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CFTC issues 'no-action' letter offering relief to utilities that use swaps for hedging operating risks

March 24, 2014

By Jeannine Anderson
Responding to a request from APPA and others, the Commodity Futures Trading Commission issued a "no-action" letter on Friday providing relief from certain requirements in its new rules on swap dealers. The March 21 letter "allows an entity to deal in utility operations-related swaps, as that term is defined in the letter, and not be required to register as a swap dealer, provided that the aggregate gross notional amount of swap dealing activity does not exceed $8 billion per year," the CFTC said.

APPA applauded the CFTC for issuing the letter.

"We are very pleased with the no-action relief provided today," said APPA President and CEO Mark Crisson. "With this no-action letter and the CFTC’s upcoming roundtable, Acting Chairman Mark Wetjen has shown a much needed, and much appreciated, focus on issues affecting end-users." 

In a March 21 statement, APPA said the no-action letter "allows public power utilities to hedge commercial operations risks—not with just the biggest banks and swap dealers—but with regional utilities, natural gas distributors, and independent power generators who have served as swap counterparties in the past."

The letter "puts public power utilities on an even playing field with investor-owned utilities and rural electric cooperatives in seeking counterparties to commercial operations-related swaps," the association said.

The CFTC said it was responding to a petition from APPA, the Large Public Power Council, the American Public Gas Association, the Transmission Access Policy Study Group and the Bonneville Power Administration asking the CFTC for relief for certain swaps that utility special entities rely upon to hedge risks stemming from their electricity or natural gas operations.

APPA said the relief provided in the no-action letter is similar to that which would be provided under the Public Power Risk Management Act, legislation approved unanimously by the U.S. House of Representatives in June 2012. A similar bill is pending in the Senate.

"This narrowly crafted relief applies only to swaps used to hedge or mitigate commercial operations risks of public power and natural gas utilities," APPA said. "It would do nothing to undermine the current regulatory protections for non-operations-related 'financial' swaps entered into by public power and natural gas utilities, state and local governmental entities or other 'special entities.'" 

APPA said the association "looks forward to working with Acting Chairman Wetjen and the CFTC as it moves to formalize this relief either through the rulemaking process or in response to a pending petition."

"The real winners here are public power customers, who will benefit from the cost savings and rate stability this no-action letter will make possible," Crisson said.  

The no-action letter "is a step in the right direction to address the impact on certain utilities that are special entities that were inadvertently caught up by the Commission’s rules," said Commissioner Scott O'Malia. "Although my preferred approach would be to address this issue through a rulemaking that is subject to the Administrative Procedure Act, I appreciate the Commission staff’s effort to address some of the concerns" that APPA and others raised in their July 12, 2012 petition, he said.

"If the Commission is serious about helping end-users," O'Malia added, "I challenge the Commission to complete a new rule before the second anniversary of the petition" to amend its rules on swaps.

The March 21 letter, posted on the CFTC's website, provides temporary no-action relief while the commission considers the issues that were raised in the July 2012 petition filed by APPA and the other groups, the CFTC said. It supersedes a no-action letter the CFTC issued in 2012. 


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