31238 Federal Register / Vol. 79, No. 105 / Monday, June 2, 2014 / Proposed Rules 

1The Commission’s regulations are found at 17 

CFR Ch. I (2013) and can be accessed through the 

Commission’s Web site. 

2 7 U.S.C. 1a(49) (2012). The CEA can be accessed 

through the Commission’s Web site. 

3See 77 FR 30596 (May 23, 2012) (Swap Dealer 

Definition Adopting Release). 

4The further definition of the term ‘‘swap’’ is 

found in Regulation 1.3(xxx), which became 

effective October 12, 2012. See 77 FR 48208 (Aug. 

13, 2012). See also Regulation 3.10(a)(1)(v)(C), 

which establishes that each person who comes 

within the swap dealer definition from and after the 

effective date of that definition is subject to 

registration as a swap dealer with the Commission. 

5The Commission set the General De Minimis 

Threshold at an initial phase-in level of $8 billion 

as of July 23, 2012, the effective date of the Swap 

Dealer Definition Adopting Release. Upon 

termination of the phase-in period this amount will 

decrease to $3 billion (or such alternative amount 

as the Commission may adopt by rulemaking) in 

accordance with the phase-in procedure outlined in 

Regulation 1.3(ggg)(4)(ii). 6Petition for Rulemaking to Amend CFTC 

Regulation 1.3(ggg)(4), dated July 12, 2012. The 

Petition was filed by the American Public Power 

Association, the Large Public Power Council, the 

American Public Gas Association, the Transmission 

Access Policy Study Group and the Bonneville 

Power Administration (Petitioners). The Petition 

and the comment letters that were submitted in 

support of it are available at http://sirt.cftc.gov/sirt/ 

sirt.aspx?Topic=PendingFilingsandActions

AD&Key=23845. 

7The Petition defined the term ‘‘utility special 

entity’’ to mean a government special entity that— 

owns or operates electric or natural gas facilities 

or electric or natural gas operations (or anticipated 

facilities or operations), supplies natural gas and/ 

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 and/or 

natural gas service to utility customers, or is a 

Federal power marketing agency as defined in 

Section 3 of the Federal Power Act (16 U.S.C. 

796(19)). 

8The Petition defined the term ‘‘utility 

operations-related swap’’ to mean any swap that a 

utility special entity enters into ‘‘to hedge or 

mitigate commercial risks’’ (as that phrase is used 

in CEA Section 2(h)(7)(A)(ii))— 

intrinsically related to the electric or natural gas 

facilities that the utility special entity owns or 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 1 

RIN 3038–AE19 

Exclusion of Utility Operations-Related 

Swaps With Utility Special Entities 

From De Minimis Threshold for Swaps 

With Special Entities 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Proposed rule. 

SUMMARY: The Commodity Futures 

Trading Commission (Commission or 

CFTC) is proposing to amend its 

regulations (Proposal) to permit a 

person to exclude utility operationsrelated swaps with utility special 

entities in calculating the aggregate 

gross notional amount of the person’s 

swap positions solely for purposes of 

the de minimis exception applicable to 

swaps with special entities. 

DATES: Comments must be received on 

or before July 2, 2014. 

ADDRESSES: You may submit comments, 

identified by RIN number 3038–AE19, 

by any of the following methods: 

• Agency Web site: http://

comments.cftc.gov; 

• Mail: 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 

instructions for submitting comments. 

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 Commission to consider 

information that 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 procedure established in CFTC 

Regulation 145.9.1

The Commission reserves the right, 

but shall have no obligation, to review, 

pre-screen, filter, redact, refuse or 

remove any or all of your 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 

rulemaking will be retained in the 

public comment file and will be 

considered as required under the 

Administrative Procedure Act and other 

applicable laws, and may be accessible 

under the Freedom of Information Act. 

FOR FURTHER INFORMATION CONTACT: Gary 

Barnett, Director, (202) 418–6700, 

gbarnett@cftc.gov; Erik Remmler, 

Deputy Director, (202) 418–7630, 

eremmler@cftc.gov; Christopher W. 

Cummings, Special Counsel, (202) 418– 

5445, ccummings@cftc.gov; or Israel 

Goodman, Special Counsel, (202) 418– 

6715, igoodman@cftc.gov, Division of 

Swap Dealer and Intermediary 

Oversight, Commodity Futures Trading 

Commission, 1155 21st Street NW., 

Washington, DC 20581. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. De Minimis Exception From Swap 

Dealer Definition 

Section 1a(49) 2 of the Commodity 

Exchange Act (CEA or Act) defines the 

term ‘‘swap dealer.’’ CEA Section 

1a(49)(D) requires the Commission to 

exempt from swap dealer designation an 

entity that engages in a de minimis 

quantity of swap dealing, and to 

promulgate regulations to establish 

factors for making a determination to so 

exempt such entities. Pursuant to this 

mandate, on April 27, 2012, the 

Commission adopted Regulation 

1.3(ggg), which further defines the term 

‘‘swap dealer.’’ 3 Regulation 1.3(ggg) 

became effective on July 23, 2012, and 

registration as a swap dealer was 

required beginning October 12, 2012.4

Regulation 1.3(ggg)(4) includes an 

exception from the swap dealer 

definition for a person that has entered 

into swap positions connected with its 

swap dealing activities that, in the 

aggregate, do not exceed, during the 

preceding twelve-month period, either 

of two aggregate gross notional amount 

thresholds. The two aggregate gross 

notional amount thresholds are: (i) $3 

billion, subject to a phase in level of $8 

billion 5 (General De Minimis 

Threshold), and (ii) $25 million with 

regard to swaps in which the 

counterparty is a ‘‘special entity’’ 

(Special Entity De Minimis Threshold). 

CEA Section 4s(h)(2)(C) and Regulation 

23.401(c) define the term ‘‘special 

entity’’ to include: A Federal agency; a 

State, State agency, city, county, 

municipality, or other political 

subdivision of a State; any employee 

benefit plan as defined under the 

Employee Retirement Income Security 

Act of 1974 (ERISA); any government 

plan as defined under ERISA; and any 

endowment. Regulation 23.401(c) adds 

‘‘any instrumentality, department, or a 

corporation of or established by a State 

or subdivision of a State’’ to the 

definition. 

B. Petition for Rulemaking 

On July 12, 2012, the Commission 

received a petition for rulemaking that 

sought an amendment of Regulation 

1.3(ggg)(4) (Petition).6 The Petition 

requested that the regulation be 

amended to exclude from consideration, 

in determining whether a person has 

exceeded the Special Entity De Minimis 

Threshold, swaps to which the 

Petitioners and certain other special 

entities (collectively defined in the 

Petition as ‘‘utility special entities’’ 7) 

are counterparties and that relate to the 

Petitioners’ and other utility special 

entities’ utility operations (defined in 

the Petition as ‘‘utility operationsrelated swaps’’).8


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operates or its electric or natural gas operations (or 

anticipated facilities or operations), or to the utility 

special entity’s supply of natural gas and/or electric 

energy to other utility special entities or to its 

public service obligations (or anticipated public 

service obligations) to deliver electric energy or 

natural gas service to utility customers. 

The Petition defined the term ‘‘intrinsically 

related’’ to include all transactions related to: 

(i) The generation or production, purchase or 

sale, and transmission or transportation of electric 

energy or natural gas, or the supply of natural gas 

and/or electric energy to other utility special 

entities, or delivery of electric energy or natural gas 

service to utility customers, (ii) all fuel supply for 

the utility special entity’s electric facilities or 

operations, (iii) compliance with electric system 

reliability obligations applicable to the utility 

special entity, its electric facilities or operations, 

(iv) compliance with energy, energy efficiency, 

conservation or renewable energy or environmental 

statutes, regulations or government orders 

applicable to the utility special entity, its facilities 

or operations, or (v) any other electric or natural gas 

utility operations-related swap to which the utility 

special entity is a party. 

Finally, the Petition stated that a ‘‘utility 

operations-related swap’’ did not include: 

A swap based or derived on, or referencing, 

commodities in the interest rates, credit, equity, or 

currency asset classes, or a product type or category 

in the ‘other commodity’ asset class that is based 

or derived on, or referencing, metals, or agricultural 

commodities or crude oil or gasoline commodities 

of any grade not used as fuel for electric generation. 

9 [2012–2013 Transfer Binder] Comm. L. Fut. Rep. 

(CCH) ¶ 32,409 (October 12, 2012). (Staff Letter 12– 

18). The letter can be accessed on the Commission’s 

Web site at http://www.cftc.gov/ucm/groups/public/ 

@lrlettergeneral/documents/letter/12-18.pdf. 

10This letter was received on October 8, 2012. 

11The Division is responsible for, among other 

things, overseeing compliance with the registration 

requirements applicable to swap dealers. 

12 Division staff emphasized that the aggregate 

gross notional amount of a person’s utility 

commodity swaps would reduce the $8 billion 

aggregate gross notional amount General De 

Minimis Threshold for that person. 

13Based on conversations with industry 

participants, Division staff decided to use a 

definition for ‘‘utility commodity swap’’ that 

encompassed the transactions that utility special 

entities believed were necessary to their business, 

while avoiding an over-expansive application of the 

relief. 

14Either or both parties to the swap could be a 

utility special entity. For purposes of Staff Letter 

12–18, Division staff employed the definition of 

‘‘utility special entity’’ set forth in the Petition. 

15That is, the utility special entity is using the 

swap to hedge a physical position, as described in 

Regulation 1.3(ggg)(6)(iii). 

16As defined in CEA Section 1a(20), an ‘‘exempt 

commodity’’ is one that is neither an agricultural 

commodity, nor an ‘‘excluded commodity’’ as 

defined in CEA Section 1a(19) (which encompasses 

interest rates, exchange rates, and other 

instruments, indices and measures of a generally 

financial nature). At the time Staff Letter 12–18 was 

issued, Division staff believed it was necessary to 

limit the relief the Division was providing to 

situations involving an exempt commodity in 

which both parties transact as part of the normal 

course of their physical energy businesses. 

17Those commenters stated that the Commission 

should: Set the threshold for the [general] de 

minimis exception at 1/1,000th of a percent of the 

aggregate gross notional size of the U.S. swap 

market over the preceding 12 months, or 1/10,000th 

of a percent of the aggregate gross notional size of 

the U.S. swap market over the preceding 12 months 

for swaps in which the counterparty is a ‘special 

entity.’ This level of swap dealing activity more 

accurately corresponds to an amount that arguably 

could pose a potential risk to the stability of the 

financial system. Joint comment letter from the 

Edison Electric Institute and Electric Power Supply 

Association dated Feb. 22, 2011, at pages 10–11. 

The letter can be accessed at the Commission’s Web 

site. See http://comments.cftc.gov/

PublicComments/ViewComment.aspx?id=27918. 

18See joint comment letter from the National 

Rural Electric Cooperative Association, the 

American Public Power Association and the Large 

Public Power Council dated Feb. 22, 2011, at 18. 

The letter can be accessed at the Commission’s Web 

site. See http://comments.cftc.gov/

PublicComments/ViewComment.aspx?id=27917. 

Four other comment letters on the Commission’s 

proposed further definition of the term ‘‘swap 

dealer’’ from energy market participants also 

recommended that the overall de minimis threshold 

be set at 1/1,000th of a percent of the aggregate 

gross notional size of the U.S. swap market and that 

the de minimis threshold for swaps with special 

entities be set at 1/10,000th of a percent of the 

aggregate gross notional size. See the Swap Dealer 

Definition Adopting Release, 77 FR at 30627, n.390. 

The amendment requested by the 

Petition would have the effect of 

allowing a person, in any rolling twelvemonth period, to deal in utility-related 

swaps with utility special entities up to 

an aggregate gross notional amount not 

to exceed (together with other swaps in 

which the person was engaged) the 

General De Minimis Threshold 

(currently $8 billion) without being 

required to register as a swap dealer. In 

support of this amendment, the Petition 

claimed that: 

The rule amendment is necessary in order 

to preserve uninterrupted and cost-effective 

access to the customized, nonfinancial 

commodity swaps that Petitioners and other 

Utility Special Entities [as defined in the 

Petition] use to hedge or mitigate commercial 

risks arising from their utility facilities, 

operations and public service obligations. 

The Petition explained that this 

amendment was necessary in order to 

increase the number of counterparties 

available to utility special entities to 

enter into swaps that are necessary for 

the efficient conduct of the businesses 

and operations of utility special entities. 

C. CFTC Staff Letter No. 12–18 9

As the October 12, 2012, effective date 

for Regulation 1.3(ggg) and the other 

regulations announced in the Swap 

Dealer Definition Adopting Release 

approached, Petitioners submitted to the 

Commission and several of its divisions 

a letter requesting no-action relief from 

the de minimis threshold for swaps with 

certain special entities.10 In Staff Letter 

12–18, the staff of the Commission’s 

Division of Swap Dealer and 

Intermediary Oversight (Division),11

concluded that, in light of the 

representations made in support of the 

request and in view of the impending 

effective date for the swap dealer 

registration requirement, it was 

appropriate to provide temporary, 

limited no-action relief with respect to 

the Special Entity De Minimis 

Threshold for persons dealing in utility 

related swaps with utility special 

entities. Staff Letter 12–18 stated that 

the Division would not recommend that 

the Commission commence an 

enforcement action against a person for 

failure to apply to be registered as a 

swap dealer, if: 

(1) the Utility Commodity Swaps 

connected with the person’s swap dealing 

activities into which the person—or any 

other entity controlling, controlled by or 

under common control with the person— 

enters over the course of the immediately 

preceding 12 months (or following October 

12, 2012, if that period is less than 12 

months) have an aggregate gross notional 

amount of no more than $800 million; 

(2) the person is not otherwise within the 

definition of the term ‘‘swap dealer,’’ as 

provided in 17 CFR 1.3(ggg) (i.e., the 

person—or any other entity controlling, 

controlled by or under common control with 

the person—has not entered into swaps as a 

result of its swap dealing activities in excess 

of the General De Minimis Threshold or (not 

counting Utility Commodity Swaps) the 

Special Entity De Minimis Threshold); 12 and 

(3) the person is not a ‘‘financial entity,’’ 

as defined in section 2(h)(7)(C)(i) of the CEA. 

For purposes of Staff Letter 12–18, 

Division staff defined the term ‘‘utility 

commodity swap’’ 13 to mean a swap 

where: (1) A party to the swap is a 

utility special entity; 14 (2) a utility 

special entity is using the swap in the 

manner described in Regulation 

1.3(ggg)(6)(iii); 15 and (3) the swap is 

related to an exempt commodity in 

which both parties to the swap transact 

as part of the normal course of their 

physical energy businesses.16

The Division selected the $800 

million aggregate gross notional amount 

threshold, which is ten percent of the 

current General De Minimis Threshold 

of $8 billion, based on suggestions made 

by certain of the Petitioners and other 

commenters responding to the 

Commission’s proposed further 

definition of the term ‘‘swap dealer.’’ In 

a joint comment letter on that proposed 

definition, two persons recommended a 

de minimis threshold for swaps with 

special entities that would be one-tenth 

of the General De Minimis Threshold for 

exclusion from the ‘‘swap dealer’’ 

definition.17 Another joint comment 

letter on the proposed further definition 

of the term ‘‘swap dealer’’ (whose 

signatories included two of the 

Petitioners) concurred with this 

recommendation.18

The relief made available by Staff 

Letter 12–18 was not self-executing. 


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19The notice was required to be provided by 

December 31, 2012, and on a quarterly basis 

thereafter. 

20Letter from Petitioners to Gary Gensler, CFTC 

Chairman, dated Nov. 19, 2013 (Petitioners’ Letter), 

available at http://sirt.cftc.gov/sirt/

sirt.aspx?Topic=PendingFilingsandActionsAD&

Key=23845. (One of the original Petitioners did not, 

however, participate in this follow up letter.) More 

recently, one of the Petitioners asserted to the 

Commission that based on an informal survey it 

conducted, public power utilities subject to the 

Special Entity De Minimis Threshold have on 

average lost a large percentage of their potential 

counterparties, and that granting the request made 

in the Petition would provide a substantial increase 

in potential counterparties to the affected utilities. 

See Letter from the American Public Power 

Association to Mark Wetjen, Acting CFTC 

Chairman, dated March 6, 2014. 

21On March 11, 2013, a bill (H.R. 1038) was 

introduced in the U.S. House of Representatives 

that would amend the CEA to require the 

Commission to treat a ‘‘utility operations-related 

swap’’ entered into with a ‘‘utility special entity’’ 

as though the swap were entered into with an entity 

that was not a special entity. The bill would add 

definitions for ‘‘utility special entity’’ and ‘‘utility 

operations-related swap.’’ H.R. 1038 was passed in 

the House on June 12, 2013. On December 11, 2013, 

a companion bill with the same text as H.R. 1038 

was introduced in the Senate (S. 1802), and that bill 

was referred to the Committee on Agriculture, 

Nutrition and Forestry on the same date. 

22The letter can be accessed on the Commission’s 

Web site at http://www.cftc.gov/ucm/groups/public/ 

@lrlettergeneral/documents/letter/14-34.pdf. 

23For purposes of Staff Letter 14–34, Division 

staff continued to employ the definition of ‘‘utility 

special entity’’ set forth in the Petition. 

Rather, to claim the relief, a person was 

required to file with the Division a 

notice 19 that, among other things, 

identified each utility special entity 

with which the person has entered into 

utility commodity swaps connected 

with the person’s swap dealing 

activities, and that stated with respect to 

each such utility special entity the total 

gross notional amount of such utility 

commodity swaps. 

Division staff based its decision to 

provide relief on several reasons. For 

one, the Petitioners had represented that 

that commodity and swap markets are 

likely to be local and particularized for 

utility special entities (as opposed to 

other special entities that do not provide 

public utility services). Pricing and 

other terms of electricity and natural gas 

swaps may vary significantly from 

region to region so that only market 

participants active in the physical 

energy markets in a particular region are 

able to enter into swaps with the utility 

special entities. Thus, staff also 

understood that the counterparties to 

the utility special entities for hedging 

swaps were generally other nonfinancial entities that are active in the 

physical markets for these products. As 

a result, the number of counterparties 

available to the utility special entities is 

likely to be limited. 

Second, staff understood that utility 

special entities have a unique obligation 

to provide continuous service to the 

public; moreover, this continuous 

service is crucial to public safety. This 

also may limit the availability of 

counterparties to utility special entities 

if, for example, a utility special entity 

must arrange hedges covering a 

continuous period of time without 

interruption. While other special 

entities, such as municipal 

governments, also serve the public 

interest, they do not have the same 

obligations to provide a continuous 

supply of a commodity (e.g., electricity 

or natural gas). Thus, the need for utility 

special entities to use physical 

commodity swaps is different from their 

need to use other types of swaps, and it 

is different from the need for other 

special entities to use swaps. 

Finally, a significant reduction in the 

number of swap counterparties available 

to utility special entities could be 

especially harmful to the public interest 

in view of the importance of the energy 

services provided by the utility special 

entities. 

D. CFTC Staff Letter No. 14–34 

Subsequent to the issuance of Staff 

Letter 12–18, certain Petitioners 

acknowledged to the Commission the 

relief the letter had made available, but 

also raised concerns regarding the 

effects of the conditions imposed upon 

persons seeking to avail themselves of 

that relief, and regarding continuing 

regulatory uncertainty surrounding 

some transactions with utility special 

entities.20 They characterized specific 

features of Staff Letter 12–18 (e.g., the 

requirement to establish that the utility 

special entity is using the swap to hedge 

a physical position in an exempt 

commodity, and the requirement to 

establish that the counterparty seeking 

relief is not a ‘‘financial entity’’) as 

imposing administrative costs or 

creating legal uncertainty such that 

would-be counterparties were dissuaded 

from entering into relevant swaps. The 

Petitioners’ Letter thus renewed the 

relief requested in the previously-filed 

Petition, claiming that counterparties 

that had become reluctant to deal with 

utility special entities were not taking 

Staff Letter 12–18 as a reason to resume 

entering into swaps with those 

entities.21

In response to these concerns, on 

March 21, 2014, the Division issued 

CFTC Staff Letter No. 14–34 (Staff Letter 

14–34),22 which superseded and 

broadened the relief provided in Staff 

Letter 12–18. Specifically, Staff Letter 

14–34 stated that the Division would 

not recommend that the Commission 

commence an enforcement action 

against a person for failure to register as 

a swap dealer if the person—or any 

other entity controlling, controlled by or 

under common control with the 

person—does not include ‘‘utility 

operations-related swaps’’ in calculating 

whether it has exceeded the Special 

Entity De Minimis Threshold, provided 

that the person’s swap dealing activities 

have not exceeded the General De 

Minimis Threshold, including utility 

operations-related swaps. 

For purposes of Staff Letter 14–34, a 

swap is a ‘‘utility operations-related 

swap’’ if: 

(1) A party to the swap is a utility special 

entity; 23

(2) The utility special entity has 

represented to the other party that it is using 

the swap in the manner described in 17 CFR 

50.50(c); and 

(3) The swap is either (i) an electric energy 

or natural gas swap; or (ii) The utility special 

entity has represented to the other party that 

the swap is associated with: (a) The 

generation, production, purchase or sale of 

natural gas or electric energy, the supply of 

natural gas or electric energy to a utility, or 

the delivery of natural gas or electric energy 

service to utility customers; (b) Fuel supply 

for the facilities or operations of a utility; (c) 

Compliance with an electric system 

reliability obligation; or (d) Compliance with 

an energy, energy efficiency, conservation, or 

renewable energy or environmental statute, 

regulation, or government order applicable to 

a utility. 

The Division explained in Staff Letter 

14–34 that it was revising the relief 

provided in Staff Letter 12–18 based on 

its understanding from discussions with 

market participants that (1) doing so 

would allow utility special entities to 

significantly increase the number of 

swap counterparties available to utility 

special entities and thereby lessen 

potential harm to the public interest in 

view of the importance of the energy 

services provided by utility special 

entities; and (2) acting to increase the 

volume of utility operations-related 

swaps between utility special entities 

and persons not registered as a swap 

dealer would likely not raise the types 

of risks that swap dealer registration is 

intended to prevent. 

The Commission does not intend the 

Proposal to have any effect on the 

eligibility requirements for the relief 

currently available under Staff Letter 

14–34. In the event the Commission 

adopts the regulations being proposed 

herein, the Commission will discuss in 

the adopting Federal Register release 

the effect of those regulations on the 

relief provided under Staff Letter 14–34. 


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24The Commission is not considering, as part of 

this proposed rulemaking, altering the Special 

Entity De Minimis Threshold with respect to other 

types of swaps or special entities. 

25A person likewise would include the aggregate 

gross notional amount of swaps entered into with 

other types of special entities to the same extent 

required for swaps generally in determining 

whether the person’s swap dealing activity has 

exceeded the General De Minimis Threshold. 

26See proposed Regulation 1.3(ggg)(4)(i)(B)(4). 

27NFA is a futures association registered as such 

with the Commission pursuant to CEA Section 17. 

Although persons relying on the exclusion in 

Regulation 1.3(ggg)(4)(i)(A) would be outside the 

swap dealer definition and therefore not subject to 

the requirement in Regulation 170.16 that a swap 

dealer must become an NFA member, a requirement 

to file a notice with NFA would be consistent with 

past action the Commission has taken with regard 

to requiring other persons seeking to rely on an 

exception or exclusion from a term defined in the 

Act—i.e., by requiring such persons to file a notice 

with NFA. See, e.g., 62 FR 52088 (Oct. 6, 1997), 

authorizing NFA to process notices of eligibility for 

exclusion from the definition of the term 

‘‘commodity pool operator’’ under Regulation 4.5, 

and 72 FR 1658 (Jan. 16, 2007), establishing that a 

person seeking an exclusion under Regulation 4.5 

must file its claim with NFA electronically. In the 

event the Commission adopts the proposing filing 

requirement, it will concurrently delegate to NFA 

the authority to accept the filing. 

II. The Proposal 

The Commission recognizes that 

utility special entities have a specialized 

purpose—they provide electricity and 

natural gas production and/or 

distribution to their customers. Utility 

special entities have a unique obligation 

in that the services they provide must be 

continuous and are important to public 

safety. Furthermore, the Commission is 

of the view that utility operationsrelated swaps have become an integral 

part of providing continuous service 

and managing costs in connection 

therewith. 

The specialized nature of utility 

special entities distinguishes them from 

other types of special entities (e.g., 

public pension plans or municipal 

governments) in that the conduct of 

their business routinely involves, and 

indeed often depends upon access to, 

specific types of swap transactions that 

permit them to manage the risks of their 

businesses and to be able to provide 

electricity and natural gas consistently. 

As a consequence, they not only need 

regular access to swaps that directly 

affect the smooth operation of their 

business activities, but also are more 

likely to have developed expertise with 

swaps directly related to their 

operations. While the Special Entity De 

Minimis Threshold may represent a 

reasonable protection for other types of 

special entities that enter into swaps 

intermittently and whose activities do 

not depend on a consistent use of 

particular swaps, for the reasons stated 

above, the Commission believes that its 

application to utility operations-related 

swaps with utility special entities is not 

as necessary for their regular 

operation.24

The Commission believes that it is 

important to address the concerns raised 

in the Petition regarding the ability of 

utility special entities to hedge the 

commercial risks of their electric and 

natural gas production and delivery 

businesses including the availability of 

counterparties with whom utility 

special entities can enter into 

customized swaps. The Commission 

believes that, because the swaps used by 

utility special entities are typically 

conducted in localized and specialized 

markets and the number of available 

counterparties may be limited, the $25 

million amount of the existing Special 

Entity De Minimis Threshold may deter 

those counterparties from engaging in 

utility operations-related swaps. Given 

the obligations of utility special entities 

to provide continuous service to 

customers, the Commission 

preliminarily believes that the public 

interest would be better served if the 

likely counterparties for utility 

operations-related swaps are able to 

provide liquidity to this limited segment 

of the market without registering as 

swap dealers solely on account of 

exceeding the Special Entity De Minimis 

Threshold. In addition, given the 

expertise utility special entities are 

likely to have with utility operationsrelated swaps, the need for a lower de 

minimis threshold for dealing activity in 

such swaps with utility special entities 

is reduced. 

Accordingly, the Proposal would 

permit a person to exclude specified 

swaps (i.e., utility operations-related 

swaps) entered into with a defined 

subset of special entities (i.e., utility 

special entities) when calculating 

whether the person has exceeded the 

Special Entity De Minimis Threshold. In 

light of the foregoing and the 

Commission’s further deliberations in 

this area, the Commission is now 

proposing to amend its regulations in 

order to permit persons engaging in 

utility operations-related swaps with 

utility special entities (as these terms 

are defined in the Proposal) to exclude 

such swaps solely for purposes of 

calculating whether such persons’ swap 

dealing activities have exceeded the 

Special Entity De Minimis Threshold. 

A. Adding an Exclusion for Utility 

Operations-Related Swaps With Utility 

Special Entities 

Regulation 1.3(ggg) defines the term 

‘‘swap dealer.’’ Currently, Regulation 

1.3(ggg)(4)(i) provides for a de minimis 

exception from the swap dealer 

definition, under either the General De 

Minimis Threshold or the Special Entity 

De Minimis Threshold. The Proposal 

would amend Regulation 1.3(ggg)(4)(i) 

to permit persons engaging in utility 

operations-related swaps with utility 

special entities to exclude such swaps 

solely for purposes of determining 

whether they have exceeded the Special 

Entities De Minimis Threshold. This 

would be done by redesignating current 

Regulation 1.3(ggg)(4)(i) as Regulation 

1.3(ggg)(4)(i)(A), placing the text ‘‘In 

General’’ before the redesignated 

regulation and adding a new Regulation 

1.3(ggg)(4)(i)(B), captioned ‘‘Utility 

Special Entities.’’ 

Regulation 1.3(ggg)(4)(i)(B)(1) would 

provide that solely for purposes of 

determining whether a person’s swap 

dealing activity has exceeded the $25 

million aggregate gross notional amount 

threshold set forth in Regulation 

(ggg)(4)(i)(A) for swaps in which the 

counterparty is a special entity, a person 

may exclude utility operations-related 

swaps in which the counterparty is a 

utility special entity. Proposed 

Regulation 1.3(ggg)(4)(i)(B)(1) would 

not, however, permit a person to 

exclude the gross notional amount of 

such utility operations-related swaps in 

determining whether the person has 

exceeded the General De Minimis 

Threshold. In other words, a person 

would add the aggregate gross notional 

amount of the utility operations-related 

swaps it enters into with utility special 

entities to the gross notional amount of 

any other swaps entered into by it 

during the preceding twelve months in 

determining whether the person has 

exceeded the General De Minimis 

Threshold.25

As is the case for other swaps, in 

calculating the gross notional amount of 

utility operations-related swap positions 

entered into with utility special entities, 

a person must also include swap 

positions entered into by any entity 

controlling, controlled by or under 

common control with the person, and if 

a stated notional amount of a swap is 

leveraged or enhanced by the structure 

of the swap, the threshold calculation 

would be required to be based ‘‘on the 

effective notional amount of the swap 

rather than on the stated notional 

amount.’’ 

Under the Proposal, a person would 

be required to file a one-time notice to 

rely on the exclusion provided by the 

new rule.26 Specifically, the notice 

would be required to be filed 

electronically with the National Futures 

Association (NFA),27 to provide such 

information as the person’s name, 

address, and a contact, and to contain a 


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28See CEA Sections 4s(h)(4) and 4s(h)(5). 

29This requirement is consistent with other 

similar Commission regulations, such as the 

requirement in Regulation 4.7 that commodity pool 

operators and commodity trading advisors claiming 

relief under that regulation maintain books and 

records relating to their eligibility to claim that 

relief. 

30As noted above, the term ‘‘special entity’’ is 

defined in CEA Section 4s(h)(2)(c) and Regulation 

23.401(c). 

31This position is consistent with the 

Commission’s approach to permitting reliance on 

representations for other purposes, such as the 

requirement in Regulation 50.50(b)(3) that a 

reporting party have a reasonable basis to believe 

that its counterparty meets the requirements for the 

exception to the clearing requirement for end-users. 

See 77 FR 42560, 42570 (July 19, 2012). 

representation that the person meets the 

criteria of the exclusion for utility 

operations-related swaps with utility 

special entities in Regulation 

1.3(ggg)(4)(i)(B). Congress has 

determined that special entities merit 

additional protections when engaging in 

swap transactions, and has adopted, for 

example, heightened business conduct 

requirements on swap dealers advising 

and dealing with special entities.28

Because the Proposal, if adopted, would 

permit persons to engage in a greater 

aggregate gross notional amount of 

swaps with utility special entities, who 

Congress has determined warrant 

additional protections under the CEA, 

without registering as swap dealers (and 

becoming subject to corresponding 

business conduct standards), it is 

important that the Commission be able 

to know who the persons are that rely 

on the exclusion under the Proposal. 

The proposed notice filing will help the 

Commission to monitor compliance 

with the swap dealer registration 

requirement, and better ensure that the 

exclusion under the Proposal serves the 

intended purpose of enabling utility 

special entities to manage operational 

risks in a cost-effective way. 

Additionally, a person relying on the 

exclusion under the Proposal would be 

required to maintain in accordance with 

Regulation 1.31 books and records that 

substantiate its eligibility to rely on this 

exclusion.29

B. New Definitions 

1. ‘‘Utility Special Entity’’ 

Proposed Regulation 

1.3(ggg)(4)(i)(B)(2) would define the 

term ‘‘utility special entity’’ to mean a 

special entity 30 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 Federal 

Power Act, 16 U.S.C. 796(19). This 

definition is essentially identical to the 

definition of ‘‘utility special entity’’ in 

the Petition. 

2. ‘‘Utility Operations-Related Swap’’ 

Proposed Regulation 

1.3(ggg)(4)(i)(B)(3) would define the 

term ‘‘utility operations-related swap,’’ 

to mean 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 in a manner more 

fully set forth in Regulation 

1.3(ggg)(4)(i)(B)(3)(iv). 

In this regard, the Commission notes 

that, in determining whether a person 

may rely on the proposed exclusion for 

utility operations-related swaps with 

utility special entities, it may not always 

be possible for the person to establish 

with absolute certainty that a 

counterparty is a utility special entity, 

that the counterparty is using a swap to 

hedge or mitigate commercial risk, that 

the swap is related to an exempt 

commodity, or that the swap meets the 

other requirements to come within the 

definition of a utility operations-related 

swap. Therefore, the Commission 

intends to take the position that a 

person seeking to rely on the (proposed) 

exclusion may reasonably rely upon a 

representation by the utility special 

entity that it is a utility special entity 

and that the swap is a utility operationsrelated swap, as such terms are defined 

in proposed Regulation 1.3(ggg)(4)(i)(B), 

so long as the person was not aware, 

and should not reasonably have been 

aware, of facts indicating the contrary.31

III. Request for Comments 

The Commission seeks comments 

regarding the nature and application of 

an exclusion for utility operationsrelated swaps with utility special 

entities for purposes of calculating 

whether a person’s swap dealing 

activities have exceeded the Special 

Entity De Minimis Threshold, as 

provided for in the Proposal. Set forth 

below, then, is a non-exclusive list of 

questions to which the Commission 

seeks responses. 

1. Will the Proposal enable utility 

special entities to adequately hedge 

their operational risks in a cost-effective 

manner by entering into utility 

operations-related swaps? If not, explain 

why, and indicate ways in which the 

Proposal could be modified in order to 

accomplish this goal. 

2. Are there factual errors or 

omissions in the Commission’s 

understanding and analysis of the issues 

faced by utility special entities and the 

efforts to date to resolve those issues? 

3. Is it appropriate to treat utility 

operations-related swaps with utility 

special entities differently than other 

swaps with special entities for purposes 

of determining whether a person is a 

swap dealer? 

4. Does the definition of utility 

operations-related swap in proposed 

Regulation 1.3(ggg)(i)(4)(B)(3) 

adequately encompass the range of swap 

transactions with respect to which it is 

appropriate to, in effect, set a higher de 

minimis threshold in the context of 

persons dealing with utility special 

entities? If not, in what way(s) should 

the definition be expanded or narrowed 

and why? More specifically, should the 

scope of the swaps identified in 

Regulation 1.3(ggg)(i)(4)(B)(3)(iv) be 

expanded or narrowed? Are there swaps 

that would meet the requirements of 

Regulation 1.3(ggg)(i)(4)(B)(3)(i), (ii) and 

(iii), but not of Regulation 

1.3(ggg)(i)(4)(B)(3)(iv) that should be 

included? Is Regulation 

1.3(ggg)(i)(4)(B)(3)(iv) too restrictive or 

not restrictive enough? 

5. One of the conditions to coming 

within the definition of the term ‘‘utility 

operations-related swap’’ is that the 

party to the swap that is a utility special 

entity is using the swap in the manner 

prescribed in Regulation 50.50(c)—i.e., 

to hedge or mitigate commercial risk. 

What issues might there be in 

determining whether a swap constitutes 

hedging activity for purposes of 

complying with this proposed rule? Is 

reference to Regulation 50.50(c) for 

defining hedging activities appropriate? 

Are there alternative definitions that 

should be considered (e.g., Regulation 

1.3(ggg)(6)(iii))? Should the definitions 

for hedging activities in Regulation 

50.50(c) and Regulation 1.3(ggg)(6)(iii) 

be harmonized? If so, how (e.g., by 

following Regulation 50.50(c) or 

Regulation 1.3(ggg)(6)(iii) or some 

iteration of both) and why? Please 

provide any estimates of costs of 

compliance with any proposed 

alternative as compared to the cost of 

compliance with Regulation 50.50(c). 

6. Another condition to coming 

within the proposed definition of the 

term ‘‘utility operations-related swap’’ is 

that the swap be related to an exempt 

commodity (as defined in CEA Section 

1a(20)). Is this condition appropriate? If 


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32See 77 FR 48238 (Aug. 13, 2012). 

33 5 U.S.C. 601 et seq. 

34 5 U.S.C. 553. The Administrative Procedure 

Act is found at 5 U.S.C. 500 et seq. 

35See 5 U.S.C. 601(2), 603–05. 

36See, e.g., Part 23 of the Commission’s 

regulations, which establishes, among other things, 

Continued 

not, why not and/or how and why 

should it be modified? 

7. Should the definition of utility 

operations-related swap be limited to 

swaps in which both parties to the swap 

transact as part of the normal course of 

their physical energy businesses? 

8. The Proposal would allow persons 

to, in effect, treat utility operationsrelated swaps in which the counterparty 

is a utility special entity like swaps with 

a counterparty that is not a special 

entity in determining whether the 

person has exceeded a de minimis 

threshold under Regulation 

1.3(ggg)(4)(i)(A). Thus, utility 

operations-related swaps with utility 

special entities would be subject to the 

General De Minimis Threshold under 

Regulation 1.3(ggg)(4)(i), which is 

currently set at the $8 billion phase in 

level. Is that an appropriate threshold, 

or should the de minimis threshold for 

such swaps be higher or lower? What 

considerations support using a different 

amount? Should the de minimis 

threshold for utility operations-related 

swaps be set at $3 billion, the level of 

the General De Minimis Threshold 

without application of the $8 billion 

phase-in level, in light of the special 

protections afforded to special entities 

under the CEA? Should the threshold be 

set at an amount equal to a percentage 

of the gross notional amount of the 

General De Minimis Threshold, such 

that an increase or decrease in the gross 

notional amount of the General De 

Minimis Threshold would result in a 

proportionate change in the de minimis 

threshold for utility operations-related 

swaps? 

9. Should the nature of the person 

entering into swaps with a utility 

special entity determine whether the 

person can rely on the exclusion for 

utility operations-related swaps under 

the Proposal (e.g., by limiting the 

exclusion to persons who are not 

‘‘financial entities,’’ as Staff Letter 12– 

18 limited relief to such persons)? If so, 

what characteristics or factors should be 

considered? 

10. Should the Commission specify 

the books and records a person must 

maintain to substantiate that the person 

may rely on the (proposed) exclusion for 

utility operations-related swaps? 

11. Would the Proposal impact the 

Commission’s ability to carry out its 

market oversight responsibilities with 

regard to the overall derivatives market? 

If so, how? 

12. To what extent, if any, would the 

Proposal reduce transparency with 

regard to utility operations-related 

swaps, counterparties to such 

transactions or the broader derivatives 

market? 

13. Does the Proposal serve the public 

interest? In what ways? How could the 

Proposal be improved to better serve the 

public interest? 

14. How should the Commission 

balance the public interest in having the 

additional protections that a de minimis 

threshold for transactions with utility 

special entities that is lower than the 

General De Minimis Threshold would 

afford, versus the public interest in 

maintaining the ability for utility special 

entities to enter hedging transactions? 

15. As noted above, it is important 

that the Commission be able to know 

who the persons are that rely on the 

exclusion under the Proposal to monitor 

compliance with the swap dealer 

registration requirement, and better 

ensure that the exclusion under the 

Proposal serves the intended purpose of 

enabling utility special entities to 

manage operational risks in a costeffective way. Will the notice 

requirement in proposed Regulation 

1.3(ggg)(4)(i)(B)(4) enable the 

Commission to achieve these objectives? 

If not, why? Is there an alternative 

method for the Commission to obtain 

the relevant information and achieve the 

stated objectives without requiring a 

notice filing? 

16. Are there any special entities (or 

types of special entities) who come 

within the proposed definition of 

‘‘utility special entity’’ (as set forth in 

proposed Regulation 

1.3(ggg)(4)(i)(B)(2)), but are not likely to 

have expertise in utility operationsrelated swaps? If yes, describe those 

entities. Should persons dealing in 

swaps with those entities be treated 

differently than persons dealing with 

other utility special entities under the 

Proposal? 

17. Should the description of swap 

dealing activity in the swap dealer 

definition be more specifically 

described for the purposes of defining 

swap dealing with utility special 

entities? What specific dealing or nondealing activities should be taken into 

account given the nature of utility 

special entities? Have any compliance 

issues arisen with respect to the 

description of swap dealing activity in 

the swap dealer definition? If so, how 

should the Commission clarify the 

description? 

18. Will utility special entities benefit 

if the Commission revised its 

interpretation regarding forward 

contracts with embedded volumetric 

optionality as described in the swap 

definition adopting release? 32 If so, 

how? Is the seven element interpretation 

appropriate for determining whether a 

forward contract with volumetric 

optionality qualifies for the forward 

contract exclusion from the definition of 

a swap? If not, should the Commission 

revise the interpretation or adopt an 

alternative standard? If so, what should 

the revised interpretation or standard 

be? 

19. Regulation 1.3(ggg)(6)(iv) provides 

that swaps entered into by a floor trader 

who meets certain conditions do not 

need to be counted in determining 

whether the floor trader is a swap 

dealer. Should the Commission afford 

similar treatment to swaps entered into 

with utility special entities by their 

counterparties? For purposes of the de 

minimis calculation under the swap 

dealer definition, why should the 

Commission hold floor traders and 

entities dealing with utility special 

entities to different standards? 

The Commission welcomes comments 

on any other issues concerning the 

subject matter of this Federal Register 

release and the de minimis exception 

from the swap dealer definition for 

persons engaging in swap transactions 

with special entities, in general. 

IV. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act 33

requires that Federal agencies consider 

whether the rules they propose will 

have a significant economic impact on 

a substantial number of small entities 

and, if so, they must provide a 

regulatory flexibility analysis respecting 

the impact. Whenever an agency 

publishes a general notice of proposed 

rulemaking for any rule, pursuant to the 

notice-and-comment provisions of the 

Administrative Procedure Act 34 a 

regulatory flexibility analysis or 

certification typically is required.35 The 

Proposal, if adopted, will not have a 

significant economic impact on affected 

persons because the Proposal will 

primarily relieve them from regulatory 

obligations that would otherwise apply 

to them. That is, the (proposed) 

exclusion for utility operations-related 

swaps will permit counterparties to 

engage with utility special entities in 

utility operations-related swaps to a 

degree that would, absent the proposed 

exclusion, require them to register with 

the Commission as a swap dealer, and 

to comply with regulations applicable to 

swap dealers.36 While the Proposal does 


emcdonald on DSK67QTVN1PROD with PROPOSALS
31244 Federal Register / Vol. 79, No. 105 / Monday, June 2, 2014 / Proposed Rules 

reporting, recordkeeping and business conduct 

requirements for swap dealers. 

37See 77 FR 2613, 2620 (Jan. 19, 2012), wherein 

the Commission stated that in the experience of the 

Commission, complying with the registration 

process regulations—a far more burdensome 

process than the notice filing that would be 

required under the Proposal—has not had a 

significant economic effect on a substantial number 

of small entities. 

38 44 U.S.C. 3501 et seq. 

require a notice filing in order to rely on 

the (proposed) exclusion for utility 

operations-related swaps, to the extent 

that any small entities opt to rely on the 

exclusion, the notice requirement will 

not have a significant economic impact 

on those entities.37 Moreover, the 

number of potential counterparties 

seeking to rely on the (proposed) 

exclusion may be limited, given the 

local nature of the relevant markets. 

Accordingly, the Chairman, on behalf 

of the Commission, hereby certifies 

pursuant to 5 U.S.C. 605(b) that the 

Proposal will not have a significant 

economic impact on a substantial 

number of small entities. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act 

(PRA) 38 provides that an agency may 

not conduct or sponsor, and a person is 

not required to respond to, a collection 

of information unless it displays a valid 

control number from the Office of 

Management and Budget (OMB). This 

rulemaking contains notification and 

recordkeeping requirements that are 

collections of information within the 

meaning of the PRA. Accordingly, the 

Commission will submit the required 

information collection requests to OMB. 

1. Collections of Information 

This rulemaking contains two 

elements that would qualify as 

collections of information. First, 

proposed Regulation 1.3(ggg)(4)(i)(B) 

would create an exclusion from the 

Special Entity De Minimis Threshold 

with regard to specified swaps (utility 

operations-related swaps) entered into 

with a defined subset of special entities 

(utility special entities). As proposed, a 

person seeking to rely on the exclusion 

would be required to file a one-time 

notice. Specifically, and as explained 

above, the notice would be required to 

be filed electronically with NFA, to 

provide such information as the 

person’s name, address, and a contact, 

and to contain a representation that the 

person meets the criteria of the 

exclusion for utility operations-related 

swaps in Regulation 1.3(ggg)(4)(i)(B). 

Based upon the information currently 

available to the Commission, an 

accurate estimate of the persons who 

may rely on the exclusion under the 

Proposal, if adopted, cannot be made. 

Nevertheless, the Commission is 

preliminarily using a conservative 

estimate of 100 potential counterparties 

of utility special entities. The 

Commission invites comments 

regarding whether this is a reasonable 

estimate to use for PRA paperwork 

burden calculations. 

Commission staff estimates that 

ascertaining whether a person is eligible 

to rely on the exclusion for utility 

operations-related swaps under the 

Proposal will take no more than one 

hour. Because the information required 

for the notice is readily known to the 

person, staff estimates that preparing 

and filing the notice will take no more 

than one-half hour. The notice will be 

filed only once, but a person who has 

filed a notice will periodically check to 

ensure that it remains eligible. Staff 

estimates that because such verification 

will be based on information within the 

person’s control, it will not require more 

than an hour annually. 

Consequently, the Commission 

preliminarily estimates the burden 

associated with the required notice 

filing would be as follows: 

Number of Respondents: 100. 

Frequency of Response: Annually 

(initial filing and ongoing compliance). 

Average Burden Hours per Response: 

1.2. 

Estimated gross annual reporting 

burden: $79,680. 

On this basis, the Commission will 

request a new collection of information 

control number from OMB. 

Proposed Regulation 1.3(ggg)(4)(i)(B) 

would also require a person seeking to 

rely on the proposed exclusion for 

utility operations-related swaps to 

maintain books and records in 

accordance with Regulation 1.31 that 

substantiate its eligibility. The 

Commission notes that it has previously 

requested and obtained OMB Control 

Number 3038–0090 pertaining to 

Regulation 1.31. The Commission 

preliminarily believes that each person 

claiming the proposed exclusion will 

need to establish a procedure to 

maintain the necessary books and 

records substantiating ongoing 

eligibility with for reliance on the 

proposed exclusion. In addition, each 

such person will incur some burden to 

create and maintain relevant records. As 

noted above, the Commission 

preliminarily estimates 100 persons may 

seek to rely on the exclusion for utility 

operations-related swaps under the 

Proposal, if adopted. Although the 

books and records required to 

substantiate initial and ongoing 

eligibility to rely on the exclusion will 

be books and records that the person has 

already prepared in the course of 

engaging in utility operations-related 

swaps, Commission staff estimates that 

the person will incur an hour of burden 

initially and an hour annually thereafter 

as a result of consulting and reviewing 

those books and records. Consequently, 

the Commission preliminarily estimates 

the recordkeeping burden associated 

with the proposed Regulation 

1.3(ggg)(4)(i)(B) would be as follows: 

Number of Respondents: 100. 

Frequency of Response: Annually. 

Average Burden Hours per Response: 

1. 

Estimated gross annual reporting 

burden: $16,100. 

On this basis, the Commission will 

submit a request to amend OMB Control 

Number 3038–0090. The Commission 

preliminarily believes that the persons 

who are likely to rely on the exclusion 

for utility operations-related swaps may 

already have procedures in place to 

comply with this requirement so that 

actual burdens may be less—and 

possibly much less—for those persons. 

2. Information Collection Comments 

The Commission invites comment on 

any aspect of the proposed information 

collection requirements discussed 

above. Pursuant to 44 U.S.C. 

3506(c)(2)(B), the Commission will 

consider public comments on such 

proposed requirements in: 

• Evaluating whether the proposed 

collection of information is necessary 

for the proper performance of the 

functions of the Commission, including 

whether the information will have a 

practical use; 

• Evaluating the accuracy of the 

Commission’s estimate of the burden of 

the proposed collection of information, 

including the validity of the 

methodology and assumptions used; 

• Enhancing the quality, utility, and 

clarity of the information proposed to be 

collected; and 

• Minimizing the burden of collection 

of information on those who are to 

respond, including through the use of 

appropriate automated, electronic, 

mechanical, or other technological 

information collection techniques. 

Copies of the submission from the 

Commission to OMB are available from 

the CFTC Clearance Officer, 1155 21st 

Street NW., Washington, DC 20581, 

(202) 418–5160 or from http://

RegInfo.gov. Persons desiring to submit 

comments on the proposed information 

collection requirements should send 

those comments to: 

• The Office of Information and 

Regulatory Affairs, Office of 

Management and Budget, Room 10235, 


emcdonald on DSK67QTVN1PROD with PROPOSALS
Federal Register / Vol. 79, No. 105 / Monday, June 2, 2014 / Proposed Rules 31245 

39See, e.g., Part 23 of the Commission’s 

regulations. 

40While Staff Letter 14–34 currently provides noaction relief in circumstances, and subject to 

requirements, that are substantially similar to those 

of the Proposal, the Commission preliminarily 

believes that Staff Letter 14–34 should not set or 

affect the baseline from which the Commission 

considers the costs and benefits of the Proposal. 

This is because, as it indicates, Staff Letter 14–34 

does necessarily represent the position or view of 

the Commission or any other office or division of 

the Commission. 

41See 77 FR at 30596, 30627–30628 (May 23, 

2012). 

42See Id. at 30633. 

43See Id. at 30707 (stating that the benefits of 

swap dealing regulation include customer 

protection, market orderliness and market 

transparency). 

44The Commission explained in the Swap Dealer 

Definition Adopting Release that ‘‘[i]n principle, a 

higher [de minimis] threshold would promote a 

larger pool of swap-dealing entities (since entities 

with swap dealing activity below the threshold 

need not incur costs to comply with swap dealer 

regulations), meaning more potential counterparties 

available to swap users.’’ See Id. 

New Executive Office Building, 

Washington, DC 20503, Attn: Desk 

Officer of the Commodity Futures 

Trading Commission; 

• (202) 395–6566 (fax); or 

• OIRAsubmissions@omb.eop.gov 

(email). 

Please provide the Commission with 

a copy of submitted comments so that 

all comments can be summarized and 

addressed in the final rulemaking, and 

please refer to the ADDRESSES section of 

this rulemaking for instructions on 

submitting comments to the 

Commission. OMB is required to make 

a decision concerning the proposed 

information collection requirements 

between thirty (30) and sixty (60) days 

after publication of the Proposal in the 

Federal Register. Therefore, a comment 

to OMB is best assured of receiving full 

consideration if OMB (as well as the 

Commission) receives it within thirty 

(30) days of publication of the Proposal. 

The time frame for commenting on the 

PRA does not affect the deadline 

established by the Commission on the 

Proposal, provided in the DATES section 

of this rulemaking. 

C. Cost-Benefit Considerations 

CEA Section 15(a) requires the 

Commission to consider the costs and 

benefits of its actions before 

promulgating a regulation under the 

CEA or issuing certain orders. CEA 

Section 15(a) further specifies that the 

costs and benefits shall be evaluated in 

light of five broad areas of market and 

public concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. The 

Commission considers the costs and 

benefits resulting from its discretionary 

determinations with respect to the 

Section 15(a) factors, and seeks 

comments from interested persons 

regarding the nature and extent of such 

costs and benefits. 

1. Background. The Commission is 

proposing to amend its regulations to 

permit a person to exclude utility 

operations-related swaps with utility 

special entities (as such terms are 

defined in the Proposal) in calculating 

the aggregate gross notional amount of 

the person’s swap positions for 

purposes of the Special Entity De 

Minimis Threshold. 

As discussed above, CEA Section 

1a(49) defines the term ‘‘swap dealer,’’ 

and Regulation 1.3(ggg) further defines 

that term. A person who comes within 

the swap dealer definition is subject to 

registration as such with the 

Commission and the regulatory 

requirements applicable to swap 

dealers.39 Regulation 1.3(ggg)(4)(i) 

provides an exception from the swap 

dealer definition for persons who 

engage in a de minimis amount of swap 

dealing activity. Currently, under 

Regulation 1.3(ggg)(4)(i) persons who 

engage in swap dealing activity with 

special entities are excepted from the 

swap dealer definition so long as the 

swap positions connected with those 

dealing activities into which the person 

enters over the course of the 

immediately preceding 12 months have 

an aggregate gross notional amount of 

no more than $25 million (i.e., the 

Special Entity De Minimis Threshold). 

These regulatory provisions set the 

baseline for the Commission’s 

consideration of the costs and benefits 

of the Proposal. That is, the Commission 

considers the costs and benefits that 

would result from allowing persons to 

exclude utility operations-related swaps 

with utility special entities from the 

Special Entity De Minimis Threshold 

($25 million), such that the de minimis 

threshold with respect to such swaps 

would the same as for swaps not 

involving a special entity (i.e., the 

General De Minimis Threshold, 

currently set at $8 billion), subject to the 

requirements set forth in the Proposal.40

2. Costs. As noted by the Commission 

in the Swap Dealer Definition Adopting 

Release, ‘‘a de minimis exception, by its 

nature, will eliminate key counterparty 

protections provided by Title VII for 

particular users of swaps . . . [and] 

[t]he broader the exception, the greater 

the loss of protection.’’ 41 In adopting 

the Special Entity De Minimis 

Threshold, the Commission explained 

that the $25 million threshold was 

‘‘appropriate in light of the special 

protections that Title VII affords to 

special entities.’’ The Commission also 

recognized the ‘‘serious concerns raised 

by commenters’’ regarding the 

application of the de minimis exception 

to swap dealing with special entities in 

light of losses that special entities have 

incurred in the financial markets.42

Under the Proposal, a greater quantity 

of swap dealing with utility special 

entities would potentially be 

undertaken without the benefits to 

utility special entities of that dealing 

activity being subject to swap dealer 

regulation.43 In addition, the Proposal 

will impose costs associated with 

ascertaining whether a person is eligible 

to rely on the proposed exclusion for 

utility operations-related swaps and the 

preparation and submission of the 

notice required to rely on the exclusion 

under proposed Regulation 

1.3(ggg)(4)(i)(B)(2). Finally, to the extent 

that a person relying on the exclusion 

under the Proposal would be required to 

keep books and records it would not 

otherwise keep, in order to substantiate 

its eligibility for the exclusion, that 

represents another potential cost. 

Comments are invited regarding the 

extent of all of these costs, and any 

other costs that would result from 

adoption of the Proposal, including 

estimates of monetary or other 

measurements thereof. 

3. Benefits. With respect to benefits, 

the Commission preliminarily believes 

that the Proposal will benefit utility 

special entities and the public by 

encouraging a greater number of 

prospective counterparties to engage 

with utility special entities in utility 

operations-related swaps.44 Because of 

the local and particularized nature of 

the electric and natural gas production 

and distribution, the number of 

potential swap counterparties for utility 

special entities seeking to hedge 

commercial risk is more limited than for 

other special entities seeking to hedge 

non-physical commodities. The number 

of counterparties to utility special 

entities may be further limited due to 

the unique obligation of utilities to 

provide continuous service to the 

public. These considerations may be 

more critical given the important role 

energy services play in public safety and 

commerce. Thus, limiting the number of 

counterparties to utility special entities 

could be counter to the public interest. 

Accordingly, increasing the number of 

potential counterparties available to 

utility special entities will enable utility 

special entities to practice sound, costeffective risk management and to 


emcdonald on DSK67QTVN1PROD with PROPOSALS
31246 Federal Register / Vol. 79, No. 105 / Monday, June 2, 2014 / Proposed Rules 

efficiently operate and conduct their 

business. This will, in turn, help utility 

special entities meet their obligations to 

provide continuous services to the 

public in a cost-effective manner, and 

will help protect the public interest and 

safety that is dependent on such energy 

services. Comments are sought 

regarding these benefits and any other 

benefits resulting from adoption of the 

Proposal, and to the extent they can be 

quantified, estimates of the monetary or 

other value thereof. 

4. Section 15(a). Section 15(a) of the 

CEA requires the Commission to 

consider the effects of its actions in light 

of the following five factors: 

a. Protection of Market Participants 

and the Public. The Proposal will allow 

utility special entities to engage in 

certain swaps to a greater extent than 

other special entities, without the 

protections of swap dealer registration 

and regulation. However, given the 

limited circumstances for which the 

proposed exclusion would apply, and 

the requirements persons must meet to 

rely on the exclusion, the Commission 

preliminarily believes the costs to the 

affected utilities, market participants 

and the public will be limited. 

Moreover, these costs will be 

counteracted by the benefits the 

Proposal will provide to utility special 

entities and the public, namely, 

enabling utility special entities to 

efficiently hedge and manage risk, and 

to meet their obligations to provide vital 

energy services to the public in a 

consistent and cost-effective manner. 

b. Efficiency, Competitiveness, and 

Financial Integrity of Markets. The 

Commission preliminarily believes that 

the Proposal will enhance efficiency 

and competitiveness in the electricity 

and natural gas markets by encouraging 

prospective counterparties to engage in 

swap transactions with utility special 

entities. The availability of additional 

swap counterparties in these markets 

will enhance competition between 

counterparties, which will, in turn 

benefit utility special entities by 

lowering transaction costs for utility 

special entities. 

c. Price Discovery. It is unlikely that 

facilitating more counterparties for 

utility special entities to trade with will 

have a significant impact on price 

discovery. Price discovery is the process 

by which prices for underlying 

commodities may be determined or 

inferred through market prices. The 

addition of more counterparties willing 

to trade with utility special entities may 

improve, but not necessarily adversely 

impact, the prices that the utility special 

entities receive on their swap contract 

transactions, but the overall effect on 

the determined or inferred prices for the 

underlying commodities is 

indeterminate. Interested persons are 

invited to comment on this conclusion. 

d. Sound Risk Management. The 

Commission preliminarily believes that 

if counterparties refrain from transacting 

in swaps with utility special entities 

because of the regulatory costs 

associated with swap dealer registration 

and regulation, the ability of utility 

special entities to hedge commercial 

risks will be impaired, particularly in 

cases for which the number of 

counterparties available becomes very 

limited. Mitigating the costs and 

regulatory concerns of potential 

counterparties by permitting them to 

transact with utility special entities 

without being subject to swap dealer 

registration and regulation will enable 

utility special entities to better manage 

their commercial risk. 

e. Other Public Interest 

Considerations. As discussed above, the 

Commission preliminarily believes the 

proposed rule will enable utility special 

entities to practice sound, cost-effective 

risk management and to more effectively 

operate and conduct their business. This 

may, in turn, help utility special entities 

meet their obligations to provide 

continuous services to the public in a 

more cost-effective manner. 

5. Request for Comment 

The Commission invites comments 

from the public on all aspects of its 

preliminary consideration of costs and 

benefits associated with the Proposal. 

The questions below relate to areas that 

the Commission preliminarily believes 

may be relevant. In addressing these or 

any other aspect of the Commission’s 

preliminary assessment, commenters are 

encouraged to submit any data or other 

information that they may have 

quantifying or qualifying the costs and 

benefits of the Proposal. 

a. What are the costs and benefits to 

market participants, if any, associated 

with the Proposal? Please explain and, 

to the extent possible, quantify these 

costs. 

b. What are the costs and benefits to 

the public associated with the Proposal? 

Please explain and, to the extent 

possible, quantify these costs. 

c. Would a de minimis threshold 

other than the General De Minimis 

threshold for transactions with utility 

special entities as set forth in the 

Proposal impact the costs and/or 

benefits to market participants or the 

public? Is there a threshold level that 

would be optimal, i.e., maximize net 

benefits? 

d. Has the Commission identified all 

of the relevant categories of costs and 

benefits in its preliminary consideration 

of the costs and benefits associated with 

the Proposal? Please describe any 

additional categories of costs or benefits 

that the Commission should consider 

with respect to the Proposal. 

e. To what extent does the Proposal 

protect market participants and the 

public? How, if at all, could the 

Proposal be altered to better protect 

market participants and the public? 

f. How, if at all, does the Proposal 

affect the efficiency, competitiveness, 

and financial integrity of markets? 

g. How, if at all, does the Proposal 

affect price discovery for utility 

operations-related swaps? For the swaps 

market more generally? 

h. How, if at all, does the Proposal 

affect sound risk management for utility 

special entities? For participants in the 

swaps market more generally? 

i. How, if at all, does the Proposal 

affect the public interest? 

List of Subjects in 17 CFR Part 1 

De minimis exception, Registration, 

Special Entities, Swap dealers, Swaps, 

Utility operations-related swaps, Utility 

special entities. 

For the reasons discussed in the 

preamble, the Commission proposes to 

amend 17 CFR part 1 as follows: 

PART 1—GENERAL REGULATIONS 

UNDER THE COMMODITY EXCHANGE 

ACT 

■ 1. The authority citation for part 1 is 

revised to read as follows: 

Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 

6d, 6e, 6f, 6g, 6h, 6i, 6k, 6l, 6m, 6n, 6o, 6p, 

6r, 6s, 7, 7a–1, 7a–2, 7b, 7b–3, 8, 9, 10a, 12, 

12a, 12c, 13a, 13a–1, 16, 16a, 19, 21, 23, and 

24 (2012). 

■ 2. Amend § 1.3 by revising paragraph 

(ggg)(4)(i) to read as follows: 

§ 1.3 Definitions. 

* * * * * 

(ggg) * * * 

(4) De minimis exception—(i)(A) In 

General. Except as provided in 

paragraph (ggg)(4)(vi) of this section, a 

person that is not currently registered as 

a swap dealer shall be deemed not to be 

a swap dealer as a result of its swap 

dealing activity involving 

counterparties, so long as the swap 

positions connected with those dealing 

activities into which the person—or any 

other entity controlling, controlled by or 

under common control with the 

person—enters over the course of the 

immediately preceding 12 months (or 

following the effective date of final rules 

implementing Section 1a(47) of the Act, 

7 U.S.C. 1a(47), if that period is less 

than 12 months) have an aggregate gross 


emcdonald on DSK67QTVN1PROD with PROPOSALS
Federal Register / Vol. 79, No. 105 / Monday, June 2, 2014 / Proposed Rules 31247 

notional amount of no more than $3 

billion, subject to a phase in level of an 

aggregate gross notional amount of no 

more than $8 billion applied in 

accordance with paragraph (ggg)(4)(ii) of 

this section, and an aggregate gross 

notional amount of no more than $25 

million with regard to swaps in which 

the counterparty is a ‘‘special entity’’ (as 

that term is defined in Section 

4s(h)(2)(C) of the Act, 7 U.S.C. 

6s(h)(2)(C), and § 23.401(c) of this 

chapter), except as provided in 

paragraph (ggg)(4)(i)(B) of this section. 

For purposes of this paragraph, if the 

stated notional amount of a swap is 

leveraged or enhanced by the structure 

of the swap, the calculation shall be 

based on the effective notional amount 

of the swap rather than on the stated 

notional amount. 

(B) Utility Special Entities. (1) Solely 

for purposes of determining whether a 

person’s swap dealing activity has 

exceeded the $25 million aggregate 

gross notional amount threshold set 

forth in paragraph (ggg)(4)(i)(A) of this 

section for swaps in which the 

counterparty is a special entity, a person 

may exclude ‘‘utility operations-related 

swaps’’ in which the counterparty is a 

‘‘utility special entity.’’ 

(2) For purposes of this paragraph 

(4)(i)(B) a ‘‘utility special entity’’ is a 

special entity, as that term is defined in 

Section 4s(h)(2)(C) of the Act, 7 U.S.C. 

6s(h)(2)(C), and § 23.401(c) of this 

chapter, that: 

(i) Owns or operates electric or natural 

gas facilities, electric or natural gas 

operations or anticipated electric or 

natural gas facilities or operations; 

(ii) Supplies natural gas or electric 

energy to other utility special entities; 

(iii) 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 

(iv) Is a Federal power marketing 

agency as defined in Section 3 of the 

Federal Power Act, 16 U.S.C. 796(19). 

(3) For purposes of this paragraph 

(ggg)(4)(i)(B) a ‘‘utility operationsrelated swap’’ is a swap that meets the 

following conditions: 

(i) A party to the swap is a utility 

special entity; 

(ii) A utility special entity is using the 

swap in the manner described in 

§ 50.50(c) of this chapter; 

(iii) The swap is related to an exempt 

commodity, as that term is defined in 

Section 1a(20) of the Act; and 

(iv) The swap is an electric energy or 

natural gas swap; or the swap is 

associated with: The generation, 

production, purchase or sale of natural 

gas or electric energy, the supply of 

natural gas or electric energy to a utility 

special entity, or the delivery of natural 

gas or electric energy service to 

customers of a utility special entity; fuel 

supply for the facilities or operations of 

a utility special entity; compliance with 

an electric system reliability obligation; 

or compliance with an energy, energy 

efficiency, conservation, or renewable 

energy or environmental statute, 

regulation, or government order 

applicable to a utility special entity. 

(4) Any person relying upon the 

exclusion in paragraph (ggg)(4)(i)(B)(1) 

of this section must file electronically 

with the National Futures Association a 

Notice of Reliance on Exclusion for 

Utility Operations-Related Swaps with 

Utility Special Entities. The notice must 

be filed by no later than [effective date 

of final rule] or the date the person first 

engages in such swaps, whichever is 

later. The notice must contain: The 

person’s name, main business address, 

and main telephone number; the name 

of a contact; and a statement signed by 

an individual with authority to bind the 

person that the person meets the criteria 

for the exclusion in Regulation 

1.3(ggg)(4)(i)(B) (paragraph (ggg)(4)(i)(B) 

of this section). 

(5) Each person who relies on the 

exclusion in paragraph (ggg)(4)(i)(B) of 

this section must maintain books and 

records, in accordance with § 1.31, that 

substantiate its eligibility to rely on the 

exclusion in paragraph (ggg)(4)(i)(B) of 

this section. 

* * * * * 

Issued in Washington, DC, on May 23, 

2014, by the Commission. 

Christopher J. Kirkpatrick, 

Deputy Secretary of the Commission. 

Note: The following appendix will not 

appear in the Code of Federal Regulations. 

Appendix to Exclusion of Utility 

Operations-Related Swaps With Utility 

Special Entities From De Minimis 

Threshold for Swaps With Special 

Entities—Commission Voting Summary 

On this matter, Acting Chairman Wetjen 

and Commissioner O’Malia voted in the 

affirmative. No Commissioner voted in the 

negative. 

[FR Doc. 2014–12469 Filed 5–30–14; 8:45 am] 

BILLING CODE 6351–01–P 

FEDERAL COMMUNICATIONS 

COMMISSION 

47 CFR Parts 1, 2, 90, 95, and 96 

[GN Docket No. 12–354; FCC 14–49] 

Commission Seeks Comment on 

Shared Commercial Operations in the 

3550–3650 MHz Band 

AGENCY: Federal Communications 

Commission. 

ACTION: Proposed rule. 

SUMMARY: In this further notice of 

proposed rulemaking, the Commission 

seeks comment on specific rule 

proposals for the establishment of a new 

Citizens Broadband Radio Service in the 

3550–3650 MHz band (3.5 GHz Band). 

DATES: Submit comments on or before 

July 14, 2014 and reply comments on or 

before August 1, 2014. 

ADDRESSES: You may submit comments, 

identified by GN Docket No. 12–354, by 

any of the following methods: 

D Federal Communications 

Commission’s Web site: http://

fjallfoss.fcc.gov/ecfs2/. Follow the 

instructions for submitting comments. 

D Mail: All hand-delivered or 

messenger-delivered paper filings for 

the Commission’s Secretary must be 

delivered to FCC Headquarters at 445 

12th St. SW., Room TW–A325, 

Washington, DC 20554. The filing hours 

are 8:00 a.m. to 7:00 p.m. All hand 

deliveries must be held together with 

rubber bands or fasteners. Any 

envelopes and boxes must be disposed 

of before entering the building. 

Commercial overnight mail (other than 

U.S. Postal Service Express Mail and 

Priority Mail) must be sent to 9300 East 

Hampton Drive, Capitol Heights, MD 

20743. U.S. Postal Service first-class, 

Express, and Priority mail must be 

addressed to 445 12th Street SW., 

Washington DC 20554. 

D People with Disabilities: Contact the 

FCC to request reasonable 

accommodations (accessible format 

documents, sign language interpreters, 

CART, etc.) by email: FCC504@fcc.gov 

or phone: 202–418–0530 or TTY: 202– 

418–0432. 

For detailed instructions for 

submitting comments and additional 

information on the rulemaking process, 

see the SUPPLEMENTARY INFORMATION

section of this document. 

FOR FURTHER INFORMATION CONTACT: Paul 

Powell, Attorney Advisor, Wireless 

Bureau—Mobility Division at (202) 418– 

1613 or Paul.Powell@fcc.gov. 

SUPPLEMENTARY INFORMATION: This is a 

summary of the Commission’s Further 

Notice of Proposed Rulemaking in GN 


emcdonald on DSK67QTVN1PROD with PROPOSALS