Energy regulatory developments in the United States impact numerous sectors of the energy industry and address a wide swath of issues. We reported on key federal and state energy regulatory developments in the United States during 2013 in the last volume of the ERQ. This report highlights such developments since early 2014 which should be of interest to readers of the ERQ.
I. Climate Action
In 2013, President Obama began to use his executive powers to regulate greenhouse gases, sidestepping a reluctant Congress. In 2014, President Obama has continued to focus on climate change issues with the release of the Third National Climate Assessment. In addition, the Obama Administration scored a victory before the U.S. Supreme Court in Environmental Protection Agency v. EME Homer City Generation, L.P., which upheld a U.S. Environmental Protection Agency (EPA) Clean Air Act rule designed to control and regulate the flow of pollution between states.
A. Third U.S. National Climate Assessment
On May 6, 2014, the White House released the Third National Climate Assessment (Assessment), a report produced by a panel of 300 scientific experts, whose work was overseen by a federal advisory committee.1 Noting that climate change has “moved firmly into the present,” the Assessment documents the wide-ranging effects of rising average temperatures, focusing both on regional impacts as well as sectors affected by climate change.2 The Assessment also includes a discussion of potential response strategies. The Obama Administration has trumpeted the Assessment’s findings to increase support for regulatory efforts designed to combat climate change.
B. U.S. Supreme Court Upholds EPA Rules
In the last Washington Report, we reported on oral argument before the U.S. Supreme Court in Utility Air Regulatory Group v. Environmental Protection Agency.3 The issue in that case is whether the EPA permissibly determined that regulation of motor vehicle emissions triggered Clean Air Act4 permitting requirements under the Prevention of Significant Deterioration (PSD) program for stationary sources, such as power plants, that emit greenhouse gases. Although no decision has been issued in that case, in the interim the Court issued an opinion in Environmental Protection Agency v. EME Homer City Generation, L.P.,5 another Clean Air Act case. In EME Homer City Generation, the Court upheld the EPA’s latest effort to force “upwind” states to reduce emissions contributing significantly to pollution in “downwind” states.
The key issue in EME Homer City was whether the EPA could determine upwind states’ required emissions reductions by considering the cost of emissions reductions, rather than by considering only each state’s physically proportionate responsibility for downwind pollution.6 States and utility companies had challenged the EPA’s so-called Transport Rule,7 which utilizes this cost-based approach. The Court, in a 6-2 decision, ruled that the EPA’s cost-based allocation of emissions reductions was a permissible interpretation of the Clean Air Act’s Good Neighbor Provision,8 overruling the United States Court of Appeals for the District of Columbia Circuit’s determination that the Transport Rule exceeded the EPA’s statutory authority. The EPA and environmental groups applauded the decision, while certain conservative lawmakers and utility companies criticized it.9 The decision may signal the Court’s willingness to uphold other environmental rules issued by the EPA that form a key part of the Obama Administration’s climate change strategy. However, the Court’s pending ruling in Utility Air Regulatory Group is expected to be a close decision, and many observers have expressed skepticism as to whether the Court will uphold the Administration’s PSD permitting scheme.10
II. Demand Response
On May 23, 2014, the D.C. Circuit vacated Federal Energy Regulatory Commission (FERC) Order No. 745 in its entirety by a vote of 2 to 1.11 Order No. 745 had established a mechanism to compensate suppliers of cost-effective demand response resources who participate in the FERC-regulated day-ahead and real-time energy markets. It defined “demand response” as a “reduction in the consumption of electric energy by customers from their expected consumption in response to an increase in the price of electric energy or to incentive payments designed to induce lower consumption of electric energy”12 and directed Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) to pay demand response providers the full locational marginal price (LMP) that was used to compensate generation suppliers to the markets.
The court vacated Order No. 745 on two separate grounds. First, the court held that the order directly regulates retail markets exclusively within state control, and thus outside of FERC’s jurisdiction. FERC had argued that it had authority, under Sections 205 and 206 of the Federal Power Act (FPA), to set a compensation mechanism for demand response provided to wholesale markets. Sections 205 and 206 state that FERC has authority to ensure all rules and regulations “affecting . . . rates” in connection with the wholesale sale of electric energy are “just and reasonable.”13 Because reducing retail compensation through incentive-driven demand response payments will lower wholesale prices, FERC reasoned that Order No. 745 directly affected wholesale rates and was within its statutory authority. The court, however, concluded that demand response is a function of retail markets—involving retail customers, their decisions whether to purchase at retail, and the level of retail electricity consumption—within the exclusive ambit of state regulation. The court also noted that FERC’s rationale had no limiting principle and potentially could authorize FERC to regulate many areas that “affect” wholesale electric rates, such as steel, fuel and labor markets.
Second, the court held that, even if FERC had jurisdiction to adopt Order No. 745, the order would still fail as “arbitrary and capricious,” in violation of the Administrative Procedure Act. The court said FERC failed to properly consider well-founded arguments set forth in FERC Commissioner Moeller’s written opinion dissenting from Order No. 745. Commissioner Moeller had argued that Order No. 745 over-compensated demand response resources because it required that demand response providers be paid the full LMP in addition to allowing them to retain the savings associated with the provider’s avoided retail generation cost. The court held that FERC had not provided a direct response to this argument.
In dissent, Senior Circuit Judge Edwards criticized the majority decision for not affording FERC Chevron deference. According to Judge Edwards, the FPA is ambiguous as to whether a promise to forgo consumption of electricity that would have been purchased in a retail electricity market constitutes a “sale of electric energy” subject to the FERC jurisdiction under the statute, and amid such ambiguity, the court must defer to FERC’s permissible construction of the statute. Judge Edwards also deferred to FERC with respect to its mandate that demand response resources be paid the full LMP, finding FERC’s defense of the LMP payment mechanism adequate.
The court’s mandate has not yet been issued. FERC may seek rehearing of the majority decision before the entire D.C. Circuit or file a petition for writ of certiorari with the U.S. Supreme Court.
III. Export of LNG
In the first quarter of 2014, the U.S. Department of Energy (DOE) continued to issue conditional authorizations to export liquefied natural gas (LNG) from the United States to countries with which the United States does not have a free trade agreement (non-FTA countries).14 However, on May 29, 2014, DOE issued a proposal to “suspend” this practice, and to act on applications to export LNG to non-FTA countries only after the review required by the National Environmental Policy Act (NEPA) has been completed.15 The proposed procedures, if adopted, would not affect any conditional export authorizations that DOE has previously issued.
DOE’s proposal lists four reasons in favor of waiting to act on LNG export applications to non-FTA countries until the NEPA review is completed. First, DOE states that “conditional decisions no longer appear necessary for FERC or the majority of applicants to devote resources to NEPA review.”16 DOE had initially justified the practice of issuing conditional export authorizations as providing greater certainty for FERC, since FERC is the lead agency in the NEPA review process for a proposed export project. DOE’s proposal recognizes, however, that applicants are initiating, and FERC is proceeding with, the NEPA review process for projects irrespective of whether the project has obtained a conditional export authorization from DOE.
Second, DOE believes this change will enable it to “prioritize acting upon applications that are otherwise ready to proceed.” DOE would no longer process applications to export LNG to non-FTA countries in the published order of precedence; rather, DOE would act on these applications “in the order in which they become ready for final action.” “Final action” in DOE’s proposal means “DOE has completed the pertinent NEPA review process and has sufficient information on which to base a public interest determination.” An application will be deemed to have completed the NEPA review process: 1) for those projects requiring an Environmental Impact Statement (EIS), 30 days after publication of a Final EIS, 2) for projects for which an Environmental Assessment has been prepared, upon publication by DOE of a Finding of No Significant Impact, or 3) upon a determination by DOE that an application is eligible for a categorical exclusion from NEPA pursuant to applicable DOE regulations.17
Third, DOE thinks this change in its procedures will “facilitate decisionmaking informed by better and more complete information.” DOE will be in a better position to judge the cumulative market impacts of its authorizations because “projects that have undertaken the expense to complete NEPA review are, as a group, more likely to proceed than those that have not.”18
Finally, DOE believes that discontinuing conditional decisions on non-FTA exports will better allocate departmental resources. DOE will be able to focus on “providing timely action on applications that are furthest along in the regulatory review process.”19
The deadline for filing comments to DOE’s proposed procedural changes on its consideration of requests for export authorization to non-FTA countries is July 21, 2014.
IV. NYPSC Proposal to Overhaul Regulatory Frameworks
In December 2013, the New York Public Service Commission (NYPSC) announced a fundamental reconsideration of regulatory paradigms and markets, examining how its policy objectives20 are served by both clean energy programs and by the regulation of distribution utilities. With respect to regulation of its distribution utilities, the NYPSC Order, which was entitled, “Reforming the Energy Vision,” identified the following key questions:
- What should be the role of distribution utilities in enabling system wide efficiency and market based deployment of distribution energy resources and load management?
- What changes can and should be made in the current regulatory, tariff and market design and incentive structures in New York to better align utility interests with achieving energy policy objectives?
In response to the NYPSC’s inquiry, on April 24, 2014, the NYPSC Staff issued a far-reaching proposal (Staff Proposal) that recommends that utilities alter their operations to become Distributed System Platform Providers (DSPP).21 As a DSPP, a utility would actively manage and coordinate distribution energy sources or generate power from many small resources and bring them to the system. The Staff Proposal asserts such an approach would better achieve the NYPSC’s policy objectives.
The Staff Proposal recommends further examination of the possible changes to the utility model and ratemaking paradigm through two simultaneous phases. In one phase, the Staff Proposal recommends developing the duties and functions of the DSPPs, such as system planning, pricing, and impacts on wholesale markets. The second phase would address ratemaking and regulatory changes occasioned by the Staff Proposal, including the length of rate plan, incentives, and traditional rate design structures.
On April 25, 2014, the NYPSC issued an order to examine the recommendations made in the Staff Proposal.22 The order adopted the two-phase schedule recommended by the Staff and requested that it issue an update on the first phase in early July 2014 and a proposal for ratemaking changes in mid-July 2014, with an update in September 2014. The NYPSC stated that it expects to reach a generic policy determination in the first quarter of 2015.
V. Enforcement and Compliance
As we last reported, FERC’s Office of Enforcement (Enforcement) had a landmark year in 2013, focusing its enforcement efforts in four principal areas: 1) fraud and market manipulation; 2) serious violations of the reliability standards; 3) anticompetitive conduct, and 4) conduct threatening the transparency of regulated markets.23 In 2014 Enforcement has continued to prosecute enforcement matters under FERC’s authority to impose civil penalties of up to $1 million per day for market manipulation and fraud.24 These matters are briefly described below.25
A. B.P. America et al.
On August 5, 2013, FERC ordered BP America Inc., BP Corporation North America Inc., BP America Production Company, and BP Energy Company (collectively, BP) to show cause why it should not be found to have illegally manipulated a certain natural gas market in Houston from September to November 2008 and be assessed penalties totaling $28 million and forced to disgorge $800,000 in unjust profits.26 On October 4, 2013, BP filed an answer denying all wrongdoing and requesting that FERC dismiss the proceeding or, in the alternative, set the matter for a full evidentiary hearing before an administrative law judge at the agency. On May 15, 2014, FERC rejected BP’s request to dismiss the proceeding and ordered that it be set for a hearing, citing the existence of genuine issues of material fact. Among the factual issues in dispute is a recorded phone call between BP employees involving BP’s positions, which Enforcement alleges corroborates BP’s scheme to manipulate the relevant natural market. The order directs the administrative law judge to determine whether BP’s conduct violated the anti-manipulation rule by, among other things, “framing the open,” and reserves for the Commission’s later consideration the nature of the civil penalty, disgorgement, and any other sanctions that may be imposed upon a finding of a violation.27
B. Louis Dreyfus Energy Services LP
Louis Dreyfus Energy Services LP (LDES) agreed to pay a civil penalty of $4.1 million and disgorge $3.3 million in profits to settle Enforcement’s allegations that it manipulated the power market in the Midcontinent Independent System Operator (MISO) from November 2009 through February 2010. As part of the settlement, an LDES trader must also pay a $310,000 civil penalty. The settlement alleges that LDES entered into virtual trades that consistently lost money to benefit firm transmission rights positions in MISO. In describing the allegedly manipulative scheme, the settlement focuses on the trader’s doctoral dissertation, which noted the relationship between virtual trades and financial transmission rights and how that relationship could lead to “risk free” transactions under certain circumstances. Louis Dreyfus neither admitted nor denied the alleged violations.28 LDES was sold to investors in 2012 and renamed Castleton Commodities International.
C. CFTC-FERC Memoranda of Understanding
We previously reported that, on January 2, 2014, the CFTC and FERC (collectively, the agencies) signed “Memoranda of Understanding” regarding certain matters of overlapping jurisdiction and sharing information in connection with market surveillance and enforcement activities (information sharing MOU, collectively, the MOUs). The agencies announced the MOUs after years of sparring on jurisdiction over energy markets. On March 5, 2014, the agencies announced the first transmission of market data under the information sharing MOU for use in analyzing market activities and protecting market integrity. Data that is subject to sharing under the MOU relates to market participants and entities regulated by the agencies, including, with respect to FERC, RTOs/ISOs and jurisdictional pipelines and storage facilities, and, with respect to the CFTC, designated contract markets, swap execution facilities, derivatives clearing organizations, and swap data repositories. The agencies also announced the creation of a Staff-level Interagency Surveillance and Data Analytics Working Group to coordinate information sharing between the agencies and focus on data security, data sharing infrastructure, and the use of analytical tools for regulatory purposes.
VI. CFTC
The Commodity Futures Trading Commission (CFTC) has taken a number of actions affecting energy companies in 2014. The CFTC issued a notice of proposed rulemaking29 to adjust the de minimis threshold for determining if an entity that enters into certain swaps with “utility special entities”30 must register as a swap dealer. The proposal would amend the CFTC’s swap dealer definition to permit persons dealing in “utility operations-related swaps”31 with utility special entities to exclude those swaps in determining whether that person has exceeded the de minimis swap dealing threshold specific to dealing with special entities. However, such swaps would be counted for determining whether the general, $8 billion dealing de miminis threshold applies. The rule would effectively codify no-action relief previously issued by CFTC Staff in March of this year.32
The CFTC also reopened the comment period with respect to its position limits proposal in conjunction with a Staff roundtable to consider certain issues related to physical commodities (including energy commodities).33 The CFTC has asked market participants to comment on the following topics: 1) hedges of a physical commodity by a commercial enterprise, including gross hedging, cross-commodity hedging, anticipatory hedging, and the process for obtaining a non-enumerated exemption; 2) the setting of spot month limits in physical-delivery and cash-settled contracts and a conditional spot-month limit exemption; 3) the setting of non-spot limits for wheat contracts; 4) the aggregation exemption for certain ownership interests of greater than 50 percent in an owned entity; and 5) aggregation based on substantially identical trading strategies.
In addition, CFTC Staff has issued no-action letters that may affect energy companies. CFTC Staff granted relief with respect to compliance with recordkeeping provisions34 requiring members of designated contract markets or swap execution facilities that are not registered or required to be registered with the CFTC, which includes certain energy companies, to keep electronic text messages and records in a form and manner identifiable and searchable by transaction.35 In addition, the CFTC Staff has said it will not recommend enforcement action against the Southwest Power Pool, Inc. (SPP), an RTO approved by FERC, its members, or certain other market participants for failure to comply with the Commodity Exchange Act36 (CEA) and CFTC regulations (other than the anti-fraud and anti-manipulation prohibitions) pending action by the CFTC on a petition filed by SPP to exempt certain transactions from regulation under the CEA.37 The relief expires on the earlier of August 31, 2014, or final action by the CFTC on SPP’s petition.
VII. Fracking
The amount and nature of hydraulic fracturing (commonly referred to as “fracking”) and horizontal drilling in the United States continue to spawn serious debate by market participants, public citizens, and governmental bodies about the path forward.38 In May 2014, the EPA initiated a process that may result in federal regulation of the fluids used in fracking. The agency issued a controversial Advance Notice of Proposed Rulemaking under Section 8 of the Toxic Substances Control Act39 (TSCA) soliciting comment on whether companies must publicly disclose the chemicals used in the fracking process. The notice seeks comment on: 1) the types of chemical information that could be reported under TSCA; 2) the regulatory and non-regulatory approaches to obtain information on chemicals and mixtures used in hydraulic fracturing activities; and 3) whether fracking-related chemicals should be regulated through a voluntary mechanism under the Pollution Prevention Act of 1990.40 In its notice, the EPA asked for comment on dozens of questions on issues including how to protect trade secrets and how possibly to reduce possible duplication of state disclosure requirements. The agency’s action stems from a petition filed in August 2011 by Earthjustice and other organizations. The comment period closes in August 2014.
VIII. Gas-Electric Coordination
In three interrelated orders, FERC took steps in March 2014 to address gas-electric coordination issues arising from the scheduling practices of interstate natural gas pipelines and electric transmission operators. The Commission is concerned about the potential impact on the reliable and efficient operation of electric transmission systems and interstate natural gas pipelines of divergences between the start times of the natural gas and electric operating days, and mismatches in the timelines for scheduling interstate natural gas pipeline transportation service and wholesale electric sales made by gas-fired generators for the next day. The Commission is also concerned that existing interstate natural gas pipeline scheduling practices and the application of some of its regulations by pipelines may not provide sufficient flexibility to meet the needs of natural gas-fired generators, and could be limiting the efficient use of existing pipeline infrastructure, thereby making less capacity available to shippers (including natural gas-fired generators).41
FERC thus proposed to revise its regulations to better coordinate the scheduling of natural gas and electricity markets in light of increased reliance on natural gas for electric generation, as well as to provide additional flexibility to all shippers on interstate natural gas pipelines. The Commission gave the natural gas and electric industries six months to reach consensus on new business standards on the topic.42 FERC further instituted a proceeding under the FPA to coordinate the day-ahead scheduling of ISOs and RTOs with the revised interstate natural gas pipeline schedule.43 Finally, FERC instituted a proceeding under the Natural Gas Act44 to examine whether interstate natural gas pipelines are providing proper notice of offers to purchase released pipeline capacity in accordance with its regulations.45
IX. Energy Storage
On May 15, 2014, the California Public Utilities Commission issued Decision 14-05-033 clarifying that renewable projects that are eligible for net-energy metering, but also include energy storage capability, such as batteries, do not have to pay certain interconnection fees and system upgrade study fees. According to a recent report on California’s Self-Generation Incentive Program, approximately 6.7 MW of photovoltaic-paired battery storage projects had been backlogged waiting clarification of the fees that could be assessed before being connected to the grid.
* Senior of Counsel at Morrison & Foerster LLP in Washington, D.C., where he represents a range of clients on energy regulatory, enforcement, compliance, transactional, commercial, legislative, and public policy matters. He serves as Editor-in-Chief of the Energy Law Journal (published by the Energy Bar Association) and is a former General Counsel and Vice-President for Legislative and Regulatory Policy at Constellation Energy. The author would like to thank members of Morrison & Foerster’s energy regulatory team for their assistance in developing this report. The views expressed in this report are his own, and do not necessarily reflect those of Morrison & Foerster or any of its clients.
1 2014 National Climate Assessment, online: US Global Change Research Program <http://nca2014.globalchange.gov/>.
2 See Justin Gillis, US Climate Has Already Changed, Study Finds, Citing Heat and Floods (6 May 2014), online: the New York Times <http://www.nytimes.com/2014/05/07/science/earth/climate-change-report.html?hpw&rref=world&_r=0>.
3 Utility Air Regulatory group v Environmental Protection Agency, 684 F (3d) 102 (DC Cir 2012) . No 12-1146 (US cert granted 15 October2013). Utility Air Regulatory Group is the lead case for six consolidated cases pertaining to the same issue.
4 The Clean Air Act of 1963, Pub L No 88-206, 77 Stat 392 (1963) (codified as amended at 42 USC §7401-7671 (1970)).
5 Environmental Protection Agency v. EME Homer City Generation, LP 572 US (29 April 2014), No 12-1182 (US).
6 See Greg Stohr & Mark Drajem, Obama Power-Plant Pollution Rule Upheld by Top US Court (29 April 2014), online: Bloomberg <http://www.bloomberg.com/news/2014-04-29/obama-power-plant-pollution-rule-upheld-by-u-s-supreme-court.html>.
7 Federal Implementation Plans: Interstate Transport of Fine Particulate Matter and Ozone and Correction of SIP Approvals, 76 Fed Reg 48208 (2011).
8 State implementation plans for national primary and secondary for ambient air quality standards, 42 USC § 7410(a)(2)(D)(i).
9 See Coral Davenport, Justices Back Rule Limiting Coal Pollution (29 April 2014), online: the New York Times <http://www.nytimes.com/2014/04/30/us/politics/supreme-court-backs-epa-coal-pollution-rules.html>.
10 See, e.g., Adam Liptak, For the Supreme Court, a Case Poses a Puzzle on the E.P.A.’s Authority (24 February 2014), online: the New York Times <http://www.nytimes.com/2014/02/25/us/justices-weigh-conundrum-on-epa-authority.html>.
11 Electric Power Supply Ass’n v FERC, __ F(3d) __ (DC Cir 2014).
12 Demand Response Compensation in Organized Wholesale Energy Markets, Order No 745, 134 FERC ¶ 61,187, at para 2 note 2; see also 18 CFR § 35.28(b)(4).
13 Declaration of policy; application of subchapter, 16 USC §§ 824d(a), 824e(a).
14 Order Conditionally Granting Long-Term Multi-Contract Authorization to Export Liquefied Natural Gas by Vessel from the Cameron LNG Terminal in Cameron Parish, Louisiana, to Non-Free Trade Agreement Nations, DOE/FE Order No 3391 (11 February 2014); Order Conditionally Granting Long-Term Multi-Contract Authorization to Export Liquefied Natural Gas by Vessel from the Jordan Cove LNG Terminal in Coos Bay, Oregon to Non-Free Trade Agreement Nations, DOE/FE Order No 3413 (24 March 2014). Section 590.402 of DOE’s regulations authorizes DOE’s Office of Fossil Energy to issue a conditional order prior to issuance of a final opinion and order. Administrative Procedures with respect to the import and export of natural gas- conditional orders, 10 CFR § 590.402.
15 Proposed Procedures for Liquefied Natural Gas Export Decisions, Dep’t of Energy, No 6450-01-P (29 May 2014). The proposed procedures have not been published in the Federal Register but are available on the DOE’s website at <http://energy.gov/sites/prod/files/2014/05/f16/FR%20Notice%20Proposed%20Procedure%20Change.pdf>.
20 The NYPSC described its policy objectives as: 1) increasing customer knowledge and tools that support effective management of the customer’s total energy bill; 2) market animation and leverage of ratepayer contributions; 3) system wide efficiency; 4) fuel and resource diversity; and 5) system reliability and resiliency. The NYPSC stated that carbon reduction was an implied objective. In its Proposal, the NYPSC Staff recommended that it be explicitly added to this list of policy objectives.
21 Reforming the Energy Vision: NYS Department of Public Service Staff Report and Proposal, No 14-M-0101 (24 April 2014), online: NYS Department of Public Service <http://www3.dps.ny.gov/W/PSCWeb.nsf/96f0fec0b45a3c6485257688006a701a/26be8a93967e604785257cc40066b91a/$FILE/ATTK0J3L.pdf/Reforming%20The%20Energy%20Vision%20(REV)%20REPORT%204.25.%2014.pdf>.
22 Order Instituting Rulemaking, Proceeding on Motion of the Commission in Regard to Performing the Energy Vision, No 14-M-0101 (25 April 2014), online: NYS Department of Public Service <http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId=%7B9CF883CB-E8F1-4887-B218-99DC329DB311%7D>.
23 2013 Report on Enforcement, FERC Docket No AD07-13-006 (21 November 2013), online: FERC <https://www.ferc.gov/legal/staff-reports/2013/11-21-13-enforcement.pdf>.
24 See Prohibition of energy market regulation, 16 USC § 824v(a) (2012); Regulation of natural gas companies, 15 USC § 717c-1 (2012).
25 A discussion of enforcement actions involving Barclays Bank PLC et al. and Lincoln Paper & Tissue LLC et al. – both of which are still pending in federal district courts in California and Massachusetts, respectively – can be found in the Winter 2013 issue of the ERQ.
26 BP America Inc., 144 FERC ¶ 61,100 (2013).
27 BP America Inc., 147 FERC ¶ 61,130 (2014).
28 MISO Virtual & FTR Trading, 146 FERC ¶ 61,072 (2014).
29 The notice of proposed rulemaking has not been published in the Federal Register but is available on the CFTC’s website at <http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/federalregister052214-a1.pdf>.
30 A “utility special entity” would be defined as a special entity (generally, certain governmental entities, pension plans, government plans or endowments) that owns or operates electric or natural gas facilities, electric or natural gas operations or anticipated electric or natural gas facilities or operations; supplies natural gas or electric energy to other utility special entities; has public service obligations or anticipated public service obligations under federal, state, or local law or regulation to deliver electric energy or natural gas service to utility customers; or is a federal power marketing agency as defined in Section 3 of the FPA, 16 USC § 796(19).
31 A “utility operations related swap” would be a swap to which at least one of the parties is a utility special entity that is using the swap to hedge or mitigate commercial risk, and that is related to an exempt commodity. In addition, the swap must be an electric energy or natural gas swap, or associated with the operations or compliance obligations of a utility special entity as set forth in the CFTC’s proposed rule.
32 See CFTC Staff Letter No 14-34 (21 March 2014).
33 The notice extending the comment period has not been published in the Federal Register but is available on the CFTC’s website at <http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/federalregister052214-a.pdf>.
34 Records of commodity interest and related cash or forward transactions, 17 CFR § 1.35(a).
35 CFTC Staff Letter No 14-72 (22 May 2014).
36 Commodity exchange Act of 1936, Pub L No 74-675, 49 Stat 1491 (1936).
37 CFTC Staff Letter No 14-18 (20 February 2014). To qualify for the relief, market participants must be: (1) “appropriate persons,” as defined in section 4(c)(3)(A) through (J) of the CEA; (2) “eligible contract participants,” as defined in section 1a(18) of the CEA and in CFTC regulation 1.3(m); or (3) in the business of generating, transmitting, or distributing electric energy, or providing electric energy services that are necessary to support the reliable operation of the transmission system.
38 35 Energy Law Journal xiii (2014).
39 Toxic Substances Control Act of 1976, Pub L No 94-469, 90 Stat 2003 (1976).
40 Hydraulic Fracturing Chemicals and Mixtures, Advance Notice of Proposed Rulemaking, 79 Fed Reg 28,664 (2014).
41 Notice of Proposed Rulemaking, Coordination of the Scheduling Processes of Interstate Natural Gas Pipelines and Public Utilities, 146 FERC ¶ 61,201 at paras 32-33 (2014).
43 California Independent System Operator Corporation et al., 146 FERC ¶ 61,202 (2014).
44 Natural Gas Act, 15 USC§717 (2013).
45 Posting of Offers to Purchase Capacity, 146 FERC ¶ 61,203 (2014).