Frank requirements that have often raised more questions than answers.
The first rule concerns transactions between public power entities, including municipal and government-owned utilities and cooperatives. The rule provides that transactions between "Exempt Entities" involving "Exempt Non-Financial Energy Transactions" will be exempt from most requirements of the Dodd-Frank Act. "Exempt Entities" include municipal utilities, government-owned utilities, tribal utilities, and cooperatives that are tax-exempt under Section 501(c)(12) of the Internal Revenue Code. "Exempt Non-Financial Energy Transactions" include transactions involving delivery of electric energy, generation capacity, transmission services, fuel deliveries, and environmental attributes (such as "Renewable Energy Credits") if entered into for purposes of managing supply or price risks associated with the utility's obligation to deliver electric energy to its customers. Hence, if a transaction is between two publicly-owned utilities or cooperatives and involves delivery of commodities or services required to serve end-use customers, the transactions will be exempt from the most burdensome requirements of the Dodd-Frank Act, such as exchange-trading and collateralization obligations. Notably, both parties must be publicly-owned or cooperative utilities for the exempt to apply, and the exemption does not apply to interest rate, credit, or other kinds of non-energy transactions.