Federal Register / Vol. 79, No. 187 / Friday, September 26, 2014 / Rules and Regulations 57767 

1 7 U.S.C. 1a(49) (2012). The CEA is found at 7 

U.S.C. 1 et seq. (2012) and can be accessed through 

the Commission’s Web site, www.cftc.gov. 

2See 77 FR 30596 (Swap Dealer Definition 

Adopting Release). 

PUXOP, Canada WP (Lat. 45°56′41.00′′ N., long. 066°26′24.00′′ W.) 

Excluding the airspace within Canada. 

Paragraph 6010(a). Domestic VOR Federal 

Airways 

* * * * * 

V–84 (Amended) 

From Northbrook, IL; Pullman, MI; 

Lansing, MI; to Flint, MI. From Buffalo, NY; 

Geneseo, NY; INT Geneseo 091° and 

Syracuse, NY, 240° radials; to Syracuse. 

* * * * * 

V–91 (Amended) 

From INT Calverton, NY, 180° and 

Hampton, NY, 223° radials; Calverton; 

Bridgeport, CT; Albany, NY; Glens Falls, NY; 

INT Glens Falls 032° and Burlington, VT, 

187° radials; to Burlington. 

* * * * * 

V–104 (Amended) 

From Burlington, VT; Montpelier, VT; 

Berlin, NH; to Bangor, ME. 

* * * * * 

V–203 (Amended) 

From INT Chester, MA, 266° and Albany, 

NY, 134° radials; Albany; Saranac Lake, NY; 

to Massena, NY. 

* * * * * 

V–337 (Removed) 

* * * * * 

V–423 (Amended) 

From Williamsport, PA; Binghamton, NY; 

Ithaca, NY; to Syracuse, NY. 

* * * * * 

Paragraph 6013. Canadian Area Navigation 

Routes (New) 

T–608 WOZEE, NY to HOCKE, MI (New) 

WOZEE, NY WP (Lat. 42°56′01.65′′ N., long. 078°44′19.64′′ W.) 

BIMRO, Canada WP (Lat. 43°01′41.00′′ N., long. 080°19′00.00′′ W.) 

DERLO, Canada WP (Lat. 43°03′59.00′′ N., long. 081°05′43.00′′ W.) 

HAVOK, Canada WP (Lat. 43°01′15.00′′ N., long. 081°36′12.00′′ W.) 

BOSEP, Canada WP (Lat. 43°06′16.00′′ N., long. 082°00′30.00′′ W.) 

KATNO, Canada WP (Lat. 43°10′34.00′′ N., long. 082°19′32.00′′ W.) 

HOCKE, MI WP (Lat. 43°15′43.38′′ N., long. 082°42′38.27′′ W.) 

Excluding the airspace within Canada. 

T–616 Flint, MI (FNT) to LEPOS, Canada (New) 

Flint, MI (FNT) VORTAC (Lat. 42°58′00.40′′ N., long. 083°44′49.10′′ W.) 

URSSA, MI WP (Lat. 43°02′46.48′′ N., long. 083°28′20.09′′ W.) 

HOCKE, MI WP (Lat. 43°15′43.38′′ N., long. 082°42′38.27′′ W.) 

LEPOS, Canada WP (Lat. 43°35′01.00′′ N., long. 081°38′48.00′′ W.) 

Excluding the airspace within Canada. 

T–781 Flint, MI (FNT) to AXOBU, Canada (New) 

Flint, MI (FNT) VORTAC (Lat. 42°58′00.40′′ N., long. 083°44′49.10′′ W.) 

KATTY, MI WP (Lat. 42°57′50.59′′ N., long. 083°30′50.76′′ W.) 

HANKY, MI FIX (Lat. 42°57′43.51′′ N., long. 083°21′59.93′′ W.) 

ADRIE, MI FIX (Lat. 42°57′29.80′′ N., long. 083°06′49.84′′ W.) 

MARGN, MI FIX (Lat. 42°56′59.18′′ N., long. 082°38′49.14′′ W.) 

BLUEZ, MI FIX (Lat. 42°56′49.98′′ N., long. 082°31′36.44′′ W.) 

AXOBU, Canada FIX (Lat. 42°56′39.50′′ N., long. 082°23′42.30′′ W.) 

Excluding the airspace within Canada. 

Issued in Washington, DC, on September 

17, 2014. 

Ellen Crum, 

Acting Manager, Airspace Policy & 

Regulations Group. 

[FR Doc. 2014–22851 Filed 9–25–14; 8:45 am] 

BILLING CODE 4910–13–P 

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: Final rule. 

SUMMARY: The Commodity Futures 

Trading Commission (Commission or 

CFTC) is amending its regulations 

(Amendments) in order to permit a 

person to exclude utility operationsrelated swaps entered into 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: Effective October 27, 2014. 

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) 1 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 an entity. Pursuant to this 

mandate, on April 27, 2012, the 

Commission adopted Regulation 

1.3(ggg), which further defines the term 

‘‘swap dealer.’’ 2 Regulation 1.3(ggg) 

became effective on July 23, 2012, and 


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3The further definition of the term ‘‘swap’’ is 

found in Regulation 1.3(xxx), which became 

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

4The 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). 

5Petition 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=PendingFilingsand

ActionsAD&Key=23845. 

6The 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)).’’ 

7The Petition defined the term ‘‘utility 

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

utility special entity enters into ‘‘to hedge or 

mitigate commercial risk’’ (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 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.’’ 

8Petition at 2. 

9October 12, 2012. This letter can be accessed on 

the Commission’s Web site at http://www.cftc.gov/ 

ucm/groups/public/@lrlettergeneral/documents/

letter/12-18.pdf. 

10See 77 FR 48208. Swaps entered into after the 

effective date of the final rule defining the term 

‘‘swap’’ were required to be counted for purposes 

of determining whether a person’s dealing activity 

exceeded the Special Entity De Minimis Threshold 

and the General De Minimis Threshold. See 

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

11The Division is responsible for, among other 

things, overseeing compliance with the registration 

requirements applicable to swap dealers. 

registration of swap dealers began in 

December, 2012.3

Specifically, the Commission adopted 

in Regulation 1.3(ggg)(4) 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: (i) $3 billion, subject to a 

phase in level of $8 billion 4 (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 

to the special entity definition ‘‘any 

instrumentality, department, or a 

corporation of or established by a State 

or subdivision of a State.’’ 

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).5 The Petition 

requested that the Commission amend 

the regulation 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’’) 6

are counterparties and that relate to the 

Petitioners’ and other utility special 

entities’ utility operations (defined in 

the Petition as ‘‘utility operationsrelated swaps’’).7

The amendment requested by the 

Petition would have had the effect of 

allowing a person, in any rolling twelvemonth period, to engage in utility 

operations-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.8

The Petition further explained that this 

amendment was needed 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(xxx) (defining the 

term ‘‘swap’’) approached,10 Petitioners 

requested no-action relief from the de 

minimis threshold for swaps with 

certain special entities. In CFTC Staff 

Letter No. 12–18 (Staff Letter 12–18), 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 certain 

registration no-action relief with respect 

to the Special Entity De Minimis 

Threshold for persons entering into 

utility related swaps with utility special 

entities. Thus, in Staff Letter 12–18 the 

Division stated that it 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 


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Federal Register / Vol. 79, No. 187 / Friday, September 26, 2014 / Rules and Regulations 57769 

12 Division staff emphasized in the letter that the 

aggregate gross notional amount of a person’s utility 

commodity swaps would reduce the $8 billion 

aggregate gross notional amount under the General 

De Minimis Threshold for that person. 

13That is, the utility special entity is using the 

swap to hedge a physical position, as described in 

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

14This letter can be accessed on the 

Commission’s Web site, at http://www.cftc.gov/

ucm/groups/public/@lrlettergeneral/documents/

letter/14-34.pdf. 

15Letter from Petitioners to Gary Gensler, CFTC 

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

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

sirt.aspx?Topic=PendingFilingsandActions

AD&Key=23845. (One of the original Petitioners did 

not, however, participate in this follow up letter.) 

16 79 FR 31238. 

17 79 FR at 31241. 

18 Id. The Commission did not propose to alter, 

and is not now altering, the Special Entity De 

Minimis Threshold with respect to other types of 

swaps or special entities. 

19 Id. 

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’’ to mean a swap 

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

utility special entity; (2) a utility special 

entity is using the swap in the manner 

described in Regulation 

1.3(ggg)(6)(iii); 13 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. The relief 

made available by Staff Letter 12–18 

was not self-executing. Rather, to take 

advantage of the no-action relief, a 

person was required to claim the relief 

by filing with the Division a notice 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. Quarterly notice 

filings were also required. 

D. CFTC Staff Letter No. 14–34 14

Subsequent to the issuance of CFTC 

Staff Letter 12–18, certain of the 

Petitioners claimed that 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’’) 

imposed administrative costs or created 

legal uncertainty such that would-be 

counterparties were dissuaded from 

entering into relevant swaps.15 The 

Petitioners’ Letter renewed their request 

for the relief sought in the previouslyfiled Petition. 

In response to these concerns, on 

March 21, 2014, the Division issued 

CFTC Staff Letter No. 14–34 (Staff Letter 

14–34), which superseded and 

broadened the relief provided in Staff 

Letter 12–18. Specifically, in Staff Letter 

14–34 the Division stated that it 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 the 

person—or any other entity controlling, 

controlled by, or under common control 

with the person—does not include 

‘‘utility operations-related swaps,’’ as 

defined in Staff Letter 14–34, 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. 

II. The Proposal 

On June 2, 2014, the Commission 

published for comment in the Federal 

Register a proposal to amend Regulation 

1.3(ggg)(4) to permit a person to exclude 

‘‘utility operations-related swaps’’ (as 

proposed to be defined) transacted with 

‘‘utility special entities’’ (as also 

proposed to be defined) in calculating 

the aggregate gross notional amount of 

the person’s swap positions, solely for 

purposes of the Special Entity De 

Minimis Threshold (Proposal).16 Under 

the Proposal, such utility operationsrelated swaps would be subject to the 

higher General De Minimis Threshold 

applicable to swaps with persons that 

are not special entities. The Commission 

is adopting the Proposal subject to 

certain changes, as noted below. 

In issuing the Proposal, the 

Commission recognized that utility 

special entities have a specialized 

purpose—i.e., they provide electricity 

and natural gas production and/or 

distribution to their customers—and 

they thus have a unique obligation, in 

that the commodity services they 

provide must be continuous, and those 

services are important to public safety. 

The Commission also expressed the 

view that utility operations-related 

swaps have become an integral part of 

providing continuous service and 

managing costs in connection 

therewith.17

Further, the Commission noted that: 

[t]he 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.18

The Commission also stated in the 

Proposal its belief 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 

concluded 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 operations-related 

swaps, the need for a lower de minimis 

threshold for dealing activity in such swaps 

with utility special entities is reduced.19

Accordingly, the Commission 

proposed to amend its regulations in 

order to permit a person to exclude 

specified swaps (i.e., utility operationsrelated swaps) entered into with a 

defined subset of special entities (i.e., 

utility special entities) when calculating 

whether the person’s swap dealing 

activities exceed the Special Entity De 

Minimis Threshold. As stated above, the 

Commission is adopting the Proposal, 

subject to certain changes discussed 

below. 

A. Adding an Exclusion for Utility 

Operations-Related Swaps With Utility 

Special Entities 

Regulation 1.3(ggg) defines the term 

‘‘swap dealer.’’ The Proposal sought to 

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 


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20NFA is a futures association registered as such 

with the Commission pursuant to CEA Section 17. 

21See CEA Sections 4s(h)(4) and 4s(h)(5). 

22See 79 FR 31238, 31242. 

23This requirement is consistent with the 

requirements of 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. 

24As noted above, CEA Section 4s(h)(2)(c) and 

Regulation 23.401(c) define the term ‘‘special 

entity.’’ 

25As explained below, in Regulation 

1.3(ggg)(4)(i)(B)(3)(ii) as adopted, the Commission 

revised the language from what was proposed to 

read ‘‘(ii) A utility special entity is using the swap 

to hedge or mitigate a commercial risk as defined 

in § 50.50(c) of this chapter’’ (instead of ‘‘in the 

manner described in § 50.50(c)’’). 

26As noted below, the regulation as adopted 

would permit the swap to be related to an 

agricultural commodity insofar as such commodity 

is used for fuel for generation of electricity or is 

otherwise used in the normal operations of the 

utility special entity. 

27 79 FR 32138, 31242. This 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. 

28 79 FR 31238, 31242–31423. In the Proposal, the 

Commission asked for and received comments on 

the possible benefits of revising its interpretation 

regarding forward contracts with embedded 

volumetric optionality. The Commission has 

whether they have exceeded the Special 

Entity De Minimis Threshold. This was 

to be done by redesignating existing 

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.’’ 

As proposed, Regulation 

1.3(ggg)(4)(i)(B)(1) provided 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 1.3(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, 

have permitted a person to exclude the 

aggregate gross notional amount of such 

utility operations-related swaps in 

determining whether the person had 

exceeded the General De Minimis 

Threshold. 

Proposed Regulation 

1.3(ggg)(4)(i)(B)(4) would have required 

a person to file a one-time notice with 

the National Futures Association (NFA) 

to rely on the exclusion provided by the 

new rule.20 The proposed notice 

provision would have required a 

representation from the person claiming 

the exclusion (i.e., the counterparty to 

the utility special entity) that the person 

meets the criteria of the exclusion for 

utility operations-related swaps with 

utility special entities. 

The Commission noted in the 

Proposal that while Congress adopted 

additional protections for special 

entities when engaging in swap 

transactions, such as the heightened 

business conduct requirements imposed 

on swap dealers advising and dealing 

with special entities,21 the Proposal 

would permit persons to engage in a 

greater aggregate gross notional amount 

of swaps with utility special entities 

without registering as a swap dealer. As 

a result, utility special entities engaging 

in such swaps with persons not 

registered as swap dealers would not 

have the protections provided by the 

statutory and regulatory provisions 

applicable to registered swap dealers, 

both general and specific to dealing 

activities with special entities. 

Accordingly, the Commission explained 

that it proposed the notice filing 

requirement as a measure to help the 

Commission monitor compliance with 

the swap dealer registration 

requirement, and to better ensure that 

the exclusion under the Proposal would 

serve its intended purpose.22

However, as explained below, after 

considering the comments it received on 

this issue, the Commission has 

determined not to adopt in Regulation 

1.3(ggg)(4)(i)(B) the proposed notice 

filing requirement. 

Additionally, a person relying on the 

exclusion under the Proposal would 

have been required to maintain in 

accordance with Regulation 1.31 books 

and records that substantiate its 

eligibility to rely on this exclusion.23 As 

explained below, the Commission has 

adopted in Regulation 

1.3(ggg)(4)(i)(B)(4) a provision that 

requires the person to maintain 

specifically the written representations, 

if any, provided to it by utility special 

entities and upon which it has relied in 

determining that the utility special 

entities and the utility operationsrelated swaps the person engages in 

meet the criteria of the exclusion in 

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

B. New Definitions 

1. ‘‘Utility Special Entity’’ 

Proposed Regulation 

1.3(ggg)(4)(i)(B)(2) defined the term 

‘‘utility special entity’’ to mean a special 

entity 24 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). 

2. ‘‘Utility Operations-Related Swap’’ 

Proposed Regulation 

1.3(ggg)(4)(i)(B)(3) defined 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,25 and that is related to 

an exempt commodity.26 In addition, 

the swap would have to 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 proposed Regulation 

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

The Commission noted in the 

Proposal that: 

in determining whether a person may rely on 

the proposed exclusion for utility operationsrelated 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 operationsrelated 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 

operations-related 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.27

As noted below, the Commission has 

adopted this position in Regulation 

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

III. Comments and Responses 

In the Proposal, the Commission 

sought comments generally regarding 

the nature and application of the 

proposed exclusion for utility 

operations-related swaps with utility 

special entities for purposes of 

determining whether a person’s swap 

dealing activities exceed the Special 

Entity De Minimis Threshold. The 

Proposal also set forth a non-exclusive 

list of questions to which the 

Commission sought responses.28


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decided that this matter is outside the scope of the 

present rulemaking. Accordingly, the Commission 

has asked staff to evaluate this issue separately and 

to consider the comments received in undertaking 

the evaluation. 

29Comment letters were submitted by: Arizona 

Utility Special Entities (AZ Entities Comment 

Letter) (July 2, 2014); Electrical District No. 3 of 

Pinal County, Arizona (ED3 Comment Letter) (June 

26, 2014); City of Redding, CA (City of Redding 

Comment Letter) (July 1, 2014); Coalition of 

Physical Energy Companies (COPE Comment Letter) 

(July 2, 2014); EDF Trading North America LLC 

(EDFTNA Comment Letter) (July 2, 2014); Edison 

Electric Institute (EEI Comment Letter) (July 2, 

2014); The Commercial Energy Working Group 

(Working Group Comment Letter) (July 2, 2014); 

Electric Power Supply Association (EPSA Comment 

Letter) (July 2, 2014); the International Energy 

Credit Association (IECA Comment Letter) (July 2, 

2014); and NFP Electric Coalition (NFP Comment 

Letter) (July 2, 2014). 

30See, e.g., Working Group Comment Letter; ED3 

Comment Letter; City of Redding Comment Letter. 

31See, e.g., AZ Utility Special Entities Comment 

Letter; NFP Comment Letter; Working Group 

Comment Letter; ED3 Comment Letter. 32See, e.g., Id.; EEI Comment Letter. 33See Id. 

34See NFP Comment Letter. 

35See Working Group Comment Letter. 

The Commission received ten 

comment letters in response to the 

Proposal, from or on behalf of entities 

identifying themselves as utility special 

entities, companies engaged in 

providing physical energy and related 

activities, industry and trade 

associations and commercial end users 

of energy provided by utility special 

entities.29 All of the comment letters 

were supportive of the proposed 

amendments to Regulation 1.3(ggg)(4)(i) 

in general, although some recommended 

revisions to, or deletion of, specific 

provisions. Several letters provided 

responses to certain of the specific 

questions the Commission posed in the 

Proposal. 

Commenters generally agreed that the 

proposed exclusion was necessary to 

address the issues facing utility special 

entities, and that the proposed 

exclusion would benefit utility special 

entities and the public interest without 

compromising the regulatory policy of 

protecting special entities generally. 

Specifically, a number of commenters 

agreed that utility special entities serve 

a unique role in the energy commodity 

markets; namely, utility special entities 

have an obligation to provide 

continuous and reliable electric and 

natural gas service to the public, which 

is crucial to public safety.30

Commenters also stated that utility 

special entities require access to the 

swap markets in order to hedge or 

mitigate their commercial risks, and a 

lack of available counterparties imposes 

costs on utility special entities that 

ultimately are passed on to consumers. 

Commenters similarly stated that the 

number of potential counterparties for 

utility operations-related swaps was 

generally limited due to the unique 

nature of the energy markets in which 

utility special entities operate, and that 

the Special Entity De Minimis 

Threshold, and the regulatory burdens 

associated with it, discouraged this 

already limited number of potential 

counterparties from entering into swaps 

with utility special entities.31 Many 

commenters noted further that utility 

special entities are sophisticated market 

participants who have expertise in 

physical and financial energy markets, 

and that hedging and managing 

commercial risk is a core competency of 

utility special entities.32 For these 

reasons, commenters asserted that 

utility operations-related swaps with 

utility special entities should be treated 

differently than other swaps with 

special entities.33 In the view of these 

commenters, utility special entities 

should be treated the same way as 

investor-owned utilities with regard to 

the application of the General De 

Minimis Threshold. 

A. Proposed Regulation 

1.3(ggg)(4)(i)(B)(2): ‘‘Utility Special 

Entity’’ 

The Commission received few 

comments specifically directed to its 

proposed definition of ‘‘utility special 

entity.’’ One commenter stated its 

agreement with the Commission’s 

definition as proposed.34 Another asked 

the Commission to expand the 

definition of ‘‘utility special entity’’ to 

include governmental entities, such as 

school districts, housing authorities, fire 

departments, water and waste 

management utilities, involved in largescale competitive physical procurement 

of electric energy or natural gas.35 Like 

utility special entities, the commenter 

asserted, these governmental entities 

have a critical and continuous need for 

natural gas and electricity, and they face 

unique, regional market structures 

wherein the universe of potential 

counterparties may be further limited to 

market participants active in a 

particular geographic region. 

The Commission has not, however, so 

expanded the definition of ‘‘utility 

special entity’’ in Regulation 

1.3(ggg)(4)(i)(B) as adopted. In declining 

to make this change, the Commission 

notes that utility special entities are a 

distinct subset of special entities, for 

which the Commission believes it is 

appropriate to relax the safeguards that 

would otherwise apply with respect to 

their swap transactions, but solely in the 

context of utility operations-related 

swaps. As stated in the preamble of the 

Proposal, utility special entities provide 

electric or natural gas energy to 

customers, and this is the primary 

purpose for, and business of, utility 

special entities; and they typically have 

public service obligations to provide 

uninterrupted service to such 

customers. In order to meet their 

obligations and to provide continuous 

service to customers in a cost-effective 

manner, utility special entities have an 

ongoing need to hedge their commercial 

risks through utility operations-related 

swaps. Moreover, utility special entities 

have significant experience and 

expertise with respect to utility 

operations-related swaps and the 

commodities to which those swaps 

relate. The other types of special entities 

mentioned by the commenter are more 

in the nature of end users of electric or 

natural gas energy. While they may have 

a limited need to hedge electric and 

natural gas purchases, doing so is not a 

fundamental aspect of their general 

operations (e.g., education, housing, 

firefighting, etc.); neither their 

operations nor their obligations are 

analogous to those of utility special 

entities; and they are less likely to have 

the same level of experience with utility 

operations-related swaps and the 

commodities underlying those swaps as 

utility special entities. In balancing the 

public interest of providing additional 

regulatory protections for special 

entities against the public interest that 

utility special entities be able to 

effectively manage their commercial 

risk, the Commission is providing a 

targeted and tailored exclusion, based 

on the unique characteristics of utility 

special entities discussed above. 

However, the special entities as to 

which the commenter recommended 

expanding the Proposal do not have the 

same characteristics as utility special 

entities, and do not implicate the same 

policy considerations. Therefore, an 

exclusion from the Special Entity De 

Minimis Threshold for such special 

entities is not in the public interest as 

it is for utility special entities. 

Accordingly, the Commission has not 

expanded the definition of ‘‘utility 

special entity’’ in Regulation 

1.3(ggg)(4)(i)(B) as adopted. 

B. Proposed Regulation 

1.3(ggg)(4)(i)(B)(3): ‘‘Utility OperationsRelated Swap’’ 

One commenter recommended that 

the Commission adopt the definition of 

utility operations-related swap as 

proposed, stating that the definition 

encompasses the range of utility supply 

commodities necessary to provide 


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36See City of Redding Comment Letter. 

37 Dodd-Frank Wall Street Reform and Consumer 

Protection Act, Pub. L. No. 111–203, 124 Stat. 1376 

(2010). 

38See NFP Comment Letter. 

39 78 FR 19670. See EPSA, IECA and NFP 

Comment Letters. The April 2nd Order provides 

that the term ‘‘Exempt Non-Financial Energy 

Transaction’’ means ‘‘any agreement, contract, or 

transaction based upon a ‘commodity,’ as such term 

is defined in CEA section 1a(9) and Commission 

regulation 1.3(e), that would not have been entered 

into, but for an Exempt Entity’s need to manage 

supply and/or price risks arising from its existing 

or anticipated public service obligations to 

physically generate, transmit, and/or deliver 

electric energy service to customers. The term 

‘Exempt Non-Financial Energy Transaction’ 

excludes agreements, contracts, and transactions 

based upon, derived from, or referencing any 

interest rate, credit, equity or currency asset class, 

or any grade of a metal, or any agricultural product, 

or any grade of crude oil or gasoline that is not used 

as fuel for electric energy generation. The term 

‘Exempt Non-Financial Energy Transaction’ also 

excludes agreements, contracts, or transactions 

entered into on or subject to the rules of a registered 

entity, submitted for clearing to a derivatives 

clearing organization, and/or reported to a swap 

data repository.’’ Id. at 19688. 

The April 2nd Order limits Exempt NonFinancial Energy Transactions to specifically 

defined categories of transactions, which the April 

2nd Order provides may exist as stand-alone 

agreements or as components of larger agreements 

that combine these categories. The April 2nd Order 

identifies these categories of transactions as follows: 

(1) Electric energy delivered; (2) generation 

capacity; (3) transmission services; (4) fuel 

delivered; (5) cross-commodity pricing; and (6) 

other goods and services. Id. 

40The requirement that a swap must relate to an 

exempt commodity was included in Staff Letter 12– 

18. 

41See 79 FR at 31245. 

42As discussed by the Commission in the 

preamble to the April 2nd Order, CEA Section 

4(c)(6) ‘‘builds upon the Commission’s existing 4(c) 

exemptive authority by providing that the 

Commission ‘shall . . . exempt from the 

requirements of th[e] Act an agreement, contract, or 

transaction that is entered into * * * between 

entities described in section 201(f) of the Federal 

Power Act (16 U.S.C. 824(f)),’ but only ‘[i]f the 

Commission determines that the exemption would 

be consistent with the public interest and the 

purposes of [the Act].’ ’’ 78 FR at 19671. 

utility special entities the relief 

intended by the Proposal.36

Another commenter recommended 

that the Commission should not include 

the requirement in proposed Regulation 

1.3(ggg)(4)(i)(B)(3)(iii) that the swap be 

related to an ‘‘exempt commodity’’ in 

order to be a utility operations-related 

swap. This requirement, in the view of 

the commenter, would add ambiguity to 

the definition because the Commission’s 

regulations and interpretations 

implementing its jurisdiction over 

swaps do not consistently use the preDodd-Frank Act 37 categorizations of 

‘‘exempt commodity,’’ ‘‘agricultural 

commodity’’ and ‘‘excluded 

commodity’’ to classify swaps.38 The 

commenter expressed the view that the 

Dodd-Frank Act and the Commission’s 

regulations regarding the definition of 

‘‘swap’’ do not use the term ‘‘exempt 

commodity’’ but instead distinguish 

swaps involving ‘‘nonfinancial 

commodities’’ from four asset classes of 

financial commodity swaps (involving 

rates, credit, currencies and equities); 

therefore, the definition of utility 

operations-related swap should also 

follow that approach. Alternatively, the 

commenter recommended that if the 

Commission retained in the definition, 

as adopted, the proposed requirement 

that the swap be related to an exempt 

commodity, then the Commission: (1) 

Should clarify that all ‘‘nonfinancial 

commodities’’ (other than agricultural 

commodities) are exempt commodities; 

and (2) should expand the proposed 

definition of utility operations-related 

swap to include swaps related to 

agricultural commodities, as, the 

commenter claimed, there are 

agricultural commodities that are used 

for fuel for electric generation, or that 

may otherwise be ‘‘associated with 

utility operations.’’ 

Several other commenters similarly 

recommended that the Commission 

conform the proposed definition of 

utility operations-related swap to the 

definition of the term ‘‘Exempt NonFinancial Energy Transaction’’ 

contained in the Commission’s Order 

Exempting, Pursuant to Authority of the 

Commodity Exchange Act, Certain 

Transactions Between Entities 

Described in the Federal Power Act, and 

Other Electric Cooperatives, (April 2nd 

Order).39 In the view of these 

commenters, conforming the definition 

with the April 2nd Order would provide 

greater clarity to market participants 

and would allow for a more seamless 

implementation of the exclusion in 

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

since market participants are already 

familiar with the ‘‘Exempt NonFinancial Energy Transaction’’ 

definition in the April 2nd Order. 

The Commission is addressing these 

comments in two parts: (1) Whether the 

Commission should adopt as proposed 

a utility operations-related swap 

definition requiring that the swap be 

‘‘related to an exempt commodity, as 

that term is defined in Section 1a(20) of 

the Act,’’ or the Commission should 

adopt in the definition another type of 

limiting criteria, as identified by the 

commenters; and (2) whether the 

Commission should adopt a definition 

of utility operations-related swap that 

includes certain ‘‘agricultural 

commodities’’ as that term is defined in 

Regulation 1.3(zz). 

After considering the commenters’ 

arguments, the Commission has 

determined to adopt in Regulation 

1.3(ggg)(4)(i)(B)(3) the proposed 

requirement that a utility operationsrelated swap must relate to an exempt 

commodity.40 The Proposal responded 

to the request in the Petition to provide 

relief for counterparties to certain types 

of swaps used by utility special entities 

to hedge their day-to-day operational 

activities. The Proposal noted that: 

utility special entities have a greater 

need for these swaps than for other 

types of swaps and that need is ongoing; 

the underlying commodities identified 

in such swaps and the counterparties for 

such swaps are often regional (e.g., the 

location for delivery of the commodity 

and the location of the operations of the 

counterparties); these swaps relate to 

underlying commodities which utility 

special entities regularly use as part of 

their normal operations; and with 

respect to such swaps, utility special 

entities generally have a level of 

expertise and sophistication. Given 

these factors, the Proposal allowed for a 

limited reduction in the protections that 

the Special Entity De Minimis 

Threshold would provide for utility 

special entities, in order to increase the 

number of counterparties available for 

utility special entities that need to use 

these types of swaps. 

However, as stated in the preamble to 

the Proposal, the Commission 

recognizes that the Special Entity De 

Minimis Threshold is generally 

appropriate in light of the special 

protections that Title VII of the DoddFrank Act provides to special entities.41

In keeping with the statutory and 

regulatory objective of providing 

additional protections for special 

entities generally, the Commission 

believes that the definition of utility 

operations-related swap in Regulation 

1.3(ggg)(4)(i)(B)(3) should be written to 

exclude swaps that are not related to 

commodities used by utility special 

entities in the ordinary course of their 

daily operations. In this way, utility 

special entities would be treated in the 

same way as other special entities with 

regard to swaps that do not implicate 

the policies underlying the proposed 

exclusion. 

The commenters’ recommendation 

that the definition of utility operationsrelated swaps conform to the definition 

of the term ‘‘Exempt Non-Financial 

Energy Transaction’’ contained in the 

April 2nd Order is misplaced, because 

the April 2nd Order addresses 

transactions between a limited set of 

counterparties and was based on 

different underlying policy 

considerations. In accordance with CEA 

Section 4(c)(6),42 the April 2nd Order 


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43The term ‘‘Exempt Entity’’ is defined in the 

April 2nd Order as ‘‘(i) any electric facility or utility 

that is wholly owned by a government entity, as 

described in Federal Power Act (‘FPA’) section 

201(f), 16 U.S.C. 824(f); (ii) any electric facility or 

utility that is wholly owned by an Indian tribe 

recognized by the U.S. government pursuant to 

section 104 of the Act of November 2, 1994, 25 

U.S.C. 479a–1; (iii) any electric facility or utility 

that is wholly owned by a cooperative, regardless 

of such cooperative’s status pursuant to FPA section 

201(f), so long as the cooperative is treated as such 

under Internal Revenue Code section 501(c)(12) or 

1381(a)(2)(C), 26 U.S.C. 501(c)(12), 1381(a)(2)(C), 

and exists for the primary purpose of providing 

electric energy service to its member/owner 

customers at cost; or (iv) any other entity that is 

wholly owned, directly or indirectly, by any one or 

more of the foregoing. The term ‘Exempt Entity’ 

does not include any ‘financial entity,’ as defined 

in CEA section 2(h)(7)(C).’’ 78 FR at 19688. 

44 Id. at 19679. 

45 Id. This rationale is not applicable to 

transactions between a utility special entity and a 

counterparty that is not a utility special entity. 

46The NFP Comment Letter asserts that 

‘‘Members of [NFP] (including utility special 

entities) are ‘Exempt Entities’ as such term is 

defined in the [April 2nd Order].’’ Even assuming 

this would be the case with respect to all utility 

special entities, not just NFP members, the April 

2nd Order is limited to transactions ‘‘solely 

between Exempt Entities,’’ whereas the exclusion in 

Regulation 1.3(ggg)(4)(i)(B) will apply to swaps 

where only one party is a utility special entity. 

47The Commission employed the term 

‘‘nonfinancial commodity’’ in the preamble of the 

Federal Register release adopting the definition of 

the term ‘‘swap’’ to discuss a category of 

transactions for which the forward exclusion would 

apply. See 77 FR 48208, 48227 et seq., n.205. As 

such, that term serves a purpose in the swap 

definition regulation that is functionally different 

from the utility operations-related swap definition 

that the Commission is adopting in this Federal 

Register release. 

broadly exempts from most 

requirements of the CEA and 

Commission regulations all ‘‘Exempt 

Non-Financial Energy Transactions’’ 

entered into solely between Exempt 

Entities.43 The scope of the transactions 

covered by the exemption was defined 

in the context of both this unique 

‘‘closed loop’’ market (i.e., transactions 

where both parties are Exempt Entities) 

and also the underlying policies for the 

exemption. More specifically, the 

Commission determined that such 

transactions between not-for-profit 

utilities (in a closed loop) will not 

materially impair price discovery or the 

functioning of markets regulated by the 

Commission.44 The Commission also 

determined that the not-for-profit 

structure and governance model of all 

Exempt Entities reduce the incentives 

and other conditions that traditionally 

lead to fraudulent or manipulative 

trading activity, and should therefore 

mitigate the need for prescriptive 

federal oversight.45 Thus, the 

transactions and circumstances 

addressed by the April 2nd Order—and 

the underlying statutory and regulatory 

policy considerations—are not 

analogous to those addressed and 

implicated by the Proposal.46

Similarly, the commenters’ 

recommendation that the Commission 

base the definition of utility operationsrelated swap on the distinction between 

nonfinancial commodities and 

commodities related to the four 

financial asset classes would allow for 

swaps related to commodities that are 

not regularly used by utility special 

entities to be included in the definition 

of utility operations-related swap.47

While the Commission believes that all 

of the types of swaps that fall within the 

four financial asset classes noted should 

be excluded from the defined term, 

there are many other swaps—both 

financial and non-financial—that also 

should not be included in the definition 

given the rationale for providing the 

exclusion for utility special entities in a 

way that is balanced with the need to 

maintain appropriate protections for 

special entities generally. 

This can be illustrated by considering 

the definition in the April 2nd Order to 

which the commenters referred. The 

definition of the term ‘‘Exempt NonFinancial Energy Transaction’’ in the 

April 2nd Order excludes transactions 

‘‘referencing any interest rate, credit, 

equity or currency asset class or any 

grade of a metal, or any agricultural 

product, or any grade of crude oil or 

gasoline that is not used as fuel for 

electric energy generation.’’ As such, the 

April 2nd Order carves out from the 

relief it provided both swaps in the four 

delineated financial asset classes and 

swaps related to certain physical 

commodities, to the extent those 

commodities are not used by the utility 

special entities for electric energy 

generation. 

However, the April 2nd Order criteria 

may create gaps and uncertainty in the 

definition of utility operations-related 

swaps that could both result in 

ambiguity for market participants and 

overly reduce the general protections 

intended for special entities, including 

utility special entities. The April 2nd 

Order does not define the terms 

‘‘interest rate asset class,’’ ‘‘credit asset 

class,’’ ‘‘equity asset class’’ or ‘‘currency 

asset class.’’ Although the meaning of 

these terms may be generally 

understood, the lack of a definition 

creates a degree of ambiguity. For 

example, it is generally understood that 

the exclusion provided in the final 

regulation should not include interest 

rate swaps that special entities might 

use to hedge interest rate risk related to 

their bonds. However, such a hedge 

could be accomplished indirectly by 

entering into a bond price swap either 

on their bonds or less directly, on a 

bond price index. As another example, 

it is also unclear whether the definition 

in the April 2nd Order would exclude 

a total return swap on a utility special 

entity’s bonds (or any other bonds for 

that matter). Although special entities 

should not be barred from entering into 

such swaps, in the absence of an 

exclusion for such swaps, the low 

Special Entity De Minimis Threshold 

would require that a person dealing in 

such swaps with a special entity (in 

excess of the $25 million amount) be 

registered as a swap dealer, irrespective 

of whether the special entity is a utility 

special entity. This is consistent with 

the statutory intent to provide greater 

protections for special entities generally. 

In this way, the protections provided for 

special entities by the swap dealer 

regulations would apply to swaps of this 

nature to which any kind of special 

entity is a party, including utility 

special entities. 

Finally, while the criteria in the April 

2nd Order except out certain specified 

physical commodities as described 

above, those exceptions are fairly 

specific and would not except out a 

swap referencing any other physical 

commodity to the extent the swap might 

be shown to ‘‘manage supply and/or 

price risks arising from [an entity’s] 

existing or anticipated public service 

obligations.’’ That approach provides a 

significant amount of flexibility in 

determining which swaps fit within the 

definition. For some purposes, this 

flexibility can be helpful in that 

determining when a swap is being used 

to ‘‘manage,’’ or ‘‘hedge or mitigate’’ (the 

term in Regulation 1.3(ggg)(4)(i)(B)(3)(ii) 

as adopted that serves a similar 

function) risk can be highly fact specific 

and to a degree subjective. This 

flexibility, while beneficial in some 

contexts, can create a degree of 

ambiguity because it allows for different 

interpretations based on the facts and 

circumstances. This ambiguity may 

have been acceptable in the context of 

the April 2nd Order because it 

addressed only swaps between ‘‘Exempt 

Entities’’ (e.g., not involving commercial 

dealers or financial entities) and 

because the April 2nd Order involves 

different public policy considerations, 

as described above. On the other hand, 

this ambiguity could result in overlyweakened protections for special 

entities if incorporated into the 

Amendments. 

Maintaining in Regulation 

1.3(ggg)(4)(i)(B)(3)(iii) the requirement 

that utility operations-related swaps 

must relate to exempt commodities 

mitigates this ambiguity and helps 

maintain the protections intended for 


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48See 7 U.S.C. 1a(19). 

49The foregoing list of examples is not intended 

to be an exhaustive list of commodities on which 

a swap must be based such that the swap would 

come within the definition of the term ‘‘utility 

operations-related swap.’’ Rather, it is being 

provided to illustrate how to apply the definition 

in the context of utility special entity operations. 

50See NFP Comment Letter. 

51 Id. 

52 In its October 12, 2012, comment letter on the 

Commission’s proposed regulations to further 

define the terms ‘‘swap’’ and ‘‘swap dealer,’’ NFP 

had asked the Commission to reconsider its 

conclusion that ‘‘commodity options are swaps 

under the statutory swap definition.’’ See 77 FR 

48208, 48236 (Aug. 13, 2012). NFP’s letter may be 

accessed at: http://comments.cftc.gov/

PublicComments/

ViewComment.aspx?id=59235&SearchText=. 

53See Working Group Comment Letter. 

54The proposed text read: ‘‘(ii) A utility special 

entity is using the swap in the manner described 

in § 50.50(c) of this chapter.’’ 

special entities by the Dodd-Frank Act 

and the Commission’s regulations. The 

term ‘‘exempt commodity’’ is defined as 

a commodity that is not an ‘‘excluded 

commodity’’ or an ‘‘agricultural 

commodity.’’ Briefly stated, excluded 

commodities (agricultural commodities 

are addressed below) encompass swaps 

referencing the four financial classes 

identified in the April 2nd Order and 

swaps related to: debt instruments; 

indexes or measures of inflation or other 

macroeconomic indexes or measures; 

commodities based on rates, 

differentials, indexes or measures of 

economic or commercial risk, return or 

value that are not based in substantial 

part on the value of a narrow group of 

commodities or are based solely on one 

or more commodities that have no cash 

market; or commodities based on any 

occurrence or contingency that is out of 

the control of the parties and associated 

with an economic consequence.48

Accordingly, maintaining in Regulation 

1.3(ggg)(4)(i)(B)(3)(iii) as adopted the 

proposed requirement that the swap 

relate to an ‘‘exempt commodity’’ would 

limit the final regulation to types of 

swaps that a utility special entity may 

need to operate effectively while at the 

same time excluding swaps that relate to 

many types of commodities that are not 

generally used in special utility entity 

operations. 

Notwithstanding the foregoing, the 

term ‘‘excluded commodity’’ has a 

degree of complexity. Accordingly, by 

this Federal Register release, the 

Commission is taking the position that 

the requirement in Regulation 

1.3(ggg)(4)(i)(B)(3)(iii) that the swap 

‘‘relate to an exempt commodity’’ 

includes swaps that reference any 

physical commodity involved in a 

utility special entity’s normal 

operations. For example, the 

requirement in Regulation 

1.3(ggg)(4)(i)(B)(3)(iii) as adopted would 

include a swap based on: the price of a 

grade of oil or coal that the utility 

special entity purchases to fuel its 

power generation facilities; a narrow 

index of grades of oil or coal that 

includes that grade of oil or coal; 

electricity generated or distributed by a 

utility special entity or potentially 

needed for peak power; or water needed 

to power hydroelectric generating 

facilities of the entity.49 On the other 

hand, a swap based on a broad 

commodity index, a bond price, 

inflation indexes or weather 

occurrences would not meet the 

requirement in Regulation 

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

Regarding the commenter’s request to 

include in the final utility operationsrelated swap definition agricultural 

commodities used for certain utility 

purposes,50 the Commission 

acknowledges that it is possible that a 

utility special entity may use 

agricultural commodities, such as 

ethanol or wood chips, in its normal 

operations and therefore the definition 

could be expanded for this purpose. The 

Commission is concerned, however, that 

including agricultural commodities 

generally in the definition may broaden 

the definition too much because 

generally, agricultural commodities are 

not used in energy utility operations. 

Accordingly, the Commission is 

adopting in Regulation 

1.3(ggg)(4)(i)(B)(3)(iii) a definition of 

utility operations-related swap that 

includes swaps relating to agricultural 

commodities that are used for fuel for 

electric generation or are otherwise used 

in the normal operations of the utility 

special entity. 

One commenter recommended that 

the Commission adopt in lieu of the 

proposed term and definition of ‘‘utility 

operations-related swap’’ a term and 

definition of ‘‘utility operations-related 

transaction,’’ which would include all 

non-financial commodity transactions 

for deferred shipment or delivery where 

the parties intend physical settlement at 

the time the transaction was executed 

(including stand-alone or embedded 

options or optionalities), claiming this 

was necessary to provide utility special 

entities with the relief they required.51

Alternatively, the commenter asked that 

prior to, or concurrently with, the 

issuance of a regulation adopting the 

‘‘utility operations-related swap’’ 

definition, the Commission act on the 

commenter’s request for reconsideration 

of the Commission’s interpretation of 

CEA Section 1a(47) that all commodity 

options are swaps, and clarify the scope 

of the Commission’s jurisdiction over 

nonfinancial commodity swaps.52

Further, the commenter urged the 

Commission to provide guidance that all 

transactions used by a utility special 

entity to hedge or mitigate commercial 

risks, and that have the benefit of 

Commission exclusion by interpretation 

or an order exempting them from the 

Commission’s jurisdiction over swaps, 

are also excluded from the Special 

Entity De Minimis Threshold. 

The Commission is declining to adopt 

any of these recommendations. An 

entity may be a swap dealer (and be 

subject to regulation as such) if that 

entity is dealing in ‘‘swaps,’’ as defined 

in the CEA and the Commission’s 

regulations. Whether any particular 

transaction of the types identified by the 

commenter is or is not a swap may be 

fact-dependent. Accordingly, the broad 

statements requested from the 

Commission by the comment could 

effectively amount to an interpretation 

or modification of the definition of the 

term ‘‘swap.’’ The Commission did not 

also propose to modify or interpret the 

definition of the term ‘‘swap’’ when it 

issued the Proposal. Rather, in 

proposing Regulation 

1.3(ggg)(4)(i)(B)(3), the Commission 

intended to define a subset of swaps as 

utility operations-related swaps. Thus, 

the commenter effectively has asked the 

Commission to go beyond the scope of 

the Proposal and to interpret or modify 

the definition of the term ‘‘swap’’ in 

order to provide relief that is broader 

than what the Proposal contemplated. 

The Commission notes, however, that 

under the definition of swap dealer in 

Regulation 1.3(ggg), any transactions 

identified in the comment that are not 

‘‘swaps,’’ as defined in the CEA and the 

Commission’s regulations, are not 

counted for purposes of the Special 

Entity De Minimis Threshold or the 

General De Minimis Threshold. 

Another commenter 53 recommended 

that in lieu of the proposed text of 

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

Commission should adopt the following 

text: ‘‘(ii) A utility special entity is using 

the swap to hedge or mitigate 

commercial risk as defined in § 50.50(c) 

of this chapter.’’ 54 Otherwise, the 

commenter claimed, the requirement 

could be misinterpreted to mean that a 

utility operations-related swap must be 

used to invoke an exception to the 

mandatory clearing requirement in 

order to qualify for the proposed 

exclusion. 

The Commission finds that this 

recommendation is consistent with the 

intent of the Proposal and that it would 

provide greater clarity. Accordingly, the 


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55 77 FR 42560, 42575 n. 69. 

56See EDFTNA Comment Letter. 

57Such swaps would, however, need to be 

counted for purposes of the General De Minimis 

Threshold, as provided in Staff Letter 14–34. 

58See EEI, COPE, EDFTNA, IECA and NFP 

Comment Letters. 

59See COPE Comment Letter. 

60See NFP Comment Letter. 

61See City of Redding Comment Letter. 

62See EDFTNA Comment Letter. The commenter 

did not agree, however, that the Commission’s 

objective of identifying relying entities would be 

served by requiring such entities to file a notice 

with NFA. 

63See EPSA, EDFTNA, Working Group, IECA, 

NFP and EEI Comment Letters. 

64See EEI, Working Group and NFP Comment 

Letters. 

Commission is adopting in Regulation 

1.3(ggg)(4)(i)(B)(3)(ii) the recommended 

text quoted above. 

The same commenter also 

recommended that the Commission 

confirm that proposed Regulation 

1.3(ggg)(4)(i)(B) would apply to a swap 

that unwinds an existing hedge. The 

commenter expressed the view that 

market participants often hedge 

dynamically to optimize the value of 

underlying physical assets or portfolios, 

and may modify hedging structures 

related to a physical asset or position 

when the relevant pricing relationships 

applicable to the asset change. Dynamic 

hedging, according to the commenter, 

may involve leaving an asset or position 

unhedged when necessary to mitigate 

lost opportunity cost risk, which may 

require hedges to be established, 

unwound, and re-established on an 

iterative basis over time. The 

commenter noted that in the preamble 

of the Federal Register release 

announcing the adoption of Regulation 

50.50(c), the Commission stated that 

‘‘qualification as bona fide hedging does 

not require hedges, once entered into, to 

remain static. The Commission 

recognizes that entities may update their 

hedges periodically when pricing 

relationships or market factors 

applicable to the hedges change.’’ 55 In 

light of this statement, the Commission 

agrees with the recommendation. 

Accordingly, the Commission confirms 

that the language quoted above 

concerning bona fide hedging is equally 

applicable to transactions qualifying 

under Regulation 1.3(ggg)(4)(i)(B). 

C. Comments Addressing Both 

Definitions 

A commenter 56 urged the 

Commission to ensure that the 

definitions of ‘‘utility special entity’’ 

and ‘‘utility operations-related swap’’ 

follow as closely as possible the 

analogous provisions of Staff Letter 14– 

34 (which provides relief for utility 

special entities pending a final 

rulemaking by the Commission), in 

order to minimize the burden on 

counterparties in transitioning from 

reliance on that no-action letter to 

reliance on the new regulation. In this 

regard, the commenter asked the 

Commission to determine whether the 

benefits associated with any proposed 

deviation from the terms of Staff Letter 

14–34 outweigh the costs and burdens 

of the deviation to market participants. 

In response, the Commission notes 

that the text of the analogous provisions 

in Staff Letter 14–34 is similar, but less 

specific (e.g., it does not require that the 

swap be related to an exempt 

commodity), and therefore the wording 

of the letter is subject to greater 

interpretive flexibility that could lead to 

unintended consequences. Staff Letter 

14–34 was intended to provide shortterm relief until regulatory changes 

could be implemented, whereas the 

final regulation will be a more 

permanent solution. While the 

Commission is sympathetic to the 

concerns expressed by the commenter 

regarding continuity, it is more 

important to define these terms 

precisely to effect the regulatory and 

policy purposes of the regulation. 

Accordingly, from and after the 

effective date of the Amendments, the 

relief made available by Staff Letter 14– 

34 will terminate, except with respect to 

swaps entered into in reliance upon 

Staff Letter 14–34 prior to such effective 

date. In recognition of the fact that some 

persons may have entered into swaps in 

reliance on Staff Letter 14–34, the 

Commission is clarifying that such 

persons may continue to rely upon the 

relief provided in Staff Letter 14–34 

with respect to swaps entered into prior 

to the effective date of the 

Amendments.57

Five commenters 58 asked that the 

Commission include in the text of the 

final rule (and not just in the preamble 

text of the adopting release) a provision 

that a person seeking to rely on the 

exclusion from the $25 million Special 

Entity De Minimis Threshold be able to 

rely on representations from the utility 

special entity for the basis of the 

exclusion, provided the reliance is made 

in good faith. One of the five 

commenters 59 also suggested the 

representations be in writing and 

another of these commenters 60

suggested text for the purpose. 

The Commission believes that 

explicitly stating in Regulation 

1.3(ggg)(4)(i)(B) that a person may rely 

upon a written representation from a 

utility special entity will ensure that 

prospective counterparties are aware 

that such reliance is permitted under 

the regulation, and the Commission is 

doing so in Regulation 

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

D. Proposed Regulation 

1.3(ggg)(4)(i)(B)(4): Notice Filing 

Requirement 

In the Proposal, the Commission 

solicited comment on the proposed 

notice requirement provision, 

specifically asking whether it would 

enable the Commission to achieve the 

objectives of the notice provision, as 

stated in the Proposal. One commenter 

supported the notice provision, stating 

that the requirement will provide the 

Commission with visibility to monitor 

the entities utilizing the exclusion.61

Another commenter voiced support for 

the purposes of the notice provision, 

stating that the Commission should be 

able to identify the entities that elect to 

rely on the exclusion in order to ensure 

that the exclusion serves the intended 

purpose of enabling utility special 

entities to manage operational risks in a 

cost-effective manner while 

simultaneously monitoring compliance 

with the swap dealer registration 

requirements.62

Six commenters 63 stated that the 

Commission should not adopt the 

proposed notice provision because it 

would impose unnecessary regulatory 

risks and burdens in that the proposed 

attestation requirement would create 

personal liability regarding factual 

issues that are in the control of the 

utility special entity, not the person 

making the attestation, and because the 

criteria would relate to swaps to be 

executed in the future. The commenters 

predicted that these risks and burdens 

would discourage persons from serving 

as counterparties to utility special 

entities, which would be contrary to the 

purpose of the Proposal. They also 

pointed out that counterparties relying 

on any other de minimis exclusion are 

not subject to a notice requirement and 

asserted that the Commission had not 

provided any justification for treating 

persons who serve as counterparties to 

utility special entities any differently. 

Three of the six commenters 64

disputed the rationale for the proposed 

notice provision set forth in the 

Proposal (that Congress has determined 

that special entities need additional 

protection and the notice filing will 

help the Commission monitor these 

transactions), stating that the 

Commission acknowledged in the 


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65Accordingly proposed Regulation 

1.3(ggg)(4)(i)(B)(5) (which set forth the requirement 

to keep certain records) is renumbered as 

Regulation 1.3(ggg)(4)(i)(B)(4) in the final 

regulation. 

66See EEI, EPSA, NFP, COPE, Working Group, 

IECA, and EDFTNA Comment Letters. 

67See COPE and Working Group Comment 

Letters. 

68See COPE Comment Letter. 

69See, e.g., Regulation 45.2(b) (‘‘All non-SD/MSP 

counterparties subject to the jurisdiction of the 

Commission shall keep full, complete, and 

systematic records, together with all pertinent data 

and memoranda, with respect to each swap in 

which they are a counterparty . . . .’’) 70See COPE Comment Letter. 

71See NFP Comment Letter. 

72See City of Redding Comment Letter. 

73See EEI, EDFTNA, Working Group, IECA, and 

NFP Comment Letters. 

74See EDFTNA and Working Group Comment 

Letters. 

Proposal that utility special entities are 

sophisticated and experienced market 

participants, and contending that utility 

operations-related swaps will be 

reported to swap data repositories 

(‘‘SDRs’’) and, as such, the Commission 

can already see which entities are 

entering into swap transactions with 

utility special entities. 

After considering the comments it 

received on this issue, the Commission 

has determined not to retain the notice 

filing requirement in the final 

regulation.65 However, the Commission 

believes that it is important that it 

obtain information regarding whether 

counterparties to utility special entities 

are relying on the exclusion in 

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

therefore do not need to register as swap 

dealers and generally how the exclusion 

is affecting the markets for utility 

operations-related swaps. Accordingly, 

the Commission has directed its staff to 

assess possible amendments to the 

Commission’s regulations that would 

provide the Commission with such 

information, including, potentially, 

amendments to Part 45 of the 

Commission’s regulations to add a data 

reporting field identifying utility 

operations-related swaps when they are 

reported to SDRs. 

E. Proposed Regulation 

1.3(ggg)(4)(i)(B)(5): Books and Records 

Requirement 

Seven commenters stated that the 

Commission should not adopt any 

recordkeeping requirement in the final 

regulation, claiming that such a 

requirement would be unnecessary and 

redundant.66 Counterparties to swaps 

are already required to maintain 

appropriate records for purposes of 

demonstrating compliance with the 

General De Minimis Threshold. As such, 

the commenters said, the Commission 

has access to this information and 

additional recordkeeping requirements 

for utility operations-related swap 

transactions are not needed. 

Two of the seven commenters 67 went 

on to recommend that if the 

Commission were to specify any 

additional books and records to be kept, 

it should not repeat the deliberate 

vagueness of Regulation 45.2. One 

commenter 68 suggested that the 

Commission should specify that a 

record of a counterparty’s representation 

that it is eligible for the exclusion 

should be sufficient, because, it 

asserted, a counterparty relying on such 

a representation may not necessarily 

have any other records demonstrating 

that the exclusion applies. 

The Commission believes that, while 

the general recordkeeping requirement 

in the Proposal would provide greater 

oversight capabilities, it could be 

burdensome relative to the benefits it 

would provide. As commenters noted, 

Part 45 of the Commission’s regulations 

imposes general recordkeeping 

requirements upon persons that are 

counterparties to swaps, whether or not 

such persons are within the swap dealer 

definition and therefore subject to the 

requirement to register as such,69 and 

the Commission agrees that such 

records would include those necessary 

to demonstrate the person’s compliance 

with the General De Minimis Threshold. 

Accordingly, a record of each utility 

special entity’s representation that it is 

a utility special entity and that the swap 

is a utility operations-related swap, 

together with the general recordkeeping 

requirements under Part 45, should 

provide the Commission with sufficient 

information for compliance purposes. 

Therefore, the Commission is 

including in the regulation as adopted 

the change suggested by one of the 

commenters 70 by requiring in 

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

adopted only that each person who 

relies on the written representation of a 

utility special entity retain such 

representation among its required 

records, in accordance with Regulation 

1.31. Including this requirement in the 

final regulation makes clear that records 

of such written representations, if 

received, are a necessary element of the 

records required to be kept pursuant to 

the general requirements of Part 45. 

F. Comments Addressing Specific 

Questions Asked by the Commission 

1. Question 8—Appropriateness of the 

De Minimis Threshold 

The Commission asked whether the 

$8 billion General De Minimis 

Threshold was appropriate in the 

context of utility operations-related 

swaps or whether a higher or lower 

threshold should be adopted. 

Two commenters offered support for 

the Commission’s application of the 

General De Minimis Threshold to utility 

operations-related swaps, stating that 

applying that threshold strikes the 

appropriate regulatory policy balance,71

and that it would level the playing field 

between utility special entities and 

investor-owned utilities.72

Five commenters encouraged the 

Commission to revisit the General De 

Minimis Threshold and to eliminate any 

automatic reset to any lower 

threshold.73 These commenters also 

stated that the Commission should not 

adopt a separate threshold for utility 

operations-related swaps with utility 

special entities that was lower than the 

General De Minimis Threshold, as it 

would create confusion and serve to 

limit the number of counterparties 

willing to transact with utility special 

entities. 

The second comment (eliminating an 

automatic reset of the General De 

Minimis Threshold) is beyond the scope 

of the Proposal and this rulemaking. 

With regard to the third comment, the 

Commission did not propose and is not 

adopting a separate threshold below the 

General De Minimis Threshold, and 

accordingly no changes to the Proposal 

are called for by these comments. 

2. Question 9—Appropriateness of 

Limiting Counterparty Eligibility 

Question 9 in the Proposal asked 

whether the nature of the person 

entering into swaps with a utility 

special entity should be a factor in 

determining whether the person can 

rely on the exclusion (e.g., by limiting 

the exclusion to persons who are not 

‘‘financial entities,’’ as provided in Staff 

Letter 12–18). Two commenters 74

asserted that the Commission should 

not impose limitations on the types of 

counterparties eligible to rely on 

Regulation 1.3(ggg)(4)(i)(B), arguing that 

such limitations would likely restrict 

the number of counterparties available 

to utility special entities without 

providing an associated benefit. The 

commenters believed that the 

substantial costs and burdens associated 

with registration as a swap dealer would 

likely cause an entity with even the 

slightest reservation regarding its ability 

to rely on the exclusion to err on the 

side of caution and decline to transact 

otherwise qualifying swaps with utility 

special entities. 

The Commission has concluded that 

restrictions such as excluding financial 

entities from relying on the exclusion 


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75 5 U.S.C. 601 et seq. 

76 5 U.S.C. 553. The Administrative Procedure 

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

77See 5 U.S.C. 601(2), 603–05. 

78 79 FR 31238 at 31243–31244. 

79See NFP and IECA Comment Letters. 

80This estimate is contained in NFP’s letter to the 

Office of Information and Regulatory Affairs of the 

Office of Management and Budget concerning the 

Commission’s PRA analysis. A copy of the letter is 

attached as Attachment C to the NFP Comment 

Letter. 81 44 U.S.C. 3501 et seq. 

would have a chilling effect on some 

potential market participants who 

provide energy merchant services 

without providing significant regulatory 

benefits. Given that such entities would 

be subject to registration as a swap 

dealer if they exceed the $8 billion 

General De Minimis Threshold, the 

Commission agrees that barring 

financial entities from taking advantage 

of the exclusion could thwart the 

purpose of the rulemaking while 

providing minimal additional regulatory 

protections. Therefore, the Commission 

is not adopting in Regulation 

1.3(ggg)(4)(i)(B) any limitations on the 

persons who are permitted to rely upon 

the exclusion provided by the 

regulation. 

IV. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(RFA) 75 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 76 a 

regulatory flexibility analysis or 

certification typically is required.77

The Commission stated in the 

Proposal that the proposed 

amendments, if adopted, would not 

have a significant economic impact on 

affected persons because they would 

primarily relieve such persons from 

regulatory obligations (e.g., reporting, 

recordkeeping and business conduct 

requirements) that would otherwise 

apply to them if they had to register as 

swap dealers. The Commission further 

stated that to the extent that any small 

entities opted to rely on the exclusion, 

the notice requirement would not have 

a significant economic impact on those 

entities. Finally, it noted that 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, certified 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.78

Two commenters addressed the 

Commission’s RFA discussion.79 Both 

commenters argued that the 

Commission’s preliminary estimate that 

100 persons would seek to rely upon the 

exclusion provided in Regulation 

1.3(ggg)(4)(i)(B) was low, with one 

commenter positing that the 

Commission underestimated the 

number of counterparties by a factor of 

twenty.80 The commenters argued that 

even an inconsequential notice filing 

could dissuade a potential counterparty 

from engaging in swaps with a utility 

special entity, given the lack of any 

comparable filing requirement if the 

counterparty were to offer the same 

swap to an investor-owned utility. The 

commenters argued that the vast 

majority of utility special entities are 

small entities, and that the cumulative 

economic impact on those small entities 

would be significant. 

In response, the Commission notes 

first that the RFA does not require the 

Commission to consider whether a 

proposed rulemaking will have a 

significant economic impact on persons 

indirectly affected by that rulemaking. 

The entities directly affected by the 

Amendments are counterparties to 

utility special entities, not the utility 

special entities themselves. 

Furthermore, the Commission is not 

required to conduct a full regulatory 

flexibility analysis under the RFA 

because the Amendments will not have 

a significant economic impact on any 

such small entities. 

The Commission’s preliminary 

estimate of the number of persons who 

would rely on Regulation 

1.3(ggg)(4)(i)(B) was based on the 

information available to the 

Commission at the time and was 

provided with the hope of generating 

industry comment. The Commission 

questions the accuracy of the one 

commenter’s estimate of the number of 

persons who will rely on Regulation 

1.3(ggg)(4)(i)(B), which appears to have 

been based, at least in part, on a limited 

sampling of a handful of utility special 

entities and does not appear to 

sufficiently factor in the possibility that 

utility special entities may transact with 

many of the same counterparties. 

However, even accepting the 

commenter’s estimate (which, for the 

reasons stated above, the Commission 

believes may be high), the Commission 

believes that the Amendments will not 

have a significant economic impact on 

small entities. 

While it may be that some 

counterparties to utility special entities 

are small entities, not all of them may 

find need to rely on Regulation 

1.3(ggg)(4)(i)(B). For example, 

counterparties who are small entities 

may be entering into swaps with utility 

special entities to hedge physical 

positions as set forth in Regulation 

1.3(ggg)(6)(iii). Such swaps would not 

be counted toward any de minimis 

threshold. 

For those small entities who, as 

counterparties to utility special entities, 

do rely on Regulation 1.3(ggg)(4)(i)(B), 

the Commission does not believe the 

burdens of Regulation 1.3(ggg)(4)(i)(B) 

will be significant. As discussed above, 

the Commission has not included in 

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

the proposed notice filing requirement. 

With respect to any recordkeeping 

obligations arising out of Regulation 

1.3(ggg)(4)(i)(B), the Commission 

believes that many counterparties will 

rely on a representation by the utility 

special entity that it and the swap meet 

the requirements of the final regulation, 

and such a representation will most 

likely be included in swap 

documentation that a counterparty is 

already required to keep under existing 

regulations. Thus, the Commission 

believes that the economic impact 

resulting from the obligations imposed 

by the Amendments for record keeping 

purposes will not be significant. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act 

(PRA) 81 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). The 

Proposal contained notification and 

recordkeeping requirements that are 

collections of information within the 

meaning of the PRA. Accordingly, the 

Commission submitted the required 

information collection requests to OMB. 

1. Collections of Information 

Regulation 1.3(ggg)(4)(i)(B) creates an 

exclusion from the Special Entity De 

Minimis Threshold with regard to 

specified swaps (utility operationsrelated swaps) entered into with a 

defined subset of special entities (utility 

special entities). As noted, the Proposal 

contained two elements that would 

qualify as collections of information. 

First, as proposed, a person seeking to 

rely on the exclusion would have been 


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82See NFP Comment Letter. 

83 In response to the Commission’s request for a 

new control number for this collection, OMB 

granted new OMB Control Number 3038–0109. 

However, because the Commission has determined 

not to adopt the proposed notice filing requirement, 

Commission staff will request that OMB 

discontinue that control number. 

84See NFP Comment Letter. 

85The Commission believes that the costs that are 

already being incurred include costs to the person 

using the exclusion to monitor its swap trading 

activity with special entities. Prior to the adoption 

of this exclusion, these persons would be subject to 

registration as a swap dealer if their swap dealing 

exceeded the Special Entity De Minimis Threshold. 

Therefore, these persons are likely already 

monitoring their dealing activity with all special 

entities. The additional costs would only be the cost 

of separately monitoring their dealing in utility 

operations-related swaps with utility special 

entities. 

86The hourly rate used in the burden estimate of 

the recordkeeping requirement is the same as the 

hourly rate for a financial analyst ($161/hour), 

which was used for purposes of the Commission’s 

cost benefit considerations in the swap dealer 

required to file a one-time notice, to be 

filed electronically with NFA, and 

containing the person’s name, address, 

and a contact, as well as a signed 

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 limited 

information available to the 

Commission at the time of the Proposal, 

the Commission preliminarily used a 

conservative estimate of 100 potential 

counterparties of utility special entities, 

estimated that the filing of the notice 

and ongoing verification of compliance 

would take 1.2 hours annually, and 

calculated an annual reporting burden 

of $79,680. On that basis, the 

Commission requested a new collection 

of information control number from 

OMB and invited public comment on its 

paperwork burden calculations or the 

notice filing requirement. 

Second, as proposed, Regulation 

1.3(ggg)(4)(i)(B) also required 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 to 

substantiate its eligibility. As noted 

above, the Commission preliminarily 

estimated that 100 persons may seek to 

rely on the exclusion for utility 

operations-related swaps, if adopted. 

The Commission estimated that the 

recordkeeping requirement would take 

one hour annually, and calculated an 

annual recordkeeping burden of 

$16,100. On this basis, the Commission 

submitted a request to amend OMB 

Control Number 3038–0090 and invited 

public comment on its paperwork 

burden calculations and the 

recordkeeping requirement. 

2. Information Collection Comments 

The Commission invited comment on 

any aspect of the information collection 

requirements discussed in the Proposal. 

One commenter addressed the 

Commission’s PRA estimates.82 The 

commenter expressed the view that the 

Commission had failed to explain the 

need for the notice filing requirement or 

the ways in which the Commission 

would use the information so obtained, 

and predicted that the costs of utility 

operations-related swaps would be 

increased due to regulatory risk to 

potential counterparties, costs of 

collecting data, and arranging to file the 

notice with NFA. The commenter 

further stated that the Commission had 

not identified the additional books or 

records that would be required to be 

kept, over and above the existing 

requirements applicable to persons 

engaging in swaps, or how the 

Commission would use that additional 

information. Moreover, the commenter 

asserted that the Commission had 

underestimated the gross annual 

reporting burden by a factor of twenty. 

In response to these comments, the 

Commission notes that in adopting 

Regulation 1.3(ggg)(4)(i)(B) it has made 

significant changes to the regulation as 

proposed. After consideration of the 

comments received, and as stated above, 

the Commission has determined not to 

adopt in Regulation 1.3(ggg)(4)(i)(B) a 

notice filing requirement. 

This eliminates the first collection 

described above.83 In addition, as 

adopted, Regulation 1.3(ggg)(4)(i)(B)(4) 

permits a person to rely upon a written 

representation obtained from a utility 

special entity that it is a utility special 

entity under the regulation, and that the 

swap the person engages in with the 

utility special entity is a utility 

operations-related swap. The regulation 

does not, then, contain a general 

recordkeeping requirement to 

substantiate a person’s eligibility to rely 

on the exclusion. Instead, the only 

recordkeeping requirement the 

Commission has adopted is that the 

person keep, in accordance with 

Regulation 1.31, any written 

representations the person may have 

obtained from utility special entities in 

accordance with Regulation 

1.3(ggg)(4)(i)(B)(4) as adopted. As 

commenters noted, counterparties to 

swaps are already subject to 

recordkeeping requirements under Part 

45 of the Commission’s regulations, and 

those requirements, together with the 

requirement in Regulation 

1.3(ggg)(4)(i)(B)(4) to retain any such 

written representations, should be 

sufficient for the Commission’s 

compliance purposes. This is a 

reduction from the paperwork burden 

for the second collection described 

above and as proposed. 

The PRA requires, in part, that each 

collection of information submitted to 

OMB is necessary for the proper 

performance of the functions of the 

agency, including that the information 

has practical utility. In the submissions 

to OMB for the Proposal, the 

Commission identified the reasons why 

the collection is necessary for the 

agency and how it will use the 

information. 

The requirement to keep a record of 

the written representation that a 

counterparty obtains from a utility 

special entity and on which the 

counterparty relies in determining that 

it is eligible for the exclusion in 

Regulation 1.3(ggg)(4)(i)(B) will enable 

the Commission to quickly and 

efficiently confirm that persons relying 

on the exclusion are eligible to rely on 

the exclusion. 

As the Commission stated in the 

Proposal, the number of 100 potential 

respondents for PRA purposes (i.e., 

counterparties to engage in utility 

operations-related swaps with utility 

special entities) was a preliminary and 

conservative estimate based on the 

limited information available to the 

Commission at the time. One 

commenter argued that this estimate 

understated the actual PRA burden by a 

factor of 20.84 As mentioned above, the 

Commission questions the accuracy of 

this estimate, which appears to have 

been based, at least in part, on a limited 

sampling of a handful of utility special 

entities and does not appear to 

sufficiently factor in the possibility that 

utility special entities may transact with 

many of the same counterparties. 

Nevertheless, the Commission has 

recalculated its PRA burden estimates 

using the commenter’s estimate. The 

recalculation takes into account the 

Commission’s determination not to 

adopt in Regulation 1.3(ggg)(4)(i)(B) the 

proposed notice filing requirement. The 

recalculation also takes into account a 

reduction in the estimate from the 

Proposal of the average burden hours 

due to the Commission’s belief that any 

additional recordkeeping costs imposed 

by the Amendments are likely to be 

small, as most of the costs are most 

likely already being incurred.85

Accordingly, the Commission has 

recalculated the estimated burden from 

that set forth in the Proposal, using an 

estimate of 2,000 respondents and 

reducing the annual burden hours 86 by 

half, as follows: 


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Federal Register / Vol. 79, No. 187 / Friday, September 26, 2014 / Rules and Regulations 57779 

definition regulations that are being amended by 

the Amendments. See 77 FR at 30715, n.1359. 

87See, e.g., Part 23 of the Commission’s 

regulations. 

88While Staff Letter 14–34 provided no-action 

relief in certain circumstances, and subject to 

certain requirements, that are similar to those of the 

Amendments, the Commission believes that Staff 

Letter 14–34 did not set or affect the baseline from 

which the Commission considered the costs and 

benefits of the Proposal. This is because Staff Letter 

14–34 only stated the position of the Division that 

it would not recommend enforcement action to the 

Commission and, further, that the letter and the 

positions taken therein do not necessarily represent 

the position or view of the Commission or any other 

office or division of the Commission. 

89See 77 FR at 30596, 30627–30628. 

90See 77 FR at 30633. 

91See 77 FR at 30707 (stating that the benefits of 

swap dealing regulation include customer 

protection, market orderliness and market 

transparency). 

92See, e.g., NFP and IECA Comment Letters. 

93The Commission notes that acquiring written 

representations to verify that a counterparty is a 

utility special entity and the swap is a utility 

operations-related swap in accordance with 

Regulation 1.3(ggg)(4)(i)(B)(4) is elective. 

94The Commission has provided above an 

estimate of the annual costs associated with the 

recordkeeping requirement for purposes of the PRA. 

Recordkeeping requirement: 

Number of Respondents: 2,000. 

Frequency of Response: Annually. 

Average Burden Hours per Response: 

0.5. 

Estimated Gross Annual Reporting 

Burden: $161,000. 

On this basis, the Commission is 

amending its requests to OMB with 

respect to Control Number 3038–0090 

for the recordkeeping requirement. 

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 

amending its regulations 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 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.87 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. Without the adoption 

of Regulation 1.3(ggg)(4)(i)(B), persons 

who engage in swap dealing activity 

with special entities, including utility 

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 Amendments. That is, the 

Commission considered the costs and 

benefits that would result from allowing 

persons to exclude utility operationsrelated 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 be 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 Amendments.88

The Commission invited comments 

from the public on all aspects of its 

preliminary consideration of costs and 

benefits associated with the Proposal, 

and the Cost-Benefit Considerations 

section of the Proposal was followed by 

a set of specific questions. While those 

who commented on the Proposal did 

not specifically address the Cost-Benefit 

Considerations section of the Proposal, 

certain of the comments raised issues 

with respect to the Commission’s costbenefit considerations. Accordingly, 

although the Commission has addressed 

those comments above in connection 

with the specific proposed regulatory 

provision of the Amendments to which 

they referred, the Commission is also 

referencing those comments in the 

discussion that follows. 

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.’’ 89 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.90

One effect of the Amendments is that 

a greater quantity of swap dealing with 

utility special entities will potentially 

be undertaken without the benefits to 

utility special entities of that dealing 

activity being subject to swap dealer 

regulation.91 In addition, the 

Amendments will impose costs 

associated with ascertaining whether a 

person is eligible to rely on the 

proposed exclusion for utility 

operations-related swaps. Finally, to the 

extent that a person relying on the 

exclusion would be required to keep 

books and records it would not 

otherwise keep, that represents another 

potential cost. The Commission invited 

comment 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. 

Certain comments characterized the 

compliance and other costs of making 

the notice filing and keeping the books 

and records called for under the 

Proposal as excessive, not justified, and 

likely to deter counterparties from 

engaging in swaps with utility special 

entities.92 As noted above, the 

Commission has determined not to 

adopt the proposed notice filing 

requirement, and has reduced the scope 

of the recordkeeping requirement under 

the final regulation to only include a 

requirement to keep the written 

representations, if any, from utility 

special entities.93 As a result, the costs 

associated with the proposed notice 

requirement have been eliminated, and 

the Commission believes the costs 

associated with the recordkeeping 

requirement on an individual basis will 

be less than the estimate contained in 

the Proposal.94

3. Benefits. With respect to benefits, 

the Commission explained in the 

Proposal its belief that the exclusion in 

Regulation 1.3(ggg)(4)(i)(B) will benefit 

utility special entities and the public by 


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57780 Federal Register / Vol. 79, No. 187 / Friday, September 26, 2014 / Rules and Regulations 

95The 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 77 FR at 30707. 

96 77 FR at 30596, 30627–30628. 

97 Id. at 30633. 

98 Id. 

encouraging a greater number of 

prospective counterparties to engage 

with utility special entities in utility 

operations-related swaps.95 Because of 

the local and particularized nature of 

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 nonphysical commodities. The number of 

counterparties to utility special entities 

may be further limited due to the 

unique obligation of these 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, potentially increasing 

the number of counterparties to utility 

special entities may be in the public 

interest. 

Accordingly, increasing the number of 

potential counterparties available for 

utility special entities to engage in 

operations-related hedging transactions 

may (i) result in a lower cost to hedge 

(i.e., lower spreads) and (ii) enable 

utility special entities to better manage 

their business. This should, 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. The Commission 

sought comments 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. 

While commenters did not 

specifically address the Commission’s 

consideration of the costs and benefits 

of the Proposal, certain of the comments 

raise issues with respect to the 

Commission’s costs and benefits 

considerations. Specifically, as 

discussed with respect to the comments 

the Commission received on its RFA 

analysis, the proper baseline from 

which to consider the costs and benefits 

of the regulation is the state of affairs at 

the time the regulation is to be adopted 

(i.e., a counterparty to a utility special 

entity is required to register as a swap 

dealer if they exceed the Special Entity 

De Minimis Threshold). Registration as 

a swap dealer entails costs that a person 

who can take advantage of the exclusion 

in Regulation 1.3(ggg)(4)(i)(B) would not 

have to incur. 

As noted above, some of the 

commenters were of the view that the 

notice filing and recordkeeping 

requirements are unjustified or 

inadequately supported by the 

explanation in the Proposal. The 

commenters further stated that the 

Commission could monitor use of the 

exclusion by using existing data 

reported to the SDRs. As noted above, 

the Commission has not included a 

notice filing requirement in Regulation 

1.3(ggg)(4)(i)(B) as adopted. As a result, 

the costs associated with the notice 

filing requirement that were identified 

in the Proposal have been eliminated. 

Although there are additional costs 

associated with maintaining records 

pertaining to the use of the exclusion, 

such costs are likely to be incremental 

since most persons relying on the 

exclusion are likely to rely on a 

representation from their counterparty, 

a utility special entity, that it qualifies 

as a utility special entity and that the 

swap transaction is a utility operationsrelated swap within the meaning of the 

final regulation. Such a representation 

would likely be added to the swap 

documentation that counterparties are 

already required to maintain under 

existing regulations or that they 

maintain in the normal course of their 

business. 

The general recordkeeping 

requirement that was included in the 

Proposal has been reduced to a 

requirement to retain only the written 

representations, if any, that a person 

receives from a utility special entity. 

Accordingly, the recordkeeping costs of 

the Amendments on an individual basis 

will be less than as estimated in the 

Proposal. The requirement to keep those 

written representations will enable the 

Commission to quickly and efficiently 

confirm that persons relying on the 

exclusion are eligible to rely on the 

exclusion. 

Additionally, expanding the 

definition of utility operations-related 

swap to include swaps related to certain 

agricultural commodities will provide 

benefits to utility special entities that 

use such swaps in their normal 

operations, and in a manner consistent 

with the purposes of the regulation. 

However, the Commission notes that 

there may be costs associated with 

expanding the definition. Specifically, 

an overbroad definition that does not 

properly balance the need to provide 

additional regulatory protections for 

special entities, including utility special 

entities, against the policies for the 

exclusion would be contrary to the 

public interest. 

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. Again, 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.’’ 96 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.’’ 97 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 had incurred 

in the financial markets in connection 

with the 2008 financial crisis.98 By 

allowing more persons who are not 

registered as swap dealers to engage in 

certain swaps with utility special 

entities, fewer special entities will have 

the benefit of the special entity 

protections as a result of the 

Amendments. However, given the 

narrow tailoring of the exclusion and 

the requirements persons must meet to 

rely on the exclusion, the Commission 

believes the costs of such reduced 

protections to the affected utilities, 

market participants and the public may 

be limited. Moreover, these costs will be 

counteracted by the benefits the 

Amendments 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 believes that the 

Amendments 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 

potentially lowering their transaction 


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Federal Register / Vol. 79, No. 187 / Friday, September 26, 2014 / Rules and Regulations 57781 

costs. Further, because the exclusion is 

narrowly tailored, the Commission 

believes that removing the protections 

provided by swap dealer registration 

and regulation for some utility special 

entity counterparties will not noticeably 

impact the integrity of the swaps 

market. 

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, and should not adversely 

impact, the prices that the utility special 

entities receive on their swap contract 

transactions. Better pricing might 

enhance price discovery if the bid-ask 

spreads in transactions involving utility 

special entities narrow due to more 

competition, but the Commission 

cannot be sure this will be the case as 

the potential improved pricing might 

not occur or could be negligible. 

d. Sound Risk Management. The 

Commission 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 believes the Amendments 

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. 

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 amends 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. In § 1.3, revise 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 

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 to hedge or mitigate commercial 

risk as defined 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, 7 U.S.C. 

1a(20), or to an agricultural commodity 

insofar as such agricultural commodity 

is used for fuel for generation of 

electricity or is otherwise used in the 

normal operations of the utility special 

entity; 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) A person seeking to rely on the 

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

of this section may rely on the written 

representations of 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 paragraphs (ggg)(4)(i)(B)(2) and (3) of 

this section, respectively, unless it has 

information that would cause a 

reasonable person to question the 

accuracy of the representation. The 


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57782 Federal Register / Vol. 79, No. 187 / Friday, September 26, 2014 / Rules and Regulations 

person must keep such representation in 

accordance with § 1.31. 

* * * * * 

Issued in Washington, DC, on September 

23, 2014, by the Commission. 

Christopher J. Kirkpatrick, 

Secretary of the Commission. 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendices to Exclusion of Utility 

Operations-Related Swaps With Utility 

Special Entities From De Minimis 

Threshold for Swaps With Special 

Entities—Commission Voting Summary 

and Chairman’s Statement 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Massad and 

Commissioners Wetjen, Bowen, and 

Giancarlo voted in the affirmative. No 

Commissioner voted in the negative. 

Appendix 2—Statement of Chairman 

Timothy G. Massad 

I support this final rule pertaining to the 

swap activities of small utility companies. 

These companies are responsible for keeping 

the lights on in communities across our 

country, for heating and cooling our homes, 

and powering the kitchen appliances that we 

use every day to feed our families. To do 

their job, they must manage the risk of their 

own fuel costs, and to do that, they must be 

able to access the energy commodity markets. 

This final rule will help make sure they can 

do so. 

In the Dodd-Frank Act, Congress directed 

the Commission to impose heightened 

standards on swap dealers in their swap 

activities with Federal, state and municipal 

government agencies and certain other socalled ‘‘special entities.’’ This was in 

response to the instances where swap dealers 

may have failed to disclose material risks of 

swap transactions to municipal entities or 

otherwise acted improperly, which often 

resulted in massive losses to the 

municipality. 

Because Congress defined ‘‘special entity’’ 

broadly, when the Commission implemented 

this Congressional directive through a 

previous rulemaking, the rule was applied to 

many utility companies that are governmentowned. These companies, which serve 

communities across our nation, engage in 

energy swaps. The counterparties with whom 

they transact business were often not 

registered swap dealers, nor were they the 

dealers that engaged in the abusive practices 

that led to Congress’s concerns. The 

imposition of these requirements through a 

designation as a swap dealer could unduly 

burden their business and thereby threaten 

the ability of our local utility companies to 

manage their risks. This rule fixes that 

problem. 

This final rule benefited from public 

comment. In key respects, we made 

adjustments to our initial proposal to address 

concerns raised during the notice and 

comment process. 

Implementing this final rule is an 

important step in our effort to finish the job 

of implementing the Dodd-Frank Act and 

will help us achieve the full benefit of the 

new regulatory framework, while at the same 

time protecting the interests of—and 

minimizing the burdens on—commercial 

end-users who depend on the derivatives 

markets to hedge normal business risks. 

[FR Doc. 2014–22966 Filed 9–25–14; 8:45 am] 

BILLING CODE 6351–01–P 

DEPARTMENT OF HOMELAND 

SECURITY 

U.S. Customs and Border Protection 

19 CFR Part 122 

[CBP Dec. 14–10] 

Technical Amendment to List of User 

Fee Airports: Addition of John Wayne 

Airport in Santa Ana, California and 

Renaming of Williams Gateway Airport 

in Mesa, Arizona to Phoenix-Mesa 

Gateway Airport 

AGENCY: U.S. Customs and Border 

Protection, Department of Homeland 

Security. 

ACTION: Final rule; technical 

amendment. 

SUMMARY: This document amends the 

U.S. Customs and Border Protection 

(CBP) regulations by revising the list of 

user fee airports to reflect the recent 

user fee airport designation for the John 

Wayne Airport in Santa Ana, California 

and the renaming of the Williams 

Gateway Airport in Mesa, Arizona to the 

Phoenix-Mesa Gateway Airport. User fee 

airports are those airports which, while 

not qualifying for designation as 

international or landing rights airports, 

have been approved by the 

Commissioner of CBP to receive, for a 

fee, the services of CBP officers for the 

processing of aircraft entering the 

United States, and the passengers and 

cargo of those aircraft. 

DATES: Effective Date: September 26, 

2014. 

FOR FURTHER INFORMATION CONTACT: 

Roger Kaplan, Office of Field 

Operations, Roger.Kaplan@dhs.gov or 

202–325–4543. 

SUPPLEMENTARY INFORMATION:

I. Background 

Title 19, part 122, Code of Federal 

Regulations (19 CFR part 122), sets forth 

regulations relating to the entry and 

clearance of aircraft in international 

commerce and the transportation of 

persons and cargo by aircraft in 

international commerce. 

Generally, a civil aircraft arriving 

from a place outside of the United States 

is required to land at an airport 

designated as an international airport. 

Alternatively, the pilot of a civil aircraft 

may request permission to land at a 

specific airport, and, if landing rights 

are granted by CBP, the civil aircraft 

may land at that landing rights airport. 

Section 236 of the Trade and Tariff 

Act of 1984 (Pub. L. 98–573), codified 

at 19 U.S.C. 58b, created an option for 

civil aircraft desiring to land at an 

airport other than an international 

airport or a landing rights airport. A 

civil aircraft arriving from a place 

outside of the United States may ask for 

permission to land at an airport 

designated by the Secretary of 

Homeland Security as a user fee airport. 

Pursuant to 19 U.S.C. 58b, an airport 

may be designated as a user fee airport 

if the Commissioner of CBP, as 

delegated by the Secretary of Homeland 

Security, determines that the volume of 

business at the airport is insufficient to 

justify customs services at the airport 

and the governor of the state in which 

the airport is located approves the 

designation. 

As the volume of business anticipated 

at this type of airport is insufficient to 

justify its designation as an 

international or landing rights airport, 

the availability of customs services is 

not paid for out of appropriations from 

the general treasury of the United States. 

Instead, customs services are provided 

on a fully reimbursable basis to be paid 

for by the user fee airport on behalf of 

the recipients of the services. Generally, 

the type of airport that would seek 

designation as a user fee airport would 

be one at which a company, such as an 

air courier service, has a specialized 

interest in regularly landing. 

The Commissioner of CBP designates 

airports as user fee airports pursuant to 

19 U.S.C. 58b. If the Commissioner 

decides that the conditions for 

designation as a user fee airport are 

satisfied, a Memorandum of Agreement 

(MOA) is executed between the 

Commissioner of CBP and the local 

responsible official signing on behalf of 

the state, city, or municipality in which 

the airport is located. In this manner, 

user fee airports are designated on a 

case-by-case basis. 

The fees which are to be charged at 

user fee airports shall be paid by each 

person using the customs services at the 

airport and shall be in the amount equal 

to the expenses incurred by the 

Commissioner of CBP in providing 

customs services which are rendered to 

such person at such airport, including 

the salary and expenses of those 

employed by the Commissioner of CBP 


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