50998 Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 

1 17 CFR 145.9. 

TABLE 2—POPULATION ABUNDANCE ESTIMATES, TOTAL PROPOSED LEVEL B TAKE, AND PERCENTAGE OF POPULATION

THAT MAY BE TAKEN FOR THE POTENTIALLY AFFECTED SPECIES DURING THE PROPOSED ROCKY INTERTIDAL MONITORING PROGRAM

Species Abundance* Total proposed 

level B take 

Percentage of 

stock or population 

Harbor Seal ............................................................................................................................ 30,196 175 0.6 

California Sea Lion ................................................................................................................ 296,750 6,850 2.3 

Northern Elephant Seal ......................................................................................................... 124,000 225 0.2 

Steller Sea Lion ..................................................................................................................... 58,334–72,223 95 0.1–0.2 

Northern Fur Seal .................................................................................................................. 9,968 20 0.2 

* Abundance estimates are taken from the 2011 U.S. Pacific Marine Mammal Stock Assessments (Carretta et al., 2012). 

Impact on Availability of Affected 

Species or Stock for Taking for 

Subsistence Uses 

There are no relevant subsistence uses 

of marine mammals implicated by this 

action. Therefore, NMFS has 

determined that the total taking of 

affected species or stocks would not 

have an unmitigable adverse impact on 

the availability of such species or stocks 

for taking for subsistence purposes. 

Endangered Species Act (ESA) 

There is one marine mammal species 

listed as threatened under the ESA with 

confirmed or possible occurrence in the 

proposed project area: the eastern U.S. 

stock of Steller sea lion. NMFS’ Permits 

and Conservation Division has 

determined that issuance of the 

proposed IHA to GFNMS under section 

101(a)(5)(D) of the MMPA may affect 

this species and has initiated 

consultation with NMFS’ Endangered 

Species Division under section 7 of the 

ESA for this activity. Consultation will 

be concluded prior to a determination 

on the issuance of an IHA. 

National Environmental Policy Act 

(NEPA) 

NMFS is currently preparing an 

Environmental Assessment (EA), 

pursuant to NEPA, to determine 

whether the issuance of an IHA to 

GFNMS for its 2012–2013 rocky 

intertidal monitoring activities may 

have a significant impact on the human 

environment. This analysis and a 

determination on whether to issue a 

Finding of No Significant Impact 

(FONSI) will be completed prior to the 

issuance or denial of this proposed IHA. 

This identifies our environmental issues 

and provides environmental issues 

relevant to the proposed action. 

Members of the public are invited to 

provide comments, and NMFS will 

consider and evaluate responsive 

comments as it prepares the EA and 

decides whether to issue a FONSI. 

Proposed Authorization 

As a result of these preliminary 

determinations, NMFS proposes to 

authorize the take of marine mammals 

incidental to GFNMS’ rocky intertidal 

and black abalone monitoring research 

activities, provided the previously 

mentioned mitigation, monitoring, and 

reporting requirements are incorporated. 

Dated: August 16, 2012. 

Helen M. Golde, 

Acting Director, Office of Protected Resources, 

National Marine Fisheries Service. 

[FR Doc. 2012–20790 Filed 8–22–12; 8:45 am] 

BILLING CODE 3510–22–P 

COMMODITY FUTURES TRADING 

COMMISSION 

Proposal To Exempt Certain 

Transactions Involving Not-for-Profit 

Electric Utilities; Request for 

Comments 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘CFTC’’ or the 

‘‘Commission’’) is proposing to exempt 

certain transactions between not-forprofit utilities (entities described in 

section 201(f) of the Federal Power Act 

(‘‘FPA’’)), and other electric utility 

cooperatives, from the provisions of the 

Commodity Exchange Act (‘‘CEA’’ or 

‘‘Act’’) and the regulations there under, 

subject to certain antifraud, antimanipulation, and recordkeeping 

conditions. Authority for this exemption 

is found in section 4(c) of the CEA. The 

Commission is requesting comment on 

every aspect of this Notice of Proposed 

Order (‘‘Notice’’). 

DATES: Comments must be received on 

or before September 24, 2012. 

ADDRESSES: You may submit comments 

by any of the following methods: 

• Agency Web site, via its Comments 

Online process: http:// 

comments.cftc.gov. Follow the 

instructions for submitting comments 

through the Web site. 

• Mail: David A. Stawick, Secretary of 

the Commission, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street NW., 

Washington, DC 20581. 

• Courier: Same as mail above. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

Please submit your comments using 

only one method. 

All comments must be submitted in 

English, or if not, accompanied by an 

English translation. Comments will be 

posted as received to http:// 

www.cftc.gov. You should submit only 

information that you wish to make 

available publicly. If you wish the CFTC 

to consider information that you believe 

is exempt from disclosure under the 

Freedom of Information Act, a petition 

for confidential treatment of the exempt 

information may be submitted according 

to the procedures established in § 145.9 

of the CFTC’s regulations.1

The CFTC reserves the right, but shall 

have no obligation, to review, prescreen, filter, redact, refuse or remove 

any or all of your submission from 

http://www.cftc.gov that it may deem to 

be inappropriate for publication, such as 

obscene language. All submissions that 

have been redacted or removed that 

contain comments on the merits of this 

action will be retained in the public 

comment file and will be considered as 

required under the Administrative 

Procedure Act and other applicable 

laws, and may be accessible under the 

Freedom of Information Act. 

FOR FURTHER INFORMATION CONTACT: 

David Van Wagner, Chief Counsel, (202) 

418–5481, dvanwagner@cftc.gov, or 

Graham McCall, Attorney Advisor, (202) 

418–6150, gmccall@cftc.gov, Division of 

Market Oversight, Commodity Futures 

Trading Commission, Three Lafayette 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 50999 

2The Petition is available on the Commission’s 

Web site at http://www.cftc.gov/stellent/groups/ 

public/@rulesandproducts/documents/ifdocs/ 

nrecaetalltr060812.pdf. 

3 7 U.S.C. 1 et seq. 

4The Commission’s regulations are set forth in 

title 17 of the Code of Federal Regulations (‘‘CFR’’). 

5 7 U.S.C. 6(c). 

6House Conf. Report No. 102–978, 1992 

U.S.C.C.A.N. 3179, 3213 (‘‘4(c) Conf. Report’’). 

7 4(c) Conf. Report at 3214–3215. 

8Section 4(c)(1) of the CEA, 7 U.S.C. 6(c)(1), 

provides in full that: 

In order to promote responsible economic or 

financial innovation and fair competition, the 

Commission by rule, regulation, or order, after 

notice and opportunity for hearing, may (on its own 

initiative or on application of any person, including 

any board of trade designated or registered as a 

contract market or derivatives transaction execution 

facility for transactions for future delivery in any 

commodity under section 7 of this title) exempt any 

agreement, contract, or transaction (or class thereof) 

that is otherwise subject to subsection (a) of this 

section (including any person or class of persons 

offering, entering into, rendering advice or 

rendering other services with respect to, the 

agreement, contract, or transaction), either 

unconditionally or on stated terms or conditions or 

for stated periods and either retroactively or 

prospectively, or both, from any of the requirements 

of subsection (a) of this section, or from any other 

provision of this chapter * * * if the Commission 

determines that the exemption would be consistent 

with the public interest. 

9CEA section 1a(38) defines ‘‘person’’ to include 

‘‘individuals, associations, partnerships, 

corporations, and trusts.’’ 7 U.S.C. 1a(38). 

10See 7 U.S.C. 6(c)(2). 

11See 7 U.S.C. 6(c)(3)(H). 

12See 7 U.S.C. 6(c)(3)(K). 

13Pub. L. 111–203, 124 Stat. 1376 (2010). The text 

of the Dodd-Frank Act may be accessed at http:// 

www.cftc.gov/LawRegulation/DoddFrankAct/ 

index.htm. Title VII of the Dodd-Frank Act 

amended the CEA to establish a comprehensive 

new regulatory framework for swaps and securitybased swaps. The legislation was enacted to reduce 

risk, increase transparency, and promote market 

integrity within the financial system by, among 

other things: (1) providing for the registration and 

comprehensive regulation of swap dealers (‘‘SDs’’) 

and major swap participants (‘‘MSPs’’); (2) 

imposing clearing and trade execution requirements 

Continued 

Centre, 1155 21st Street NW., 

Washington, DC 20581. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Introduction 

A. CEA Section 4(c) 

B. FPA Section 201(f) 

II. Petition 

A. Relief Requested 

B. Definition and Scope of Electric 

Operations-Related Transactions 

1. Electric Energy Delivered 

2. Generation Capacity 

3. Transmission Services 

4. Fuel Delivered 

5. Cross-Commodity Transaction 

6. Other Goods and Services Agreements, 

Contracts and Transactions 

7. Environmental Rights, Allowances or 

Attributes 

C. Definition and Scope of NFP Electric 

Entities 

1. FPA 201(f) Entities 

a. Government and Cooperatively Owned 

Electric Utilities Described by FPA 

Section 201(f) 

b. Federally-Recognized Indian Tribes 

2. Non-FPA 201(f) Electric Cooperatives 

III. Commission Determinations 

A. Scope of the Proposed Order 

1. Exempt Entities 

a. Electric Utilities Owned by Federal, 

State, or Local Government 

b. Electric Utilities Owned by an Indian 

Tribe 

c. Electric Utilities Owned as Cooperative 

Organizations 

2. Exempt Non-Financial Energy 

Transactions 

3. Conditions 

B. CEA Section 4(c) Considerations 

1. Responsible Economic or Financial 

Innovation and Fair Competition 

2. Applicability of CEA Section 4(a) 

3. Public Interest and Purposes of the CEA 

a. Public Interest 

b. Purposes of the CEA 

4. Appropriate Persons 

5. Ability to Discharge Regulatory or SelfRegulatory Duties 

IV. Proposed Order 

V. Request for Comment 

VI. Related Matters 

A. Regulatory Flexibility Act 

B. Paperwork Reduction Act 

C. Consideration of Costs and Benefits 

I. Introduction 

On June 8, 2012, the Commission 

received a petition (‘‘Petition’’) 2 from a 

group of trade associations that 

represent government and/or 

cooperatively-owned electric utilities 

requesting relief from the requirements 

of the CEA 3 and Commission’s 

regulations thereunder,4 pursuant to 

CEA section 4(c),5 for certain electric 

energy-related transactions between notfor-profit electric energy utilities. In this 

Notice, after summarizing and 

reviewing the representations made in 

the Petition, the Commission proposes 

conditional relief pursuant to CEA 

section 4(c) for non-financial energy 

transactions between not-for-profit 

utilities described in FPA section 201(f) 

and other electric cooperatives. 

A. CEA Section 4(c) 

Section 4(c) of the CEA provides the 

Commission with broad authority to 

exempt certain transactions and market 

participants from the requirements of 

the Act. When adding section 4(c) to the 

CEA, Congress noted that the goal of the 

provision ‘‘is to give the Commission a 

means of providing certainty and 

stability to existing and emerging 

markets so that financial innovation and 

market development can proceed in an 

effective and competitive manner.’’ 6

The House-Senate Conference 

Committee reconciling the provision’s 

language noted that: 

The Conferees do not intend that the 

exercise of exemptive authority by the 

Commission would require any 

determination beforehand that the agreement, 

instrument, or transaction for which an 

exemption is sought is subject to the [CEA]. 

Rather, this provision provides flexibility for 

the Commission to provide legal certainty to 

novel instruments where the determination 

as to jurisdiction is not straightforward. 

Rather than making a finding as to whether 

a product is or is not a futures contract, the 

Commission in appropriate cases may 

proceed directly to issuing an exemption.7

Specifically, CEA section 4(c)(1) 

empowers the CFTC to ‘‘promote 

responsible economic or financial 

innovation and fair competition’’ by 

exempting any transaction (or class 

thereof) that otherwise would be subject 

to CEA section 4(a), or any person (or 

class thereof) dealing in such 

transaction(s), from any or all of the 

provisions of the CEA where the 

Commission determines that the 

exemption would be consistent with the 

public interest.8 The Commission may 

grant such an exemption by rule, 

regulation or order, after notice and 

opportunity for hearing, and may do so 

on application of any person 9 or on its 

own initiative. 

CEA section 4(c)(2) provides that the 

Commission shall not grant any 

exemption under section 4(c)(1) from 

any of the requirements of section 4(a) 

unless the Commission determines, 

among other things, that: (i) the 

exemption would be consistent with the 

public interest and the purposes of the 

CEA; (ii) the exempt agreement, 

contract, or transactions will be entered 

into solely between ‘‘appropriate 

persons;’’ and (iii) the exemption will 

not have a material adverse effect on the 

ability of the Commission or any 

contract market to discharge its 

regulatory or self-regulatory duties 

under the CEA.10

CEA section 4(c)(3) outlines which 

entities may constitute ‘‘appropriate 

person[s]’’ for purposes of a CEA section 

4(c) exemption, including (as relevant to 

this Notice): (i) Any governmental entity 

(including the United States, any State, 

or any foreign government) or political 

subdivision thereof, or any 

multinational or supranational entity or 

any instrumentality, agency, or 

department of any of the foregoing; 11 or 

(ii) such other persons that the 

Commission determines to be 

appropriate in light of their financial or 

other qualifications, or the applicability 

of appropriate regulatory protections.12

The Dodd-Frank Wall Street Reform 

and Consumer Protection Act (‘‘DoddFrank Act’’) 13 added new subparagraph 


tkelley on DSK3SPTVN1PROD with NOTICES
51000 Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 

on standardized derivative products; (3) creating 

robust recordkeeping and real-time reporting 

regimes; and (4) enhancing the Commission’s 

rulemaking and enforcement authorities with 

respect to, among others, all registered entities and 

intermediaries subject to the Commission’s 

oversight. 

14 7 U.S.C. 6(c)(6)(C) (as added by section 722(f) 

of the Dodd-Frank Act). 

15For any exemption involving CEA section 

4(c)(6), the Commission believes ‘‘both’’ is the 

correct characterization because CEA section 4(c)(6) 

explicitly directs the Commission to consider any 

exemption proposed under 4(c)(6) ‘‘in accordance 

with [sections 4(c)(1) and 4(c)(2)].’’ 

16 16 U.S.C. 791a et seq. 

17See www.ferc.gov. 

18Part II of the FPA governs the transmission and 

sale at wholesale of electric energy in interstate 

commerce, including the facilities used for such 

transmission or sale. See 16 U.S.C. 824 et seq. 

Section 201(f) does not, however, provide an 

exemption from FPA parts I or III. Part I of the FPA 

deals with the establishment and functioning of 

FERC and the regulation of hydroelectric resources. 

See 16 U.S.C. 792 et seq. Part III of the FPA deals 

with recordkeeping and reporting requirements and 

FERC’s procedural rules concerning complaints, 

investigations, and hearings. See 16 U.S.C. 825 et 

seq. Additionally, section 201(f) does not provide 

an exemption from FERC’s refund authority, 16 

U.S.C. 824e, reliability standards, 16 U.S.C. 

824o(b)(1), or jurisdiction over transmission 

facilities and services, 16 U.S.C. 824(i)–(j). 

19 16 U.S.C. 824(f). 

20The Petition is available on the Commission’s 

Web site at http://www.cftc.gov/stellent/groups/ 

public/@rulesandproducts/documents/ifdocs/ 

nrecaetalltr060812.pdf. 

21According to the Petition, NRECA is the 

national service organization for more than 900 notfor-profit rural electric cooperatives and 

government-owned power districts. NRECA’s 

members provide electric energy to approximately 

42 million consumers in 47 states, or thirteen 

percent of the nation’s population. See Petition at 

3. 

22According to the Petition, APPA is the national 

trade association that represents the interests of 

government-owned electric utilities in the United 

States. APPA’s member utilities are not-for-profit 

utility systems that were created by state or local 

governments to serve the public interest. 

Approximately 2,000 government-owned electric 

utilities provide over fifteen percent of all kilowatt 

hour (‘‘KWh’’) sales to retail electric customers. See 

Petition at 3–4. 

23According to the Petition, LPPC is an 

organization representing 24 of the largest 

government-owned electric utilities in the nation. 

LPPC members own and operate over 86,000 

megawatts of generation capacity and nearly 35,000 

circuit miles of high voltage transmission lines, 

representing nearly 90 percent of the transmission 

investment owned by non-Federal governmentowned electric utilities in the United States. See 

Petition at 4. 

24According to the Petition, TAPS is an 

association of transmission dependent electric 

utilities located in more than 30 states. All of TAPS 

member electric utilities except one are FPA section 

201(f) entities. See Petition at 4. 

25According to the Petition, BPA is a selffinanced, non-profit Federal agency created in 1937 

by Congress that primarily markets electric power 

from 31 federally owned and operated projects, and 

supplies 35 percent of the electricity used in the 

Pacific Northwest. BPA also owns and operates 75 

percent of the high-voltage transmission in the 

Pacific Northwest. BPA’s primary statutory 

responsibility is to market its Federal system power 

at cost-based rates to its ‘‘preference customers.’’ 

Per the Petition, BPA has 130 preference customers 

made up of electric utilities which are not subject 

to the jurisdiction of FERC, including Indian tribes, 

electric cooperatives, and state and municipally 

chartered electric utilities, and other Federal 

agencies located in the Pacific Northwest. See 

Petition at 4. 

26See Petition at 1–2; 4 (emphasis added). The 

Petition also requests that the Commission 

determine that no Electric Operations-Related 

Transaction will affect any NFP Electric Entity’s 

regulatory status under the CEA (e.g., as a swap 

dealer or major swap participant). Id. at 28. The 

Petition specifically asks that, if the Commission 

declines to provide the categorical relief as 

requested, the Commission would i) include an 

additional category of approved Electric 

Operations-Related Transactions that includes all 

‘‘trade options’’ referencing the goods or services 

described in the categories of transactions currently 

outstanding between Exempt Entities (see infra 

sections II.B.1–7), and ii) delegate to Commission 

staff the authority to review on an expedited basis 

and approve as eligible for the benefit of the 

exemptive order any new Electric OperationsRelated Transactions between NFP Electric Entities. 

Id. at 13. Finally, the Petition invites the 

Commission to determine that any Electric 

Operations-Related Transaction described in the 

Petition does not need an exemption because such 

transaction is not a ‘‘swap,’’ is a ‘‘commercial 

merchandising arrangement’’ or ‘‘trade option,’’ or 

is not an agreement, contract or transaction 

involving a ‘‘commodity.’’ See id. at 13, note 26. 

27 In this Notice, the Commission describes the 

Petition by referencing Petitioners’ defined terms. 

Such references, however, are not to be interpreted 

as the Commission proposing to adopt such terms 

for the purpose of the exemption proposed herein. 

Rather, the proposed exemption establishes its own 

defined entities and transactions for which relief is 

being provided. 

4(c)(6)(C) to the CEA.14 CEA section 

4(c)(6)(C) builds upon the Commission’s 

general exemptive authority in section 

4(c)(1) as follows: 

(6) If the Commission determines that the 

exemption would be consistent with the 

public interest and the purposes of this Act, 

the Commission shall, in accordance with 

[CEA sections 4(c)(1) and 4(c)(2)], exempt 

from the requirements of this Act an 

agreement, contract, or transaction that is 

entered into— 

[* * *] 

(C) between entities described in section 

201(f) of the Federal Power Act (16 U.S.C. 

824(f)). 

Thus, section 4(c)(6)(C) explicitly 

spotlights transactions between entities 

within the scope of FPA section 201(f) 

as being eligible for exemption pursuant 

to the Commission’s 4(c) authority. 

However, whether an exemption is 

considered under 4(c)(1), 4(c)(6)(C), or 

both,15 the CFTC must first determine 

that the proposed exemption meets 

certain threshold criteria including, for 

example, that the exemption would be 

consistent with the public interest and 

the purposes of the Act. 

B. FPA Section 201(f) 

The FPA 16 authorizes and, along with 

other statutes, governs the Federal 

Energy Regulatory Commission 

(‘‘FERC’’), the federal agency that 

regulates the interstate transmission and 

sale at wholesale in interstate commerce 

of electric energy by public utilities, as 

well as natural gas and hydropower 

projects.17 Section 201(f) of the FPA, 

which Congress referenced in new CEA 

section 4(c)(6)(C), provides broad-based 

relief from most provisions of Part II 18

of the FPA for certain government and 

cooperatively-owned electric utility 

companies and states that: 

[n]o provision in this subchapter [Part II of 

the FPA] shall apply to, or be deemed to 

include, the United States, a State or any 

political subdivision of a State, an electric 

cooperative that receives financing under the 

Rural Electrification Act of 1936 (7 U.S.C. 

901 et seq.) or that sells less than 4,000,000 

megawatt hours of electricity per year, or any 

agency, authority, or instrumentality of any 

one or more of the foregoing, or any 

corporation which is wholly owned, directly 

or indirectly, by any one or more of the 

foregoing, or any officer, agent, or employee 

of any of the foregoing acting as such in the 

course of his official duty, unless such 

provision makes specific reference thereto.19

II. Petition 

A. Relief Requested 

As noted above, on June 8, 2012, the 

Commission received the Petition 20

from a group of trade associations 

representing government and/or 

cooperatively-owned electric utilities. 

Those Petitioners consisted of the 

National Rural Electric Cooperative 

Association (‘‘NRECA’’),21 the American 

Public Power Association (‘‘APPA’’),22

the Large Public Power Council 

(‘‘LPPC’’),23 the Transmission Access 

Policy Study Group (‘‘TAPS’’),24 and the 

Bonneville Power Administration 

(‘‘BPA’’) 25 (collectively, the 

‘‘Petitioners’’). The Petition requests 

that the Commission provide categorical 

exemptive relief from the requirements 

of the CEA, pursuant to CEA section 

4(c)(6), in accordance with CEA sections 

4(c)(1) and 4(c)(2), for all ‘‘Electric 

Operations-Related Transactions’’ 

between ‘‘NFP Electric Entities,’’ 

retroactive to the enactment of DoddFrank, outstanding now, or that may be 

developed and executed in the future.26

The Petitioner’s definition and scope of 

the terms ‘‘Electric Operations-Related 

Transactions’’ and ‘‘NFP Electric 

Entities’’ is summarized below.27

B. Definition and Scope of Electric 

Operations-Related Transactions 

The Petition defines Electric 

Operations-Related Transactions to 

mean: 

Any agreement, contract or transaction 

involving a ‘‘commodity’’ (as such term is 

defined in the CEA) and whether or not such 

agreement, contract or transaction is a 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 51001 

28Petition at 4–5. 

29See Petition at 12. 

30See id. The Petition notes that the terms 

‘‘physically-settled,’’ ‘‘financially-settled,’’ and 

‘‘cash-settled,’’ as such terms are used in the futures 

industry, do not translate easily into a commercial 

context where NFP Electric Entities enter into 

bilateral contracts governed by state law or by 

FERC, PUCT or state public utility tariffs to buy and 

sell goods and services. It is not readily apparent 

to the Commission why the terms do not translate 

conceptually. Nevertheless, as previously noted, the 

Petition represents that Electric Operations-Related 

Transactions between NFP Electric Entities are 

always intrinsically related to the electric facilities 

and operations, and/or the public service 

obligations, of each of the NFP Electric Entities 

involved. See id. at 12, n. 24. 

31The following transaction category descriptions 

come from the Petition at 6–12. 

32The Commission understands that ‘‘load’’ is an 

energy industry term for ‘‘demand.’’ See, e.g., 

Current Energy, Supply of and Demand for 

Electricity in California, available at http:// 

currentenergy.lbl.gov/ca/index.php <last visited 

July 9, 2012> (explaining that ‘‘[t]he current 

demand (or ‘load’) depends on how much power 

consumers are using right now’’). 

33Per the Petition, the ‘‘full’’ or ‘‘all’’ 

requirements contract is a bilateral commercial 

arrangement that is customized to the two NFP 

Electric Entities that are parties thereto. 

34Counsel for Petitioners represented in 

subsequent conversations that generation capacity, 

generally, can mean the capability or adequacy of 

specific owned generation units to supply 

fluctuating load requirements within a defined 

geographic region (e.g., an RTO region or an electric 

utility system) at an estimated or capacity rating 

level measured in megawatts. The basic concept of 

generation capacity can be understood as a separate 

‘‘commodity’’ from electric energy delivered (or 

other ancillary service or reserve), such that the 

purchase and sale of generation capacity may exist 

Continued 

‘‘swap,’’ so long as the NFP Electric Entity is 

entering into any such agreement, contract or 

transaction ‘‘to hedge or mitigate commercial 

risks’’ (as such phrase is used in CEA Section 

2(h)(7)(A)(ii)) intrinsically related to the 

electric facilities or electric operations (or 

anticipated facilities or operations) of the 

NFP Electric Entity, or intrinsically related to 

the NFP Electric Entity’s public service 

obligation to deliver reliable, affordable 

electric energy service to electric customers. 

For the avoidance of doubt, ‘‘intrinsically 

related’’ shall include all transactions related 

to (i) the generation, purchase or sale, and 

transmission of electric energy by the NFP 

Electric Entity, or the delivery of reliable, 

affordable electric energy service to the NFP 

Electric Entity’s electric customers, (ii) all 

fuel supply for the NFP Electric Entity’s 

electric facilities or operations, (iii) 

compliance with electric system reliability 

obligations applicable to the NFP Electric 

Entity, its electric facilities or operations, (iv) 

compliance with energy, conservation or 

renewable energy or environmental statutes, 

regulations or government orders applicable 

to the NFP Electric Entity, its electric 

facilities or operations, or (v) any other 

electric operations-related agreement, 

contract or transaction to which the NFP 

Electric Entity is a party. Electric OperationsRelated Transactions shall not include 

agreements, contracts or transactions 

executed, traded, or cleared on a registered 

entity, nor shall such defined term include 

an agreement, contract or transaction based 

or derived on, or referencing, a ‘‘commodity’’ 

in the interest rate, credit, equity or currency 

asset class, or of 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.28

In general, the Petitioners represent that 

all Electric Operations-Related 

Transactions covered by the proposed 

definition are intrinsically related to the 

needs of both NFP Electric Entities 

engaged in a transaction ‘‘to hedge or 

mitigate commercial risks’’ which arise 

from their respective electric facilities 

and ongoing electric operations and 

public service obligations.29 The 

Petitioners state that, at the time two 

NFP Electric Entities enter into an 

Electric Operations-Related Transaction, 

the terms of the transaction contemplate 

performance of an electric operationsrelated obligation by one party, in 

exchange for payment or reciprocal 

performance of an electric operationsrelated function by the other party.30

The Petition, which is summarized 

herein, specifically describes seven 

categories of transactions that currently 

occur between NFP Electric Entities, 

and which are covered by the Petition’s 

proposed definition.31

1. Electric Energy Delivered 

In these transactions, NFP Electric 

Entities agree for one such entity to 

provide another such entity with 

electric energy delivered to an identified 

geographic service territory, load,32 or 

electric system. Petitioners note that 

since electric energy is not currently 

storable in commercial quantities, the 

delivery location is critical to the 

transaction—electric energy delivered 

elsewhere is not usable or valuable for 

the receiving entity’s operational needs. 

As described by the Petitioners, this 

transaction type includes the most 

prevalent type of Exempt Electric 

Operations-Related Transaction between 

NFP Electric Entities, i.e., the ‘‘full 

requirements’’ contract, or ‘‘all 

requirements’’ agreement or 

arrangement 33 that is often executed 

between a generation and transmission 

(‘‘G&T’’) cooperative (i.e., a cooperative 

that generates and transmits electricity) 

and each of its constituent NFP Electric 

Entity members/owners, or between a 

Joint Action Agency (an agency formed 

under state law to provide wholesale 

power supply and transmission service 

to member entities) and each of its 

constituent NFP Electric Entity 

members. In some instances, the G&T 

cooperative or the Joint Action Agency 

is formed by its constituent members for 

the singular purpose of providing its 

constituent members with their ‘‘full 

requirements’’ obligations to deliver 

electric energy over an agreed delivery 

period at one or multiple delivery 

points or locations to their retail electric 

customers). 

In such an arrangement, the provider 

NFP Electric Entity agrees by bilateral 

contract or, in some long-standing 

relationships established by governing 

or legal documents of the G&T 

cooperative or Joint Action Agency as 

the provider NFP Electric Entity, that it 

will provide for a recipient NFP Electric 

Entity’s ‘‘full requirements’’ to provide 

reliable electric service to the recipient’s 

fluctuating electric energy load over an 

agreed delivery period at one or 

multiple delivery points or locations. In 

some cases, the delivery period, term, or 

‘‘tenor’’ of such agreements can be for 

thirty years or more. 

In addition to providing the 

recipient’s full requirements for electric 

energy, the arrangement may also 

include providing services that are 

ancillary to the delivery of the electric 

energy, such as operating or dispatching 

one or more of the recipient’s owned 

generation units, generation capacity or 

balancing services, or any of the other 

goods, services, or commodities 

required by the recipient described 

under other categories below. 

The Petition notes that quantities of 

electric energy will also vary during the 

delivery period. If a recipient NFP 

Electric Entity owns some generation 

itself, the quantity of supplemental 

electric energy or capacity to meet its 

‘‘full requirements’’ during some 

seasons, months, or days of the year (net 

of its owned generation) may be zero. 

Some ancillary services or 

‘‘commodities’’ under such a transaction 

may be optional. Pricing may vary on a 

seasonal, monthly, daily or on-peak/offpeak basis, or may be tied to the cost at 

which the provider NFP Electric Entity 

can generate or purchase electric energy. 

Alternatively, the price may be tied to 

the fuel that the provider uses for 

generating the electric energy provided. 

2. Generation Capacity 

In describing this transaction 

category, the Petition initially notes that 

the term ‘‘capacity,’’ in connection with 

generation capacity transactions, has 

varying meanings across the electric 

industry, and that electric operations 

professionals may reference any of a 

number of ‘‘capacity’’ agreements, 

contracts, transactions, or 

arrangements.34 More generally, the 


tkelley on DSK3SPTVN1PROD with NOTICES
51002 Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 

as a stand-alone transaction or as one component 

of a ‘‘bundled energy’’ service or transaction, such 

as a full requirements contract. When viewed as an 

‘‘option-like’’ commodity transaction, generation 

capacity can be ‘‘delivered’’ if the ‘‘holder’’ (or 

relevant reliability authority) calls on the corollary 

electric energy to be delivered. In some 

circumstances, the ‘‘premium’’ component can be 

priced separately and referred to as a ‘‘demand 

charge.’’ In others, the generation capacity 

component can be a contingent or option-like 

aspect of a seller’s obligation to provide the ‘‘full 

requirements’’ that a load serving entity (‘‘LSE’’) 

needs to serve the electric consumers and 

businesses in its regions, including fulfillment of 

any generation capacity obligations that the LSE has 

to its local reliability authority. 

35More information is available at http:// 

www.ferc.gov/industries/electric/indus-act/rto.asp. 

The current ISO/RTO entities operating in North 

America are PJM Interconnection, Midwest 

Independent Transmission System Operator, 

Southwest Power Pool, ISO New England, 

California ISO, New York Independent System 

Operator and the Electric Reliability Council of 

Texas (ERCOT). Each of these entities, other than 

ERCOT, was either formed at the direction of FERC 

or designated by FERC to direct the operation of the 

regional electric transmission grid in its specific 

geographic area. ERCOT is fully regulated by the 

Public Utility Commission of Texas (the ‘‘PUCT’’). 

36Counsel for Petitioners in subsequent 

conversations represented that generation capacity 

can be a reliability requirement that, in some areas, 

owners of generation units must maintain in order 

to provide voltage and frequency support to the 

electric grid for reliability purposes. In other areas, 

generation capacity reliability requirements may be 

imposed on LSEs that must, if they own no 

generation assets, purchase generating capacity 

from third-party generators to fulfill the LSEs’ 

reliability requirements. 

37The Petition notes that the concept of 

generation capacity is distinguishable from 

‘‘transmission capacity,’’ which relates to the 

limited amount of electric energy transmission 

available over the interconnected electric 

transmission grid, and which is generally defined 

as a measure of the transfer capability or ‘‘capacity’’ 

remaining in the physical electric energy 

transmission network for further commercial 

activity over and above already committed uses. 

Additionally, Exhibit 2 of the Petition provides the 

following example: 

Federal power agency K sells to G&T cooperative 

J 100 MWs of monthly ‘‘firm point-to-point 

transmission service’’ from location X to location Y 

in the southeast U.S. for a term of 3 months at the 

tariff rate of $2,000/MW-Month for a total 

transaction value of $600,000. The geographic area 

in which such transmission service takes place is 

outside the ‘‘footprint’’ of an RTO, and therefore the 

transmission service is reserved on the Open Access 

Same Time Information System (‘‘OASIS’’) Web site 

of the transmission owner, K. J intends to use the 

transmission service to deliver wholesale electric 

power to its distribution cooperative memberowners to supply a portion of its distribution 

cooperative constituents’ retail electric load. 

Petition Exhibit 2 at 3. 

38Petitioners also described a scenario in which 

one NFP Electric Entity may agree to manage for 

another NFP Electric Entity the operational basis or 

exchange (location/time of delivery) risk that arises 

from the recipient’s NFP Electric Entity’s locationspecific, seasonal, or otherwise variable operational 

need for fuel delivered. Another example from 

Exhibit 2 of the Petition provides that: 

Joint power agency L supplies to municipal 

utility M a long-term supply of natural gas from a 

natural gas project (Project Entity Z) developed by 

L and other NFP Electric Entities for the purpose 

Petition notes that when two NFP 

Electric Entities agree that one will 

provide ‘‘generation capacity’’ or 

‘‘capacity’’ for another, either a mutual 

understanding of the engineering 

context or a customized bilateral 

commercial contract further defines the 

parties’ respective rights and 

obligations. Generation capacity is 

always location-specific and is 

monitored by the regional transmission 

organization (‘‘RTO’’) or independent 

system operator (‘‘ISO’’) 35 or, outside 

the RTO/ISO regions, by balancing 

authorities or reliability coordinators 

under the supervision of the North 

American Electric Reliability 

Corporation (‘‘NERC’’) and FERC.36

Deliverability of generation capacity to 

a particular geographic point or electric 

system interface is such an important 

concept that FERC requires each RTO, 

ISO, and balancing authority to 

establish a framework of engineering 

studies to demonstrate/confirm that a 

particular generation unit’s electrical 

energy output is deliverable. If 

generation capacity from a particular 

unit does not satisfy the relevant RTO, 

ISO or balancing authority’s 

deliverability requirements, that 

generation capacity has no value in 

meeting reliability requirements in that 

reliability area. If generation capacity is 

purchased from a generation unit 

located outside the relevant reliability 

area, the correlated electric energy 

(which, if ‘‘called on,’’ must be 

delivered) nonetheless must be 

deliverable to the relevant reliability 

area. 

Some generation capacity agreements 

or arrangements among NFP Electric 

Entities may include operational 

reserves attributable to the identified 

generation unit. A generation capacity 

arrangement or transaction also may be 

called a ‘‘shared resources agreement,’’ 

whereby NFP Electric Entities agree 

conditionally to share capacity 

resources as needed. The contract may 

relate to multiple identified units 

owned or operated by both NFP Electric 

Entities. For example, some state or 

regional programs to manage limited 

generation capacity and maintain 

voltage support for the electric grid in 

a geographic area may allow NFP 

Electric Entities subject to such program 

to utilize ‘‘demand-side resources’’ as 

part of the generation capacity required 

by the specific balancing authority, or to 

meet the reliability authority’s 

requirements in the relevant geographic 

region. 

In general, a generation capacity 

transaction between two NFP Electric 

Entities in one region cannot be 

presumed to be fungible with any other 

generation capacity transaction between 

two other NFP Electric Entities, even in 

the same region. 

3. Transmission Services 

As with the other transaction 

categories described by the Petitioners, 

the Petition notes that electric 

transmission services transactions 

between NFP Electric Entities will vary 

by geographic region and by assets 

owned and transmission services 

required by the operations of different 

NFP Electric Entities. In some cases, 

these transmission services agreements 

include congestion management 

services, system losses, and ancillary 

services.37 Some NFP Electric Entities 

own significant transmission facilities 

(e.g., BPA owns 75 percent of the 

transmission lines in the Pacific 

Northwest). In some cases, Federal law 

and the regulations pursuant to which 

the Federal power agencies are formed 

and operate require a particular Federal 

power agency to allocate a portion of the 

transmission to particular electric 

entities, including NFP Electric Entities, 

located within its geographic area. 

In certain areas of the country, the 

RTOs/ISOs control allocation of 

transmission assets, rights and services, 

and the individual owners of 

transmission assets do not have the 

ability to engage in bilateral services 

arrangements involving those 

transmission assets, which are under 

RTO/ISO management and control. In 

other areas of the country, historical 

transmission services agreements, 

including those between NFP Electric 

Entities, are ‘‘grandfathered’’ from the 

RTO/ISO rules and procedures 

otherwise applicable to electric 

transmission services in that region. 

4. Fuel Delivered 

The Petition describes a fourth 

category of transactions in which one 

NFP Electric Entity delivers to another 

NFP Electric Entity fuel to power 

electric generation facilities. The 

electric facilities owned and operated by 

NFP Electric Entities vary widely in 

terms of the fuel used by such facilities 

for generation. Fuel types may include 

nonfinancial commodities such as coal, 

natural gas, uranium products, heating 

oil, and biomass or waste products 

including wood chips, tires, and 

manure. In addition to the fuel, one NFP 

Electric Entity may provide to another 

NFP Electric Entity other services 

related to the fuel commodity, such as 

fuel procurement, fuel transportation 

over pipeline, rail, barge and truck, fuel 

storage, or fuel waste handling and 

storage services.38


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 51003 

of fueling L’s and M’s (and other NFP Electric 

Entity owners of Project Entity Z’s) natural gas-fired 

electric generating facilities in the California ISO 

market. M pays L for the cost of acquiring, 

developing and improving the natural gas Project 

Entity Z through direct ‘‘capital contributions’’ to 

Project Entity Z. In addition M pays L a monthly 

fee for the natural gas supplied from the natural gas 

project, composed of an operating cost fee 

component, an interstate pipeline transportation 

cost fee component and an operating reserve cost 

fee component. The natural gas-fired electric 

generating facility is to be used by M to supply a 

portion of its expected retail electric load. 

Petition Exhibit 2 at 3–4. 

39Petition at 14 (internal citations omitted). 

40Petition at 33. Petitioners explain that the term 

‘‘nonfinancial end users’’ means an NFP Electric 

Entity that does not fall within the definition of a 

‘‘financial entity’’ in CEA 2(h)(7)(C)(i) and that no 

NFP Electric Entity falls within that definition. See 

id. at 33–34. 

41See supra note 19 and accompanying text. 

42Per the Petition, there are nine Federal electric 

utilities in the United States, which are part of 

several agencies of the United States Government: 

Continued 

5. Cross-Commodity Transactions 

The Petition describes such 

transactions as commercial agreements 

entered into between two NFP Electric 

Entities, including options, heat rate 

transactions and tolling arrangements, 

whereby the electric energy delivered to 

the recipient NFP Electric Entity is 

priced by reference to the fuel source 

used or useable by the provider NFP 

Electric Entity for generating such 

electric energy. Alternatively, the price 

paid for the fuel by the recipient NFP 

Electric Entity may be calculated by 

reference to the amount of electricity 

that the recipient NFP Electric Entity 

generates using such fuel. 

6. Other Goods and Services 

The Petition notes that these 

agreements may involve sharing 

property rights, equipment, supplies 

and services, including construction, 

operation, and maintenance agreements, 

facilities management, construction 

management, energy management or 

other energy-related services tied to the 

electric facilities owned by, or 

operations of, one or both of the NFP 

Electric Entities, including emergency 

assistance or ‘‘mutual aid’’ 

arrangements. 

In some regions of the country, state 

regulators or RTOs/ISOs have 

established ‘‘demand side management 

programs’’ to assist utilities in managing 

the supply/demand balance that is 

essential to delivering reliable electric 

energy (which is not currently storable 

in commercial quantities). Therefore, 

some NFP Electric Entities engage in 

joint demand-side management 

programs with their retail electric 

customers whereby the customers agree 

to reduce service/load requirements 

during certain weather or emergency 

conditions. NFP Electric Entities may 

agree with each other to engage in joint 

demand-side management programs to 

conserve their collective generation 

resources and reduce costs, and to 

comply with their collective obligations 

to RTOs/ISOs, regional balancing 

authorities, and state or local regulators. 

The Petition also notes that NFP 

Electric Entities may provide each other 

with services related to the generation, 

transmission, and/or distribution 

facilities owned by each, or with respect 

to the maintenance (ongoing, outage, or 

emergency) or dispatch of generation 

units. Especially when there is a 

weather event or other unexpected 

outage which interrupts electric energy 

service to an NFP Electric Entity’s 

customers, other NFP Electric Entities 

(and other electric utilities) in the 

geographic area will provide goods and 

services on an immediate basis, often 

without the opportunity of negotiating 

pricing or payment terms until the 

electric energy service has been restored 

to retail electric energy customers. 

These agreements between NFP Electric 

Entities may involve operating each 

other’s facilities, sharing equipment, 

supplies and employees (e.g., line 

crews), and interfacing on each other’s 

behalf with suppliers/vendors, 

regulators and reliability authorities and 

customers. 

7. Environmental Rights, Allowances or 

Attributes 

The last category of transactions 

described in the Petition relates to a 

wide variety of Federal, regional, state, 

and local environmental rights, 

allowances or attributes required to 

operate a particular NFP Electric 

Entity’s electric facilities or operations, 

or to fulfill a particular NFP Electric 

Entity’s regulatory requirements. NFP 

Electric Entities may transact among 

themselves in environmental emissions 

allowances, offsets or credits (including 

carbon), renewable energy, distributed 

generation, clean energy or energy 

efficiency credits or attributes (which 

can be regional or state specific in 

nature, including ‘‘green tags’’). NFP 

Electric Entities in a particular 

geographic region, whose available 

allowances may be directly useable to 

fulfill the needs of another NFP Electric 

Entity in the same region, often will 

directly transact with each other, rather 

than go to a non-NFP Electric Entity to 

negotiate a particular transaction. 

C. Definition and Scope of NFP Electric 

Entities 

The Petition defines NFP Electric 

Entities as: 

(i) The United States, a State or any 

political subdivision of a State, or (ii) an 

‘‘electric cooperative’’ that receives financing 

under the Rural Electrification Act of 1936 (7 

U.S.C. 901 et seq.) or that sells less than 

4,000,000 megawatt hours of electricity per 

year, or [(iii) any other electric cooperative, 

whether or not such electric cooperative 

meets the requirements of clause (ii) above,]1

or (iv) any agency, authority, instrumentality 

or department of any one or more of the 

foregoing, or a federally-recognized Indian 

tribe, or (v) any entity which is wholly 

owned, directly or indirectly, by any one or 

more of the foregoing. For purposes of this 

definition, an ‘‘electric cooperative’’ shall 

mean an ‘‘electric membership corporation’’ 

or an ‘‘electric power association’’ organized 

under State law, a ‘‘rural electric 

cooperative,’’ ‘‘cooperative providing electric 

services to consumers and farmers’’ or any 

similar entity referenced in other Federal, 

State and local laws and regulations, so long 

as any such entity is formed and continues 

to operate for the primary purpose of 

providing electric service to its members on 

a not-for-profit, cooperative basis, and is 

treated as a cooperative under the Federal tax 

law.39

Generally, the Petition represents that 

all NFP Electric Entities are 

‘‘nonfinancial end users of Electric 

Operations-Related Transactions, and 

enter into such transactions only to 

hedge or mitigate commercial risks.’’ 40

Summarized herein, the Petition 

describes in detail the specific classes of 

entities it believes fall within its 

proposed NFP Electric Entity definition, 

and justifies inclusion of each specific 

class based upon a common public 

interest rationale. 

1. FPA 201(f) Entities 

‘‘FPA 201(f) entities’’ is the first class 

of NFP Electric Entities defined by 

Petitioners. These entities include i) 

certain government and cooperativelyowned electric utilities (as described in 

FPA section 201(f)) and ii) federallyrecognized Indian tribes that own or 

operate electric facilities (as determined 

by FERC case law). 

a. Government and CooperativelyOwned Electric Utilities Described by 

FPA Section 201(f) 

Petitioners seek relief from the CEA 

and Commission regulations there 

under for those entities explicitly 

described by FPA section 201(f) 41 as 

being exempt from the plenary 

jurisdiction of FERC. Per the Petition, 

the first category of these entities 

includes certain government-owned 

electric utilities, including Federal 

electric utilities such as BPA and other 

Federal agencies that operate electric 

generating or transmission facilities,42


tkelley on DSK3SPTVN1PROD with NOTICES
51004 Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 

• The Army Corps of Engineers; 

• The Bureau of Indian Affairs and the Bureau of 

Reclamation in the Department of the Interior, 

• The International Boundary and Water 

Commission in the Department of State, 

• The Power Marketing Administrations in the 

Department of Energy (BPA, Western Area Power 

Administration, Southwestern Area Power 

Administration, and Southeastern Area Power 

Administration), and 

• The Tennessee Valley Authority (TVA). 

In addition, three Federal agencies operate 

electric generating facilities: 

• TVA, the largest Federal power producer; 

• The U.S. Army Corps of Engineers; and 

• The U.S. Bureau of Reclamation. 

43Per the Petition, a public power district or 

public utility district may be owned and operated 

by a city, county, state or regional agency. See, e.g., 

Public Utility District No. 1 of Chelan County, 

Washington (http://www.chelanpud.org/yourPUD.html). An irrigation district is a utility 

organized under state law which generates 

electricity in the course of supplying water. For 

example, Imperial Irrigation District in California 

was formed in 1911 under the California Irrigation 

District Act, as described at http://www.iid.com/ 

index.aspx?page=39. Government-owned utilities 

are accountable to elected and/or appointed 

officials and focus on providing reliable and safe 

electricity service, keeping costs low and 

predictable for its customers, while practicing good 

environmental stewardship. 

44Per the Petition, a government owned or 

operated electric utility may be a department of the 

governmental entity, or may be organized as a 

separate agency, authority or instrumentality 

thereof. 

45Salt River Project Agric. Improvement and 

Power District v. Fed. Power Comm’n, 391 F. 2d 

470, 475 (D.C. Cir. 1968) (emphasis added by 

Petitioners). 

46 Id. at 473 (elaborating that electric cooperatives 

are ‘‘completely owned and controlled by their 

consumer-members and only consumers can 

become members. They are non-profit. Each 

member has a single vote in the affairs of the 

cooperative, and services are essentially limited to 

members. No officer receives a salary for his 

services[,] and officers and directors are prohibited 

from engaging in any transactions with the 

cooperative from which they can earn any profit.’’) 

(citation omitted). 

47 Id. at 475. 

48 7 U.S.C. 901 et seq. The REA established the 

RUS as the body to administer financing to rural 

utilities. 

49See Dairyland Power Coop. et al, v. Fed. Power 

Comm’n, 37 F.P.C. 12, 27 (1967). 

50As part of the Energy Policy Act of 2005 

(‘‘EPAct 2005’’), Congress codified the previous 

interpretation by FERC in Dairyland, id., (affirmed 

by the D.C. Circuit Court in Salt River, 391 F. 2d 

470) that electric cooperatives that receive financing 

under the REA should be considered FPA 201(f) 

entities. At the same time, Congress also expanded 

the FPA 201(f) exemption to electric cooperatives 

that sell less than 4 million megawatt hours per 

year, even if those electric cooperatives do not 

receive any financing from the RUS. See Public Law 

109–58, 1291, 119 Stat. 594, 985 (2005), amending 

FPA 201(f) ‘‘by striking ‘‘political subdivision of a 

state,’’ and inserting ‘‘political subdivision of a 

State, an electric cooperative that receives financing 

under the Rural Electrification Act of 1936 (7 U.S.C. 

901 et seq.) or that sells less than 4,000,000 

megawatt hours of electricity per year.’’ 

51Per the Petition, see City of Paris, KY vs. Fed. 

Power Comm’n, 399 F.2d 983 (D.C. Cir. 1968); 

Sovereign Power Inc., 84 FERC ¶ 61,014 (1998); 

Confederated Tribes of the Warm Springs 

Reservation of Or., a Federally Recognized Indian 

Tribe, and Warm Springs Power Enterprises, a 

Chartered Enter. of the Confederated Tribes of the 

Warm Springs Reservation of Or., 93 FERC ¶ 61,182 

at 61,599 (2000) (concluding that ‘‘the Tribes are an 

instrumentality of the ‘United States, a State or any 

political subdivision of a state’’’ and that Warm 

Springs Power Enterprises, a Chartered Enterprise 

of the Tribes, was entitled to Tribes’ Section 201(f) 

exemption.). 

52Public Law 103–454, 108 Stat. 4791, 4792 

(codified at 25 U.S.C. 479a–1). 

and state-chartered electric utilities 

such as the New York Power Authority. 

Other examples of government-owned 

electric utilities include state or county 

utility boards or public utility districts 

formed under state or local law, joint 

action agencies or joint power agencies 

formed under state law to provide 

wholesale power supply and 

transmission services to member entities 

(each a Joint Action Agency), and other 

political subdivisions of a state.43

Finally, municipal utilities ranging in 

size from LPPC members such as the 

Los Angeles Department of Water and 

Power and the Sacramento Municipal 

Utility District, to the smallest 

municipal electric utilities with fewer 

than 500 electric meters, are also 

contemplated as government electric 

utilities under FPA section 201(f).44

Per the Petition, the second category 

of entities described by FPA section 

201(f) are electric cooperatives that 

either are financed by the U.S. 

Department of Agriculture’s Rural 

Utilities Service (‘‘RUS’’), sell less than 

4,000,000 megawatt hours of electricity 

per year, or meet the requirements of an 

‘‘aggregated FPA 201(f) entity.’’ These 

electric cooperatives generally consist of 

(i) distribution cooperatives, which 

distribute electric energy service 

directly to their owner/member 

customers, and (ii) G&T cooperatives, 

which are owned by distribution 

cooperatives and generate or purchase 

electricity and transmit it to their 

constituent distribution cooperatives for 

delivery to the distribution 

cooperatives’ owner/member customers. 

Aggregated entities most commonly 

consist of a G&T cooperative formed by 

its constituent distribution cooperative 

(NFP Electric Entity) members or, 

comparably, a Joint Action Agency 

which is formed by its constituent 

government-owned (NFP Electric Entity) 

utility members. 

As background, Petitioners explain 

that the FPA originally was enacted ‘‘to 

remedy rampant abuses in the investorowned electric utility industry’’ 45 but 

that cooperatively-owned electric 

utilities are easily distinguishable from 

investor-owned electric utilities because 

they are ‘‘effectively self-regulating.’’ 46

More importantly, of the major abuses 

considered by Congress as the impetus 

for the FPA legislation, ‘‘virtually none 

could be associated with the [electric] 

cooperative structure where ownership 

and control is vested in the consumerowners.’’47 Based on this understanding 

of the legislative history, FERC’s 

predecessor, the Federal Power 

Commission (‘‘FPC’’), concluded that 

electric cooperatives financed under the 

Rural Electrification Act of 1936 

(‘‘REA’’) 48 were intended by Congress 

to be FPA 201(f) entities and exempt 

from the FPC’s jurisdiction over ‘‘public 

utilities.’’ 49 The FPC made such a 

determination in the 1960s 

notwithstanding the fact that, at that 

time, electric cooperatives were not 

expressly described in FPA section 

201(f).50

b. Federally-Recognized Indian Tribes 

Federally-recognized Indian tribes 

that own or operate electric facilities are 

not described by FPA section 201(f), and 

thus would be subject to regulation as 

public utilities under the FPA. The 

Petition notes, however, that FERC and 

its predecessor, the FPC, and at least 

one court have determined such 

federally-recognized Indian tribes are to 

be treated as entities described in FPA 

section 201(f).51 To identify eligible 

Indian tribes, the Petition recommends 

that the Commission rely on 

determinations made by the Secretary of 

the Interior, periodically listed in the 

Federal Register, of Indian tribes to be 

recognized by the U.S. government 

pursuant to Section 104 of the Act of 

November 2, 1994.52

Petitioners note that FERC’s 

determination that such Indian tribes 

should be treated as FPA 201(f) entities 

was based on the fact that, in operating 

such electric facilities, the Indian tribes 

perform government functions—the 

funds generated by such electric 

operations would be used for 

governmental purposes and would 

decrease the need for federal funding. 

Additionally, Indian tribes are subject to 

Interior Department oversight. Finally, 

like the other government or 

government-owned electric entities 

described in FPA section 201(f), the 

Indian tribes are tax exempt or ‘‘not-forprofit’’ entities. 

2. Non-FPA 201(f) Electric Cooperatives 

The Petition also requests relief for 

the very small number of cooperativelyowned electric utilities that do not meet 

the criteria of FPA section 201(f), either 

because they do not receive funding 

from RUS, sell more than 4,000,000 

megawatt hours of electricity in a given 

year, or are not an ‘‘aggregated NFP 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 51005 

53See Petition at 23. The Petitioners note that 

under various state laws, cooperatively owned 

electric utilities, or electric cooperatives, are 

sometimes called ‘‘electric membership 

corporations’’ or ‘‘electric power associations.’’ In 

addition, Petitioners note that under certain 

sections of tax laws, state public utility laws or 

regulations, the FPA or the FERC’s regulations, 

electric cooperatives are sometimes called ‘‘rural 

electric cooperatives’’ or ‘‘cooperatives providing 

electric services to consumers and farmers,’’ or by 

similar, but not identical, entity names. See Petition 

at 2, note 5. In this Notice, as the Petitioners did 

in their Petition, the Commission uses the term 

‘‘electric cooperatives’’ to encompass all of these 

entities, which are formed for the primary purpose 

of providing electric energy service to their owners/ 

member customers on a not-for-profit basis, and 

which are treated as cooperatives under Federal tax 

laws. 

54Statement of Cynthia A. Marlette, General 

Counsel of FERC, before the Committee on 

Agriculture, Subcommittee on Conservation, Credit, 

Energy, and Research, United States House of 

Representatives (July 30, 2008) (available at http:// 

www.ferc.gov/eventcalendar/Files/ 

20080730104611-Marlette.pdf). NRECA believes 

that, of its current members, the following six 

entities are non-FPA 201(f) electric cooperatives: 

Pacific Northwest Generating Cooperative (PNGC 

Power), Golden Spread Electric Cooperative, Old 

Dominion Electric Cooperative, Wabash Valley 

Power Association, Wolverine Power Cooperative, 

and Deseret Power Electric Cooperative. 

55Similarly, to be treated as a ‘‘cooperative’’ 

under Federal tax law, regardless of 201(f) status, 

an electric cooperative must operate on a 

cooperative basis. See 26 U.S.C. 501(c)(12), 

1381(a)(2)(C). As explained by the United States 

Tax Court in the seminal case of Puget Sound 

Plywood, Inc. v. Commissioner of Internal Revenue, 

operating on a cooperative basis means operating 

according to the cooperative principles of i) 

democratic member control, ii) operation at cost, 

and iii) subordination of capital. See 44 T.C. 305 

(1965); see also Internal Revenue Manual 

§ 4.76.20.4 (2006) (elaborating on the cooperative 

principles by explaining that each member of a 

cooperative has one vote, a cooperative must 

allocate any excess operating revenue to its 

members in proportion to the amount of business 

it did with each, and that members share their 

interest, risk, and burden to obtain services or 

benefits rather than invest as equity owners). 

Additionally, for any electric cooperative to be 

exempt from Federal income taxation pursuant to 

IRC 501(c)(12), it must collect annually ‘‘85 percent 

or more of [its] income * * * from members for the 

sole purpose of meeting losses and expenses.’’ 26 

U.S.C. 501(c)(12)(A). Accordingly, Petitioners argue 

that an electric cooperative, regardless of FPA 

section 201(f) status, lacks incentive or motivation 

to manipulate prices, disrupt market integrity, 

engage in fraudulent or abusive sales practices, or 

misuse customer assets because it: (1) Is a consumer 

cooperative; (2) is controlled by its members; (3) 

must operate at cost and ‘‘not operate either for 

profit or below cost;’’ (4) may not benefit its 

individual members financially; and (5) if exempt 

from Federal income taxation, must collect at least 

85 percent of its income from members. 

56Petitioners argue that in promulgating CEA 

section 4(c)(6)(C), ‘‘Congress effectively makes the 

determination for the Commission that ‘entities 

described in FPA 201(f)’ are ‘appropriate persons’ 

entitled to the benefits of the exemptive order.’’ 

Petition at 23. Thus, by extension, Petitioners argue 

that if non-FPA 201(f) electric cooperatives are at 

least as financially sound and operationally capable 

as those electric cooperatives described by FPA 

section 201(f), then they should also be considered 

appropriate persons. 

57Per the Petition, the CFC is a nonprofit 

cooperative entity formed in 1969 by NRECA’s 

electric cooperative members. CFC provides access 

to financing to supplement the loan programs of the 

RUS. CFC is the largest non-governmental lender to 

America’s rural electric systems, and nearly 200 

electric cooperatives across the United States rely 

solely on CFC for financing. CFC has separately 

requested exemptive relief from the Commission for 

the swaps it enters into related to providing 

financing to its members’ electric cooperatives. 

CoBank is a cooperative bank owned by electric 

cooperatives and agricultural cooperatives, and is a 

part of the Farm Credit Administration system. 

58Per the Petition’s representation of data 

collected by NRECA, fewer than one percent of 

distribution cooperatives exceed the four million 

MWh annual sales threshold, as do approximately 

24 of 66 G&T cooperatives. The Commission 

understands that of those G&T cooperatives that 

exceed the sales threshold in a given year, the 

majority are still FPA 201(f) entities because they 

receive financing from RUS. 

59See Petition at 35–36. Counsel for Petitioners 

also represent that EPAct 2005 was largely a 

response to the electrical blackouts in the northeast 

United States during 2003 that later were found to 

be attributable to generation and transmission 

failures of the largest electric utility providers. 

Thus, Congress’ chief concern in expanding the 

201(f) exemption for electric cooperatives was 

ensuring that entities with substantial generation 

and transmission capacity remained subject to the 

plenary jurisdiction of FERC. Per the Petition, 

Congress did not make a policy decision that the 

electric cooperatives selling 4 million megawatt 

hours or more per year required regulation under 

FPA 201(f) and, where EPAct 2005 did give FERC 

additional discretionary jurisdiction over electric 

cooperatives, FERC has not chosen to exercise that 

discretionary authority to date. When FERC 

exercises its jurisdiction in certain instances, it 

allows non-FPA 201(f) electric cooperatives 

additional regulatory flexibility, subject to ‘‘selfregulation’’ by such cooperatives’ member/owner 

boards, distinguishing the not-for-profit electric 

sector from investor-owned electric utilities. The 

very small number of electric cooperatives that do 

not meet the 4 million megawatts per year threshold 

at any point in time are, nonetheless, ‘‘selfContinued 

Electric Entity.’’ 53 FERC has estimated 

that there were approximately fifteen 

electric cooperatives (of more than 900) 

which do not meet the requirements set 

forth in FPA section 201(f).54 Petitioners 

request that the Commission recognize 

such cooperatives as ‘‘appropriate 

persons,’’ in accordance with CEA 

sections 4(c)(1), 4(c)(2)(B), and 

4(c)(3)(K), for purposes of an exemption 

under CEA section 4(c)(6). Petitioners 

represent as a threshold matter that, 

regardless of whether an electric 

cooperative meets the specific criteria of 

FPA section 201(f), all cooperativelyowned electric utilities share certain 

distinguishing features—a common notfor-profit public service mission and 

self-regulating governance model—that 

form the underlying rationale for the 

FPA section 201(f) exemption.55

In analyzing whether an entity 

qualifies as an appropriate person under 

CEA section 4(c)(3), Petitioners note that 

past Commission determinations have 

focused on the financial strength and 

sophistication of the persons for whom 

relief is being provided. Petitioners also 

posit that CEA section 4(c)(3)(K) allows 

the Commission to consider the 

operations management qualification of 

the person or class of persons in relation 

to the exempted transactions, as well as 

the person’s or class of person’s ability 

to execute the exempted transactions 

without additional regulatory protection 

by the Commission. When considered in 

light of these determinative factors, 

Petitioners argue that source of 

financing or total electric energy sales 

are not meaningful factors for purposes 

of differentiating between electric 

cooperatives that are appropriate for an 

exemption from the CEA and those that 

are not.56

First, the Petition argues that whether 

out of necessity due to insufficient 

Congressional appropriations, or by 

choice in order to find more appropriate 

or less expensive terms for certain 

needs, electric cooperatives may look to 

sources of financing beyond the RUS. 

Other nonprofit cooperative financing 

entities, such as the National Rural 

Utilities Cooperative Finance 

Corporation (‘‘CFC’’) or Co-Bank,57 exist 

to supplement RUS financing or provide 

additional financing resources and 

terms not available through the RUS. 

Petitioners note that electric 

cooperatives always can choose to 

borrow from private lenders or selffinance infrastructure investments and 

operations with ongoing revenues and 

reserves. Eligibility for RUS financing 

does not speak to an electric 

cooperative’s operational soundness or 

financial strength. 

Next, the Petition suggests that greater 

electric energy sales could result in 

greater financial strength. Petitioners 

note that while very few electric 

cooperatives historically have sold 

4,000,000 megawatt hours or more in a 

particular year, the success of the 

electric cooperative model means that 

there may be a small number of 

cooperatives in any particular year 

whose annual sales exceed the 

threshold.58 Furthermore, an electric 

cooperative’s status under the FPA may 

fluctuate year-to-year depending on its 

annual megawatt sales, which always 

will fluctuate depending on usage 

trends, economic conditions, and 

weather patterns. Petitioners believe 

that Congress’ policy decision to codify 

4,000,000 megawatt hours per year as a 

threshold was based solely upon the fact 

that FERC, as well as other agencies, 

already used this level to identify 

‘‘small utilities,’’ ‘‘small entities,’’ or 

‘‘small businesses’’ that should be 

afforded protection from the costs and 

regulatory burdens imposed on larger 

entities.59


tkelley on DSK3SPTVN1PROD with NOTICES
51006 Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 

regulating entities,’’ share the same cooperative 

governance structure, operate on a cooperative basis 

and are not-for-profit entities. 

60Petitioners note that non-FPA 201(f) electric 

cooperatives likely own more or larger generation 

and transmission assets, and therefore are arguably 

at least as financially sound and operationally 

qualified as electric cooperatives described in FPA 

section 201(f). Furthermore, these non-FPA 201(f) 

electric cooperatives may meet the financial criteria 

established in CEA section 4(c)(3)(F) for an 

‘‘appropriate person’’ by having a net worth 

exceeding $1,000,000 or total assets exceeding 

$5,000,000. 

61The text of the Proposed Order is set forth in 

section IV of this Notice. 

62See Petition Exhibit 3. 

63The Commission believes that the open-ended 

relief sought by the Petitioners makes it difficult to 

evaluate the full range of transactions that would 

be subject to exemption and, thus, to conduct 

legitimate public interest and CEA purpose 

determinations as required under CEA section 4(c). 

As the Commission is not providing the categorical 

relief requested by Petitioners at this time, it 

considered the Petition’s secondary requests to 

provide i) an additional category for ‘‘trade options’’ 

and/or ii) delegated authority to Commission staff 

to review and approve new categories of exempted 

transactions for purposes of being eligible for the 

relief provided herein. See supra note 26. Given 

Congressional intent that the Commission need not 

determine the nature of a product when providing 

4(c) relief, the Commission does not believe it 

would be appropriate to provide specific relief to 

trade options as a category of transactions in the 

context of this proposed relief. See supra note 7 and 

accompanying text. While it is possible that the 

scope of the transactions eligible for the relief 

proposed herein may include transactions that 

otherwise would qualify as trade options, the 

Commission need not make such a finding in the 

context of the proposed 4(c) exemption. Rather, the 

Commission has determined to limit the scope of 

the proposed exemption to Exempt Non-Financial 

Energy Transactions, as described in the Proposed 

Order, and the Commission is requesting comment 

on this description. As for the Petitioner’s request 

regarding delegated authority to CFTC staff, the 

Commission has never in the past delegated 

authority to staff to make ad-hoc 4(c) 

determinations, and does not propose such a 

delegation herein. Additionally, the Commission is 

not providing relief retroactive to the enactment of 

Dodd-Frank, as requested by Petitioners. The 

Commission specifically requests comment as to 

whether it should provide such relief, and as to 

whether such relief would be necessary to provide 

any relief beyond that which has already been 

available via the Commission’s Dodd-Frank 

implementation program, related exemptive orders, 

and staff no-action letters. The Commission also 

declines to propose, as was requested by 

Petitioners, that the transactions subject to the relief 

provided herein will not affect any entity’s 

regulatory status under the CEA and Commission 

regulations. The Commission requests comment as 

to how the relief provided by the Proposed Order 

would be incomplete without such a provision and 

as to whether the Commission should include such 

a provision in the final exemptive order. 

64The Proposed Order also includes as an Exempt 

Entity any not-for-profit entity that is wholly 

owned, directly or indirectly, by any one or more 

of the entities included within the three general 

categories above. 

65The potential for manipulation described here 

differs from the situation in CFTC v. Dairy Farmers 

of America. In this case, a dairy cooperative was 

able to have a direct effect on a small illiquid spot 

cheese market that was a pricing component in the 

U.S. Department of Agriculture formula used to 

calculate milk prices under the Federal Milk 

Marketing Orders in an attempt to manipulate the 

price of Class III milk futures. The electric energy 

market situation is different because Exempt 

Entities do not report prices of Exempt NonFinancial Energy Transactions to indexes used to 

settle other derivative products that could benefit 

an Exempt Entity cooperative’s members. 

66The Commission also is proposing, in a 

separate 4(c) order, to extend the end-user 

exception found in CEA section 2(h)(7) to 

cooperatives that are financial entities as defined in 

CEA section 2(h)(7)(C) (‘‘Financial Cooperative 4(c) 

Order). The purpose of this 4(c) relief is to extend 

the benefits of the end-user exception to 

cooperatives that meet the definition of a financial 

entity, but whose members otherwise would qualify 

for the end-user exception but choose to take 

advantage of the cooperative’s low-cost access to 

financing. See 77 FR 41940 (July 17, 2012). The 

Commission notes, however, that for the policy 

reasons described herein as well as in the Financial 

Cooperative 4(c) Order, the extension of the enduser exception to financial cooperatives still 

requires reporting of swap transactions, whereas the 

relief provided in this Proposed Order does not. 

Thus, Petitioners argue that there is 

no implication under any of the FPA 

section 201(f) criteria for electric 

cooperatives that non-201(f) electric 

cooperatives are more or less 

creditworthy or financially sound, or 

more or less deserving of operational 

deference or regulatory preference, than 

electric cooperatives that meet one of 

the FPA section 201(f) criteria.60

III. Commission Determinations 

A. Scope of the Proposed Order 

In the exemptive order proposed 

herein (the ‘‘Proposed Order’’),61 the 

Commission is providing for a narrower 

scope of eligibility than requested by 

Petitioners. While the proposed 

exemptive relief is structured in a 

manner similar to the Petition’s 

suggested approach and incorporates 

many of the same parameters,62 the 

Proposed Order uses different 

terminology to describe the pertinent 

categories of affected entities and 

transactions, and limits the exempted 

transactions to certain enumerated 

categories.63 The Proposed Order 

identifies (i) the entities eligible to rely 

on the exemption for purpose of 

entering into an exempt transaction 

(‘‘Exempt Entities’’); (ii) the agreement, 

contract, or transaction for which the 

exemption may be relied upon 

(‘‘Exempt Non-Financial Energy 

Transactions’’); and (iii) the provisions 

of the CEA that will continue to apply 

to Exempt Entities engaging in Exempt 

Non-Financial Energy Transactions. 

Accordingly, relief from the 

requirements of the CEA and 

Commission regulations provided in the 

Proposed Order will be available for 

only an Exempt Entity entering into an 

Exempt Non-Financial Energy 

Transaction with another Exempt 

Entity, subject to certain conditions. 

1. Exempt Entities 

The Commission is proposing to 

include three general categories of 

electric utilities as Exempt Entities in 

the relief provided herein: (i) 

Government-owned electric utilities 

described by FPA section 201(f); (ii) 

electric utilities owned by Federallyrecognized Indian tribes, otherwise 

subject to regulation as public utilities 

under the FPA; and (iii) cooperativelyowned electric utilities, regardless of 

whether such utilities are described by 

FPA section 201(f), so long as they are 

treated as cooperative organizations 

under the Internal Revenue Code 

(‘‘IRC’’).64 Given the unique public 

service mission and governance 

structure of government, Indian tribe, 

and cooperatively-owned electric 

utilities (as compared to investor-owned 

public utilities), the Commission 

believes that such Exempt Entities, 

when engaged in Exempt Non-Financial 

Energy Transactions, have less financial 

incentive to engage in market 

manipulation or other types of abusive 

trade practices that may implicate the 

public interest and/or purposes of the 

CEA and therefore are appropriate for 

section 4(c) relief.65

Generally, Exempt Entities are limited 

to nonfinancial commercial end users 

that operate on a not-for-profit basis. 

The Proposed Order defines Exempt 

Entities as those entities that do not 

meet the definition of a ‘‘financial 

entity’’ in CEA section 2(h)(7)(C). The 

purpose of this criterion is to prevent a 

cooperative that exists primarily in 

order to provide financing for its 

members, and thus enters into a 

significant number of derivative 

transactions to hedge financial price 

risks, such as movements in interest 

rates, from benefiting from the relief 

provided in the Proposed Order.66

a. Electric Utilities Owned by Federal, 

State, or Local Government 

Pursuant to the mandate in CEA 

section 4(c)(6)(C) and subject to the 

determinations described in Section 

III.B below, the Commission is 

proposing to include as Exempt Entities 

in its Proposed Order all governmentowned electric utilities that are 

described by FPA section 201(f). FPA 

section 201(f) exempts from the plenary 

jurisdiction of FERC ‘‘any agency, 

authority, or instrumentality of’’ or ‘‘any 

corporation which is wholly owned, 

directly or indirectly, by’’ the federal 

government or a state or local 

government. These entities include, but 

are not limited to, all federal agencyowned electric generation and 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 51007 

67See supra note 42. 

68These utilities include, but are not limited to, 

entities such as the New York Power Authority. 

69These utilities include, but are not limited to, 

municipal electric utilities, regardless of size. 

70These utilities include government-owned 

public power and public utility districts such as an 

irrigation district organized under state law that 

generates electric energy during the course of 

supplying water. 

71Public Law 103–454, 108 Stat. 4791, 4792, as 

codified at 25 U.S.C. 479a–1. 

72See supra note 51. 

73FPA section 201(f) exempts from the plenary 

jurisdiction of FERC any electric cooperative that 

either is funded by the RUS, sells less than 

4,000,000 megawatt hours per year of electricity, or 

qualifies as an aggregated FPA 201(f) entity. An 

aggregated FPA 201(f) entity consists of ‘‘any 

corporation which is wholly owned, directly or 

indirectly, by any one or more [FPA 201(f) entity].’’ 

These entities include Joint Action Agencies that 

are formed by constituent government-owned 

electric utilities described by FPA section 201(f). 

74See infra Section III.B.4 for the Commission’s 

analysis of why non-201(f) electric cooperatives are 

deemed to be appropriate persons for purposes of 

CEA section 4(c)(1) relief. 

75 26 U.S.C. 501(c)(12), 1381(a)(2)(C). For 

purposes of the definition, the term ‘‘electric 

cooperative’’ includes a ‘‘rural electric 

cooperative.’’ The Commission understands that 

while not required for federal income tax status, 

many electric cooperatives are organized under 

state cooperative statutes as well. To the extent 

such laws impose requirements that conflict with 

those in IRC 501(c)(12), state law governs without 

jeopardizing 501(c)(12) status. See Internal Revenue 

Manual § 4.76.20.8 (2006). 

76The term ‘‘cooperative’’ is not defined in IRC 

501(c)(12) or 1381(a)(2)(C). Rather, common law has 

interpreted operation on a cooperative basis to 

mean the organization demonstrates the three 

principles noted above. See Puget Sound Plywood 

v. Commissioner, 44 T.C. 305, 307–308 (1965). 

Electric cooperatives receive tax-exempt status if 

they meet the additional criteria of receiving at least 

85 percent of revenue from their members for the 

sole purpose of meeting losses and expenses. See 

IRC 501(c)(12)(A). Otherwise, electric cooperatives 

are subject to federal income tax. See IRC 

1381(a)(2)(C); Rev. Rul. 83–135. 

77 G&T cooperatives may also transmit electric 

energy to other G&T cooperatives that are members 

based on ‘‘generation capacity’’ agreements as 

described by Petitioners. See supra Section II.B.2. 

78Retail customers, in turn, use the electric 

energy to power everyday activities, whether 

commercial or residential in nature. 

79See Puget Sound Plywood, 44 T.C. at 306. 

Alternatively, producer cooperatives, such as large 

farming cooperatives, exist for the ‘‘benefit of the 

members in their capacity as producers.’’ See id. 

The Commission notes that the public interest 

rationale for exempting consumer electric 

cooperatives articulated herein would not 

necessarily apply to other producer cooperatives, 

given differences in operational purposes and 

motivations behind forming such cooperatives. 

80Additionally, financial cooperatives are not 

tax-exempt entities pursuant to IRC 501(c)(12). See 

Internal Revenue Manual § 4.76.20.5 (2006). The 

Commission intends for financial cooperatives that 

finance electric cooperatives, such as the CFC, to 

rely on the exemptive relief provided in the 

recently-proposed financial cooperative 4(c) order. 

See supra note 66. 

81The Petition asserts that the purpose of all 

transactions for which relief is sought (as described 

therein) must be ‘‘ ‘to hedge or mitigate commercial 

Continued 

transmission facilities,67 state-chartered 

electric utilities,68 utility boards or 

public utility districts formed under 

state or local law,69 and joint action or 

joint power agencies formed under state 

law to provide wholesale power supply 

and transmission services to member 

entities.70

b. Electric Utilities Owned by an Indian 

Tribe 

Based on the determinations 

described in Section III.B below and 

pursuant to CEA section 4(c)(1), the 

Commission is proposing to include as 

Exempt Entities in its Proposed Order 

all electric facilities owned by federallyrecognized Indian tribes that otherwise 

would be subject to FERC’s plenary 

jurisdiction. For purposes of the 

Proposed Order, ‘‘federally-recognized’’ 

means that the Indian tribe has been 

documented by the Secretary of the 

Interior in the Federal Register as 

having been recognized by the U.S. 

government, pursuant to section 104 of 

the Act of November 2, 1994.71

The Commission has determined that 

electric utilities owned by federallyrecognized Indian tribes are no different 

substantively than government-owned 

electric utilities described immediately 

above for purposes of benefiting from 

the relief provided in the Proposed 

Order. Like government-owned electric 

utilities, electric utilities owned by a 

federally-recognized Indian tribe use 

funds generated from electric energy 

sales for purposes of running a tribal 

government. That is, instead of accruing 

profits for the benefit of private 

investors or shareholders, any excess 

operating revenues related to the 

generation or transmission of electricity 

are used by the Indian tribe to support 

the tribal governing body and reduce 

dependence on federal funding. 

Additionally, Indian tribes are taxexempt or not-for-profit entities. Finally, 

the Commission notes that for many of 

the same reasons just noted, FERC has 

interpreted ‘‘instrumentalities’’ of 

government to include federallyrecognized Indian tribes, thus treating 

electric facilities owned by these Indian 

tribes as FPA section 201(f) entities.72

c. Electric Utilities Owned as 

Cooperative Organizations 

Pursuant to CEA section 4(c)(6)(C), 

and subject to the determinations 

described in Section III.B below, the 

Commission is proposing to include as 

Exempt Entities in its Proposed Order 

all cooperatively-owned electric utilities 

that are described by FPA section 

201(f).73 Additionally, pursuant to the 

exemptive authority provided in CEA 

section 4(c)(1) and subject to the 

determination described in Section III.B 

below, the Commission is proposing to 

include as Exempt Entities all other 

electric cooperatives that are not 

described by FPA section 201(f).74 By 

reference to the IRC in the Proposed 

Order, an ‘‘electric cooperative’’ means 

a non-profit or not-for-profit entity that 

is organized and continues to operate 

primarily to provide its members with 

electric energy services at the lowest 

cost possible and is taxed as an electric 

cooperative pursuant to IRC section 

501(c)(12) or 1381(a)(2)(C).75 In order 

for an electric utility to be taxed as a 

cooperative, the electric utility must 

demonstrate that it operates in 

accordance with three principles: (i) 

Democratic member control; (ii) 

operation at cost (i.e., allocating any 

excess revenue, less cost of producing 

the revenue, among members in 

proportion to the amount of business 

done with each); and (iii) subordination 

of capital (i.e., no single contributor of 

capital to the cooperative can control 

the operations or receive most of the 

pecuniary benefits of operations, setting 

a cooperative apart from an investor).76

Exempt Entity electric cooperatives 

generally conform to one of two 

structures. First, a G&T cooperative 

generates or purchases and transmits 

electric energy at wholesale prices to its 

constituent distribution cooperatives, 

which are members/owners.77 Second, a 

distribution cooperative sells electric 

energy to member/owner retail 

customers.78 Both structures are 

consumer cooperatives, meaning that 

they were formed by consumers for the 

‘‘benefit of [such] members in their 

capacity as consumers.’’ 79 As noted 

above, Exempt Entities do not include 

cooperatives that qualify as financial 

entities pursuant to CEA section 

2(h)(7)(C), regardless of whether they 

are recognized as FPA section 201(f) 

entities.80

2. Exempt Non-Financial Energy 

Transactions 

The Proposed Order defines Exempt 

Non-Financial Energy Transactions as 

those agreements, contracts, or 

transactions entered into between 

Exempt Entities primarily in order ‘‘to 

satisfy existing or anticipated 

contractual obligations to facilitate the 

generation, transmission, and/or 

delivery of electric energy service to 

customers at the lowest cost possible, 

and the agreement, contract, or 

transaction is intended for making or 

taking physical delivery of the 

commodity upon which the agreement, 

contract, or transaction is based.’’ 81


tkelley on DSK3SPTVN1PROD with NOTICES
51008 Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 

risks’ (as such phrase is used in CEA Section 

2(h)(7)(A)(ii)).’’ See Petition at 4. The Commission 

believes, however, that based on the general 

descriptions and accompanying examples of 

Electric Operations-Related Transactions provided 

in Petition, some types of transactions may not be 

agreements, contracts, or transactions that the 

Commission traditionally has viewed to ‘‘hedge or 

mitigate commercial risk’’ as such phrase is used in 

CEA section 2(h)(7)(A)(ii). Due to the breadth and 

vagueness of some of the Petition’s descriptions, it 

is unpractical for the Commission to identify every 

manifestation of an Electric Operations-Related 

Transaction that does not come within the 

Commission’s jurisdiction, although it has 

attempted to do so to the extent that the 

Commission has already made an affirmative 

determination elsewhere as to the nature of a 

product described in the Petition. See infra notes 

86–90 and accompanying text. In any case, in order 

to provide Exempt Entities with regulatory certainty 

pursuant to CEA section 4(c), the Commission is 

defining Exempt Non-Financial Energy 

Transactions to include all agreements, contracts, or 

transactions entered into for the primary purpose of 

satisfying existing or anticipated contractual 

obligations to fulfill an Exempt Entity’s public 

service mission that are intended for making or 

taking physical delivery of the underlying 

commodity. The Commission is seeking comments 

on the merits to this approach in defining Exempt 

Non-Financial Energy Transactions. 

82The descriptions of the categories of exempted 

transactions in the Proposed Order are based on the 

Commission’s understanding of the transaction 

types as commonly known to the electric industry, 

as informed by the descriptions provided in the 

Petition and the Commission’s past experience in 

these markets. While the categories are identified 

with the same terminology used in the Petition, the 

Commission notes that these categories are not 

described in identical terms and therefore do not 

necessarily describe the same scope of transactions 

as contemplated in the Petition for exemption. The 

Commission understands that many of the terms 

used to identify categories of transactions in the 

Petition are terms of art, commonly understood by 

the electric energy industry (including by Exempt 

Entities). 

83Although some agreements may be settled 

through a book-out transaction, the transaction may 

never be entered into for speculative purposes. 

84A key component of bona fide hedging, as 

defined in the Commission’s regulations, is 

reducing the risk of fluctuations in price. In 

contrast, Exempt Non-Financial Energy 

Transactions primarily are used for making or 

taking delivery of electric energy in the physical 

marketing channel. 

85Each category represents a factor in the 

ultimate price paid by retail customers for electric 

energy. For example, ‘‘generation capacity’’ 

transactions represent the cost component of 

acquiring and maintaining the generation assets 

used to produce the electric energy. ‘‘Electric 

energy delivered’’ represents the actual cost of 

using the generation assets to produce the electric 

energy. 

86 77 FR 48208 (August 13, 2012). 

87The Commission has determined to interpret 

the forward exclusion from the swap definition 

consistently with the forward exclusion from the 

‘‘future delivery’’ definition. Id. at 48227. Therefore, 

the forward exclusion from the swap definition 

applies equally to the forward exclusion from the 

‘‘future delivery’’ definition. See id. at 48233, note 

271. 

88Compare Petition Exhibit 2 at 3 with 77 FR 

48236. 

89Compare Petition at 12 and Petition Exhibit 2 

at 6 with 77 FR 48233–234. 

Exempt Non-Financial Energy 

Transactions are limited to six 

categories of agreements, contracts, or 

transactions, as described in further 

detail in the Proposed Order,82 which 

facilitate: (i) The generation of electric 

energy by an Exempt Entity, including 

fuel supply; (ii) the purchase or sale and 

transmission of electric energy by/to an 

Exempt Entity; and (iii) compliance 

with electric system reliability 

obligations applicable to the Exempt 

Entity and its facilities or operations. 

When combined with the 

requirements for Exempt Entities 

described above, the Commission 

believes that Exempt Non-Financial 

Energy Transactions, as defined under 

the Proposed Order, will not be used for 

speculative purposes. That is, Exempt 

Entity counterparties to Exempt NonFinancial Energy Transactions must 

contemplate ‘‘delivery’’ of the 

underlying good or service at the time 

they enter into the agreement, contract, 

or transaction, whether that be for 

electric energy, generation capacity, 

access to transmission lines, fuel, or 

some combination of the foregoing.83

Furthermore, these transactions 

generally are not used by Exempt 

Entities for the primary purpose of 

hedging fluctuations in the price of 

electric energy or any other commodity 

related to the generation, transmission, 

and/or delivery of electric energy to 

customers.84 Finally, the majority of 

Exempt Non-Financial Energy 

Transactions are not suitable for trading 

on an exchange such as a registered 

DCM or SEF due to their highly bespoke 

nature, and cannot include transactions 

based on, derived from, or referencing 

any financial commodity or any metal, 

agricultural, crude oil or gasoline 

commodity that cannot be used as fuel 

to generate electric energy. For these 

reasons, and for the reasons discussed 

in the 4(c) analysis provided in Section 

III.B below, the Commission believes 

that these transactions are unlikely to 

have an impact on price discovery or 

the functioning of markets regulated by 

the Commission, and thus are 

appropriate for conditional relief from 

the requirements of the CEA and 

regulations thereunder, pursuant to CEA 

section 4(c). 

The unique nature of the electric 

energy industry, including the unique 

nature of the not-for-profit utility 

structure, influenced the Commission’s 

choice of the transactions within the 

scope of the exemption in the Proposed 

Order. Supply of reliable, affordable 

electric energy has long been 

constrained by a limited amount of 

generation and transmission capacity, 

particularly in rural regions, that is 

capable of meeting peak demand. 

Unlike many physical commodities, 

electric energy is not capable of being 

purchased in large commercial 

quantities ahead of time, delivered, and 

stored for later consumption or use. 

That is, electric energy must be used or 

consumed on an as-needed basis. 

Demand, on the other hand, can be 

subject to unpredictable fluctuations 

due to emergency situations and 

changes in weather patterns, usage 

trends, and larger macroeconomic 

conditions. Thus, electric utilities, 

including Exempt Entities, negotiate 

highly customized commercial 

arrangements in order to fulfill these 

constantly fluctuating retail electric 

energy needs while still complying with 

national and regional environmental 

and reliability standards. Each category 

of Exempt Non-Financial Energy 

Transactions described in the Proposed 

Order represents a component of these 

larger bespoke commercial transactions 

used to fulfill an Exempt Entity’s public 

service mission.85

The Commission notes that not every 

transaction described by the Petition is 

being included in the Commission’s 

definition of Exempt Non-Financial 

Energy Transaction. Due to the 

Commission’s recent joint final rule and 

interpretation with the SEC in which it 

further defined what is (and is not) a 

swap (‘‘Products Release’’),86 the 

Commission believes it would not be 

appropriate to provide 4(c) relief from 

the requirements of the CEA and 

Commission regulations thereunder for 

certain transactions that are not 

swaps.87

Specifically, the Commission notes 

that, consistent with an example 

provided in the Products Release, the 

example of a Fuel Delivered transaction 

provided in Exhibit B of the Petition 

would be covered by the forward 

exclusion from the swap definition.88

Additionally, the Commission notes 

that, consistent with the general 

description provided in the Products 

Release, agreements, contracts, and 

transactions involving the category of 

Environmental Rights, Allowances or 

Attributes as specifically described by 

the Petition are covered by the forward 

exclusion from the swap definition.89

Accordingly, while these agreements, 

contracts, and transactions are not 

covered by the relief in the Proposed 

Order, they nonetheless are not subject 

to the requirements of the CEA and 

Commission regulations thereunder 

otherwise applicable to swaps, such as 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 51009 

90However, any agreement, contract, or 

transaction that is a swap referencing one of these 

agreements, contracts, and transactions may be 

subject to the jurisdiction of the CEA (e.g., an 

option or other swap on or related to the price of 

an environmental allowance). 91As noted above, CEA section 4(c) does not 

compel the Commission to make such a 

determination prior to issuing 4(c) relief. See supra 

note 7 and accompanying text. In contrast, and in 

addition to providing per se determinations as to 

the product classification of certain transactions, 

the Products Release provides interpretive guidance 

as to how the Commission would analyze certain 

categories of transactions for purposes of 

determining whether a particular transaction is a 

swap. Accordingly, certain transactions covered by 

the categories of Exempt Non-Financial Energy 

Transactions in the Proposed Order may not be 

swaps. See, e.g., 77 FR 48238 (noting that the 

Commission will interpret a ‘‘full requirements’’ 

contract with embedded volumetric optionality as 

a forward and not an option if the contract exhibits 

the features described in the Products Release in 

section II.B.2.(b)(ii)). 

92The Commission interprets the phrase, ‘‘the 

Commission shall, in accordance with [CEA section 

4(c)(1) and 4(c)(2)], exempt from the requirements 

of [the CEA] * * *,’’ to mean that the Commission 

must make the determinations required under CEA 

sections 4(c)(1) and 4(c)(2) prior to providing the 

mandated relief. 

93Petition at 22. 

94For instance, investor-owned, private utilities 

lacked a profit incentive early on to invest the vast 

sums of capital necessary to expand electric energy 

service into rural areas where the requisite 

infrastructure was not already in place. With 

support from the RUS, as established under the 

FPA, electric cooperatives were first established in 

order to serve these rural communities. 

95For example, many G&T cooperatives are 

formed exclusively by distribution cooperatives for 

the purpose of providing each distribution 

cooperative with its full requirements. 

96 7 U.S.C. 1a(18). In a recent final interpretive 

rule further defining entities under the CEA, as 

amended by the Dodd-Frank Act (‘‘Entities 

Release’’), the Commission declined to recognize 

certain entities such as not-for-profit natural gas 

Continued 

clearing, trade execution, and 

reporting.90

Finally, the descriptions of the 

categories of Exempt Non-Financial 

Energy Transactions in the Proposed 

Order do not constitute official 

Commission determinations as to those 

transactions’ legal status as a product 

subject to the jurisdiction of the CEA.91

To the extent overlap exists between 

transactions described as being subject 

to the forward exclusion from the swaps 

definition in the Products Release and 

transactions described by the categories 

of Exempt Non-Financial Energy 

Transactions in the Proposed Order, the 

Commission is requesting public 

comment as to whether the Proposed 

Order should provide relief for such 

transactions. 

3. Conditions 

Under the Proposed Order, Exempt 

Entities would remain subject to certain 

conditions. First, the Commission’s 

general anti-fraud, anti-manipulation, 

and enforcement authority found in 

CEA sections 2(a)(1)(B), 4b, 4c(b), 4o, 

6(c), 6(d), 6(e), 6c, 6d, 8, 9 and 13, and 

Commission rules 32.4 and Part 180, 

which have application to both 

derivative and cash market transactions, 

will still apply. This condition will 

allow the Commission to initiate 

enforcement proceedings against 

Exempt Entities found to be engaged in 

manipulative, fraudulent, or otherwise 

abusive trading schemes when 

executing Exempt Non-Financial Energy 

Transactions with other Exempt 

Entities. Additionally, the Commission 

reserves its authority to inspect the 

books and records of Exempt NonFinancial Energy Transactions already 

kept in the normal course of business 

pursuant to the Commission’s regulatory 

inspection authorities, in the event that 

circumstances warrant the need to gain 

greater visibility with respect to Exempt 

Non-Financial Energy Transactions as 

they relate to Exempt Entities’ overall 

market positions and to ensure 

compliance with the terms of the 

Proposed Order. 

B. CEA Section 4(c) Considerations 

The Commission is issuing the 

Proposed Order pursuant to authority 

found in CEA sections 4(c)(1) and 

4(c)(6), among other reasons, because it 

believes that the proposed exemption 

will promote responsible economic or 

financial innovation and fair 

competition. In addition to criteria 

found in those provisions, both sources 

of exemptive relief require the 

Commission to make certain 

determinations based on criteria found 

in section 4(c)(2), as well.92

Accordingly, the Commission considers 

and proposes to determine that: (i) CEA 

section 4(a) should not apply to the 

transactions eligible for the proposed 

exemption (as transacted by the entities 

eligible for the proposed exemption), (ii) 

providing section 4(c) relief from the 

CEA for Exempt Non-Financial Energy 

Transactions (as entered into between 

Exempt Entities) is consistent with the 

public interest and the purposes of the 

CEA, (iii) Exempt Entities are 

‘‘appropriate persons’’ within the 

meaning of the term as defined in CEA 

section 4(c)(3), and (iv) the proposed 

exemption will not have a material 

adverse effect on the ability of the 

Commission or any contract market to 

discharge its regulatory or selfregulatory duties under the CEA. 

1. Responsible Economic or Financial 

Innovation and Fair Competition 

The Commission believes that the 

exemption provided in the Proposed 

Order will promote financial innovation 

in electric energy markets facilitated by 

government and cooperatively-owned 

utilities. Government and cooperativelyowned electric utilities are not-for-profit 

entities whose sole purpose and mission 

is ‘‘to provide reliable electric energy to 

retail electric customers every hour of 

the day and every season of the year, 

keeping costs low and supply 

predictable, while practicing costeffective environmental stewardship.’’ 93

The consumer-as-owner cooperative 

model of electric utility, in partnership 

with municipal utilities and federal 

power agencies, has proven to be wellsuited in developing innovative 

solutions to a complex array of issues 

related to extending electric energy 

generation and transmission resources 

into geographic areas of the United 

States where economies of scale do not 

exist, particularly those rural areas 

where traditional investor-owned 

utilities have chosen not to invest.94 In 

order to meet these electric energy 

challenges, however, the Exempt Entity 

business model has depended on a 

flexible operating environment, 

facilitated over time by other regulatory 

relief such as the exemption from 

FERC’s plenary jurisdiction provided by 

FPA section 201(f). 

Due to factors largely beyond the 

control of Exempt Entities, the 

production, distribution, and usage 

needs of each Exempt Entity are 

constantly changing and have the 

potential to create the substantial 

commercial risk of not having enough 

generation, transmission, or distribution 

capacity for Exempt Entities to meet 

peak demand. Normally without the 

benefit of size and customer density, 

Petitioners contend that Exempt Entities 

have evolved to rely largely on each 

other in order to fulfill their public 

service mission of providing electric 

energy to their member-owners and 

retail customers at the lowest cost 

possible.95 The transactions listed in the 

Proposed Order reflect this type of 

innovation. Going forward, due to the 

limitations of standardized derivative 

contracts in providing the same type of 

highly customized resources to unique 

energy needs, it is important that 

Exempt Entities continue to have the 

flexibility to negotiate innovative new 

arrangements bilaterally for the purpose 

of achieving their mission. 

Additionally, the Commission notes 

that, under current Commission 

regulations and guidance, it is unclear 

whether all Exempt Entities would 

qualify as eligible contract participants 

(‘‘ECPs’’), as such term is defined under 

CEA section 1a(18).96 Therefore, absent 


tkelley on DSK3SPTVN1PROD with NOTICES
51010 Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 

utilities as having per se ECP status. See Further 

Definition of ‘‘Swap Dealer,’’ ‘‘Security-Based Swap 

Dealer,’’ ‘‘Major Swap Participant,’’ ‘‘Major 

Security-Based Swap Participant’’ and ‘‘Eligible 

Contract Participant,’’ 77 FR 30596, 30657 (May 23, 

2012). The Commission noted that it was, however, 

considering granting relief to FPA section 201(f) 

entities, pursuant to new authority under CEA 

section 4(c)(6), which ‘‘[might] address the concerns 

of some commenters’’ such as entities similarly 

situated to the utilities represented by Petitioners. 

See id. The relief provided in the Proposed Order 

is consistent with the Commission’s Entities 

Release. 

97See CEA section 2(e). 

98The Commission notes that certain non-Exempt 

Entity electric utilities also may qualify for the enduser exception from the clearing and trade 

execution requirements for swaps under CEA 

section 2(h)(7) when engaged in bona fide hedging 

transactions. See 7 U.S.C. 2(h)(7)–(8). 

99CEA 3(a), 7 U.S.C. 5(a). 

relief such as that proposed herein, 

there is a risk that some Exempt NonFinancial Energy Transactions meeting 

the definition of a swap that involve 

non-ECP counterparties could not be 

traded away from a designated contract 

market.97 As described elsewhere in this 

release, Exempt Entities engage in 

Exempt Non-Financial Energy 

Transactions with one another on only 

a bilateral basis because such 

transactions are not replicable on an 

exchange (whether due to transaction 

size, customized terms, or other 

reasons). Therefore, the Commission is 

proposing the exemption in the 

Proposed Order to ensure that Exempt 

Entities have the regulatory certainty 

necessary to continue negotiating highly 

customized, physically-settled 

agreements, contracts, and transactions 

that serve their unique public service 

mission of providing reliable, affordable 

electric energy to customers. 

The Commission also believes that the 

relief provided in the Proposed Order 

will not distort the competitive 

landscape. First, the transactions 

covered by the Proposed Order relate, in 

many instances, to longstanding and 

exclusive agreements between Exempt 

Entities. As such, the Commission does 

not believe that granting an exemption 

from the requirements of the CEA either 

would change the nature of these 

transactions, or cause an Exempt Entity 

to enter into an arrangement with 

another Exempt Entity instead of an 

investor owned utility or some other 

counterparty solely because the 

agreement would be covered by the 

exemption in the Proposed Order. The 

benefits of the relief provided in the 

Proposed Order to government utilities 

and electric cooperatives will maintain 

the current competitive landscape, thus 

permitting Exempt Entities to continue 

using Exempt Non-Financial Energy 

Transactions to fulfill their public 

service mission, as opposed to 

providing an unfair advantage to one 

group over another group.98

The CFTC is requesting comment on 

whether the Proposed Order may foster 

both financial or economic innovation 

and fair competition. 

2. Applicability of CEA Section 4(a) 

The Commission does not believe that 

CEA section 4(a), the exchange-trading 

requirement for futures contracts, 

should apply to Exempt Non-Financial 

Energy Transactions as defined in the 

Proposed Order. When transacted 

between Exempt Entities, these 

transactions are highly negotiated and 

bespoke in nature, cater specifically to 

the Exempt Entities’ respective 

electricity, fuel, or other needs, and are 

intrinsically related to the Exempt 

Entities’ public-service mission. 

Accordingly, the Commission does not 

view Exempt Non-Financial Energy 

Transactions as being suitable for onexchange trading, in large part because, 

as noted above, these transactions and 

markets are unlikely to have an impact 

on price discovery or the functioning of 

markets regulated by the Commission. 

Thus, CEA section 4(a) should not 

apply. 

3. Public Interest and the Purposes of 

the CEA 

Exempting certain physical 

transactions between entities described 

in FPA section 201(f), and certain other 

electric cooperatives, from the 

provisions of the CEA and the 

regulations there under, subject to 

certain anti-fraud, anti-manipulation, 

and recordkeeping conditions, is 

consistent with public interest and the 

purposes of the CEA for the reasons 

discussed below. 

a. Public Interest 

CEA section 3(a) describes Congress’ 

findings as to certain national public 

interests facilitated by transactions 

subject to the Act. These public interests 

include ‘‘providing a means for 

managing and assuming price risks, 

discovering prices, or disseminating 

pricing information through trading in 

liquid, fair and financially secure 

trading facilities.’’ 99

Given the unique nature of each 

Exempt Non-Financial Energy 

Transaction conducted between Exempt 

Entities, such transactions are generally 

non-fungible and therefore cannot be 

traded as standardized products on an 

exchange. Accordingly, the universe of 

Exempt Non-Financial Energy 

Transactions generally occurs between 

Exempt Entities, thus constituting a 

mostly closed-loop of bilateral 

transactions. These bilateral 

transactions do not, by and large, face 

markets in which non-Exempt Entities 

such as investor-owned utilities engage 

in similar transactions, and therefore 

pose little (if any) threat of negatively 

affecting the liquidity, fairness, or 

financial security of trading derivative 

products on a registered designated 

contract market or swap execution 

facility in a material way. 

Exempt Non-Financial Energy 

Transactions, as they are defined and 

conditioned in the Proposed Order, are 

not susceptible to being used as a means 

for ‘‘assuming price risk,’’ or speculative 

activity. Rather, Exempt Entities may 

engage in these transactions for 

purposes of ‘‘managing’’ commercial 

risks that arise from electric operations 

in which the Exempt Entity engages to 

fulfill its public service mission of 

providing the most affordable and 

reliable electric energy possible to its 

members. Most of these commercial 

risks, however, are not directly related 

to fluctuations in the price of a 

commodity. Rather, Exempt Entities’ 

main concern is a possible inability to 

satisfy contractual obligations to supply 

electric energy service to customers, 

which may arise from somewhat 

unpredictable fluctuations in demand 

for electric energy. These fluctuations, 

in turn, make it difficult for Exempt 

Entities to forecast their exact needs for 

generation and transmission capacity, 

the exact amount of fuel to be used for 

the generation of electric energy, and 

related activities necessary to facilitate 

the Exempt Entity’s public service 

mission. Exempt Non-Financial Energy 

Transactions generally use variable 

pricing, as opposed to fixed pricing, 

meaning that they are entered into 

primarily to ensure that Exempt Entities 

are able to meet their production, 

transmission, and/or distribution 

obligations, as opposed to serving a 

traditional hedging function against the 

risk of price fluctuations of electricity or 

some other commodity. 

It is unlikely that an exchange could 

or would model a standardized 

derivative contract to duplicate the 

highly-customized economic terms of a 

bilaterally-negotiated Exempt NonFinancial Energy Transaction. 

Accordingly, such transactions between 

Exempt Entities are not susceptible to 

serving a price discovery function for 

any broader market or markets. A 

market participant seeking pricing 

information for a product or transaction 

involving the same underlying 

commodity would look to a 

standardized product or contract traded 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 51011 

100The Commission notes that FERC recently has 

proposed requiring entities described in FPA 201(f) 

to be subject to limited reporting requirements 

concerning the availability and prices of wholesale 

electric energy. In EPAct 2005, Congress added 

Section 220 to the FPA (16 U.S.C. 824t) directing 

FERC to ‘‘facilitate price transparency in markets 

for the sale and transmission of electric energy in 

interstate commerce’’ with ‘‘due regard for the 

public interest, the integrity of those markets, fair 

competition, and the protection of consumers.’’ See 

Electricity Market Transparency Provisions of 

Section 220 of the Federal Power Act, 135 FERC ¶ 

61,053 at PP 21–23 (Notice of Proposed 

Rulemaking) (2011) (collection of information from 

‘‘any market participant’’ interpreted to include 

entities described in FPA 201(f)). The Commission 

specifically seeks comment on whether, in light of 

this proposal, the relief provided in the Proposed 

Order should be revised in the future to require 

reporting to an SDR for certain transactions. 

101CEA 3(b); 7 U.S.C. 5(b). 

102As noted in section III(B)(1) above, the 

Commission believes that the exemption will 

promote financial innovation and fair competition. 

103See supra notes 45–50 and accompanying text 

for a discussion of the FPC’s findings in its 

Dairyland decision, affirmed by the federal court in 

Salt River, explaining the underlying rationale for 

exempting non-investor owned public utilities from 

the plenary jurisdiction of the FPC. 

104See CEA sections 2(a)(1)(B), 4b, 4c(b), 4o, 6(c), 

6(d), 6(e), 6c, 6d, 8, 9 and 13, and Commission rules 

32.4 and Part 180. 

105See FPA 222v; 16 U.S.C. 824v. 

106Additionally, Exempt Entities do not consist 

of ‘‘financial entities’’ as the term is defined in CEA 

2(h)(7)(C)(i). 

107Alternatively, the Commission notes that 

many FPA section 201(f) entities are governmentowned or sponsored, and therefore would qualify 

as appropriate persons under CEA section 

4(c)(3)(H): ‘‘Any governmental entity * * * or 

political subdivision thereof, * * * or any 

instrumentality, agency, or department of any of the 

foregoing.’’ 

108See id. 

on a regulated exchange involving that 

commodity.100

The CFTC is requesting comment on 

whether the Proposed Order is 

consistent with the public interest. 

b. Purposes of the CEA 

Under section 3(b), in order to foster 

the public interests, it is the purpose of 

the CEA ‘‘to deter and prevent price 

manipulation or any other disruptions 

to market integrity; to ensure the 

financial integrity of all transactions 

subject to [the CEA] and the avoidance 

of systemic risk; to protect all market 

participants from fraudulent or other 

abusive sales practices and misuses of 

customer assets; and to promote 

responsible innovation and fair 

competition among boards of trade, 

other markets and market 

participants.’’ 101 The Commission 

believes that the exemptive relief 

provided in the Proposed Order is 

consistent with these purposes.102

Exempt Entities are either government 

or cooperatively-owned electric utilities 

organized under Federal tax laws as 

nonprofit or not-for-profit entities. All 

Exempt Entities share a public service 

mission of providing reliable electric 

energy to retail electric customers at all 

times, keeping costs low and supply 

predictable, while practicing costeffective environmental stewardship. 

Elected or appointed government 

officials or citizens, or cooperative 

members or consumers, are directly 

involved in the day-to-day governance 

and management of an Exempt Entity’s 

facilities and operations. There are no 

shareholders or outside investors to 

profit from the Exempt Non-Financial 

Energy Transactions, and any revenues 

accruing from operational risk 

management activities related to the 

electric facilities and operations are 

used to reduce the cost of electric 

service provided to cooperative 

members and retail customers. 

Accordingly, the Commission believes 

that Exempt Non-Financial Energy 

Transactions between Exempt Entities 

are less vulnerable to fraudulent or 

manipulative trading activity. Congress 

affirmatively recognized this in the 

context of wholesale electric energy 

markets when it exempted government 

and cooperatively-owned electric 

utilities from FERC’s plenary 

jurisdiction under FPA section 201(f).103

Furthermore, the Proposed Order retains 

the Commission’s general anti-fraud, 

anti-manipulation, and enforcement 

authority,104 and all Exempt Entities, 

regardless of status under FPA section 

201(f), remain subject to FERC’s market 

manipulation authority.105 Therefore, 

the relief provided in the Proposed 

Order does not interfere with the 

Commission’s ability to police markets 

for manipulation and fraudulent trade 

practices. 

Finally, the Commission does not 

view Exempt Non-Financial Energy 

Transactions between Exempt Entities 

as posing a systemic risk to the financial 

integrity or stability of markets. By 

definition, Exempt Entities do not 

consist of interconnected ‘‘financial 

institutions’’ subject to prudential 

regulation because they are 

‘‘systemically important.’’ 106 Exempt 

Non-Financial Energy Transactions do 

not involve financial market 

professionals, intermediaries, or any 

other entity registered with the 

Commission. Rather, Exempt NonFinancial Energy Transactions involve 

counterparty credit risk between only 

Exempt Entities, which share a common 

not-for-profit public service mission and 

are obligated to pursue operational, not 

financial, performance mandates. The 

Commission does not believe that 

imposing the requirements of the CEA 

on these transactions would reduce 

systemic risk or bolster the financial 

stability and soundness of the markets 

that the Commission does regulate. 

Accordingly, the Commission does not 

view the relief provided in the Proposed 

Order as being contrary to this purpose 

of the CEA. 

The CFTC is requesting comment on 

whether the Proposed Order is 

consistent with the purposes of the 

CEA. 

4. Appropriate Persons 

Exempt Entities entering into Exempt 

Non-Financial Energy Transaction are 

‘‘appropriate persons’’ for purposes of 

satisfying CEA section 4(c)(2) for 

different reasons, depending on the type 

of electric utility and the corresponding 

section of the CEA pursuant to which 

the relief in the Proposed Order is being 

granted. The Commission believes that 

Congress, in enacting CEA section 

4(c)(6)(C), implicitly identified entities 

described by FPA section 201(f) as 

appropriate persons for purposes of 

qualifying for an exemption pursuant to 

CEA section 4(c)(6); otherwise, Congress 

would not have mandated that the 

Commission ‘‘shall * * * exempt’’ such 

entities upon making the required 

findings.107

Next, for the reasons just noted, the 

Commission believes that federallyrecognized Indian tribes that own 

electric facilities are analogous to 

government entities that sponsor 

electric facilities, and therefore qualify 

as appropriate persons pursuant to CEA 

section 4(c)(3)(H).108

Finally, the Commission believes that 

non-FPA 201(f) electric cooperatives are 

appropriate persons for the reasons 

articulated in the Petition with respect 

to such cooperatives. Under CEA 

section 4(c)(3)(K), the Commission may 

determine other persons not enumerated 

elsewhere in section 4(c)(3) to be 

appropriate in light of their financial or 

other qualifications, or the applicability 

of appropriate regulatory protections. As 

previously noted, the Commission 

believes that Congress implicitly 

deemed FPA 201(f) entities to be 

appropriate persons, thus indicating 

that FPA 201(f) entities have the 

requisite financial soundness and 

operational capabilities to execute 

transactions that are exempt from the 

requirements of the CEA. 

For the purposes of a 4(c) exemption, 

the Commission believes that there is no 

material difference in an electric 

cooperative’s financial soundness or 

operational capability based upon 


tkelley on DSK3SPTVN1PROD with NOTICES
51012 Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 

109As previously noted, non-FPA 201(f) electric 

cooperatives are governed by the same public 

service mission as FPA 201(f) electric cooperatives 

(i.e., providing members with electric energy at the 

lowest cost possible). 

110 In expanding the FPA 201(f) exemption to 

include RUS-financed electric cooperatives, 

Congress went a step further in EPAct 2005 by also 

including electric cooperatives that sold less than 

4,000,000 megawatt hours of electricity per year. 

According to counsel for Petitioners, this provision 

was meant to capture certain small, distributiononly cooperatives that did not receive financing 

from the RUS. 

111Alternatively, certain non-FPA 201(f) electric 

cooperatives may qualify as appropriate persons 

based on their net worth exceeding $1,000,000 or 

total assets exceeding $5,000,000. See CEA section 

4(c)(3)(F). 

whether or not the electric cooperative 

meets the criteria of FPA section 

201(f).109 As Petitioners note, an electric 

cooperative that receives financing from 

a source other than the RUS or sells 

more than 4,000,000 megawatt hours of 

electricity per year is at least as 

financially sound and operationally 

qualified as electric cooperatives 

described in FPA section 201(f).110 The 

Commission notes that non-201(f) 

electric cooperatives arguably are more 

financially sound and operationally 

capable, as they likely maintain greater 

generation and transmission assets 

capable of facilitating the excess electric 

energy sales.111 Additionally, non-FPA 

201(f) electric cooperatives that sell 

more than the threshold amount of 

electric energy per year often are in a 

position to benefit from better financing 

terms than those offered by the RUS 

based on having greater financial assets 

to post as collateral. 

The CFTC is requesting comment as 

to whether the Exempt Entities 

identified in the Proposed Order are 

appropriate persons. 

5. Ability to Discharge Regulatory or 

Self-Regulatory Duties 

The exemptive relief contained in the 

Proposed Order will not have a material 

adverse effect on the ability of the 

Commission or any contract market to 

discharge its regulatory or selfregulatory duties under the CEA. 

Nothing in the Proposed Order will 

prevent the Commission or any contract 

market from carrying out regulatory or 

self-regulatory duties for markets in a 

commodity that may also be involved in 

an Exempt Non-Financial Energy 

Transaction. As previously discussed, 

given the bespoke nature of these 

transactions, they are not connected to 

the pricing and market characteristics of 

other related derivative products that 

trade on exchange. The Commission is 

less concerned about the regulatory 

oversight of Exempt Entities as they are 

‘‘effectively self-regulating’’ bodies 

subject to government or cooperativemember management. 

The CFTC is requesting comment as 

to whether the Proposed Order will 

have a material adverse effect on the 

ability of the Commission or any 

contract market to discharge its 

regulatory or self-regulatory duties 

under the CEA. 

IV. Proposed Order 

The Commission has determined, 

pursuant to Commodity Exchange Act 

(‘‘CEA’’) sections 4(c)(1) and 4(c)(6), to 

exempt from all requirements of the 

CEA and Commission regulations issued 

there under any Exempt Non-Financial 

Energy Transaction entered into solely 

between Exempt Entities, subject to the 

following definitions and conditions: 

A. Exempt Entity shall mean (i) any 

government-owned electric facility 

recognized under Federal Power Act 

(‘‘FPA’’) section 201(f), 16 U.S.C. 824(f); 

(ii) any electric facility otherwise 

subject to regulation as a ‘‘public 

utility’’ under the FPA that is 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 cooperatively-owned 

electric utility, regardless of status 

pursuant to FPA section 201(f), so long 

as the utility is treated as a 

‘‘cooperative’’ organization 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 the lowest cost 

possible; or (iv) any not-for-profit 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). 

B. Exempt Non-Financial Energy 

Transaction means any agreement, 

contract, or transaction based upon a 

‘‘commodity,’’ as such term is defined 

and interpreted by the CEA and 

regulations there under, so long as the 

primary purpose of the agreement, 

contract, or transaction is to satisfy 

existing or anticipated contractual 

obligations to facilitate the generation, 

transmission, and/or delivery of electric 

energy service to customers at the 

lowest cost possible, and the agreement, 

contract, or transaction is intended for 

making or taking physical delivery of 

the commodity upon which the 

agreement, contract, or transaction is 

based. 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, agricultural product, 

crude oil or gasoline that is not used as 

fuel for electric energy generation. 

Exempt Non-Financial Energy 

Transactions are limited to the 

following categories, which may exist as 

stand-alone agreements or as 

components of larger agreements that 

combine only the following categories of 

transactions: 

1. Electric Energy Delivered 

transactions consist of arrangements in 

which a provider Exempt Entity agrees 

to deliver a specified amount of electric 

energy to a recipient Exempt Entity 

within a defined geographic service 

territory, load, or electric system over 

the course of an agreed period of time. 

Such transactions include ‘‘full 

requirements’’ contracts, under which 

one Exempt Entity becomes obligated to 

provide, and the recipient Exempt 

Entity becomes obligated to take, all of 

the electric energy the recipient needs to 

provide reliable electric service to its 

fluctuating electric load over a specified 

delivery period at one or multiple 

delivery points or locations, net of any 

electric energy the recipient is able to 

produce through generation assets that 

it owns. 

2. Generation Capacity transactions 

consist of agreements in which a 

recipient Exempt Entity purchases from 

a provider Exempt Entity the right to 

call upon a specified amount of the 

provider Exempt Entity’s electric energy 

generation assets to supply electric 

energy within a defined geographic area, 

regardless of whether such right is ever 

exercised for the purposes of the 

recipient Exempt Entity meeting its 

location-specific reliability obligations. 

Such transactions also may specify 

certain conditions that must exist prior 

to exercising the right to use an Exempt 

Entity’s generation assets, or establish 

an agreement between Exempt Entities 

to share pooled electric generation 

assets in order to satisfy regionallyimposed demand side management 

program requirements. 

3. Transmission Services transactions 

consist of arrangements in which a 

provider Exempt Entity owning 

transmission lines sells to a recipient 

Exempt Entity the right to deliver a 

specified amount of the recipient 

Exempt Entity’s electric energy from one 

designated point on the transmission 

lines to another, at a set price per 

wattage and over a certain time period, 

in order for the recipient Exempt Entity 

to provide electric energy to its 

customers. Such transactions may 

include ancillary services related to 

transmission such as congestion 

management and system losses. 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 51013 

112Commenters should consider what impact, if 

any, it would have on the response to the question 

posed if FERC finalizes its recent proposal to 

require price transparency reporting in electric 

wholesale markets, even by FPA 201(f) entities. See 

supra note 100. 

4. Fuel Delivered transactions include 

arrangements used to buy, sell, 

transport, deliver, or store fuel used in 

the generation of electric energy by an 

Exempt Entity. Additionally, Fuel 

Delivered transactions may include an 

agreement to manage the operational 

basis or exchange (i.e., location or time 

of delivery) risk of an Exempt Entity 

that arises from its location-specific, 

seasonal or otherwise variable 

operational need for fuel to be 

delivered. 

5. Cross-Commodity Pricing 

transactions include arrangements such 

as heat rate transactions and tolling 

agreements in which the price of 

electric energy delivered is based upon 

the price of the fuel source used to 

generate the electric energy. CrossCommodity transactions also include 

fuel delivered agreements in which the 

price paid for fuel used to generate 

electric energy is based upon the 

amount of electric energy produced. 

6. Other Goods and Services 

Other Goods and Services 

transactions consist of arrangements in 

which the Exempt Entities enter into an 

agreement to share the costs and 

economic benefits related to 

construction, operation, and 

maintenance of facilities for the 

purposes of generation, transmission, 

and delivery of electric energy to 

customers. In a full requirements 

contract between Exempt Entities that 

share ownership of generation assets, 

the provider Exempt Entity may 

determine how generation to meet the 

recipient Exempt Entity’s full 

requirements will be allocated among 

the provider’s independent generation 

assets, the jointly-owned generation 

assets, and the recipient’s independent 

generation assets. Other Goods and 

Services transactions also may include 

agreements between Exempt Entities to 

operate each other’s facilities, share 

equipment and employees, and interface 

on each other’s behalf with third parties 

such as suppliers, regulators and 

reliability authorities, and customers, 

regardless of whether such agreements 

are triggered as contingencies in 

emergency situations only or are 

applicable during the normal course of 

operations of an Exempt Entity. 

C. Conditions. The relief provided 

herein is subject to the Commission’s 

general anti-fraud, anti-manipulation 

and enforcement authority under the 

CEA, including but not limited to CEA 

sections 2(a)(1)(B), 4b, 4c(b), 4o, 6(c), 

6(d), 6(e), 6c, 6d, 8, 9 and 13, and 

Commission rules 32.4 and Part 180. 

Additionally, the Commission reserves 

its authority to inspect books and 

records kept in the normal course of 

business that relate to Exempt NonFinancial Energy Transactions between 

Exempt Entities pursuant to the 

Commission’s regulatory inspection 

authorities. The relief provided herein 

does not affect the jurisdiction of FERC 

or any other government agency over 

the entities and transactions described 

herein. Furthermore, the Commission 

reserves the right to revisit any of the 

terms and conditions of the relief 

provided herein and alter or revoke 

such terms and conditions as necessary 

in order for the Commission to execute 

its duties and advance the public 

interests and purposes under the CEA, 

including a determination that certain 

entities and transactions described 

herein should be subject to the 

Commission’s full jurisdiction. 

V. Request for Comment 

The Commission requests comment 

on all aspects of the issues presented by 

this proposed order. The Commission 

specifically requests comment on the 

scope of both the (a) transactions and (b) 

entities which would be eligible to rely 

upon the exemption provided in the 

proposed order. In addition, the 

Commission requests comment on the 

following questions: 

1. Should the Commission limit the 

scope of Exempt Entities to only those 

electric utilities described by FPA 

section 201(f), given that Congress 

limited CEA section 4(c)(6)(C) thereto 

(or, is it an appropriate use of the 

Commission’s general exemptive 

authority pursuant to CEA section 

4(c)(1) to exempt the non-FPA 201(f) 

electric cooperatives)? If it is 

appropriate to expand the scope beyond 

FPA 201(f) entities, should the 

Commission still limit the scope of 

electric cooperatives included as 

Exempt Entities to only those 

cooperatives with tax exempt status 

under the IRC (i.e., those that receive at 

least 85 percent of revenue from the 

cooperative membership)? 

2. In light of other exemptive 

authority that was added to the CEA by 

the Dodd-Frank Act, such as the enduser exception in CEA section 

2(h)(7)(A), is relief pursuant to CEA 

section 4(c) necessary and/or 

appropriate for Exempt Non-Financial 

Energy Transactions between Exempt 

Entities as described herein? 

3. Should the Commission require 

that any Exempt Entity that is described 

by FPA section 201(f) relying on the 

relief provided herein notify the 

Commission of its change in status 

under FPA section 201(f) as a condition 

of such relief? If so, what purpose(s) 

would this serve? 

4. For the purpose of issuing this 

Proposed Order, the Commission 

concluded that Exempt Non-Financial 

Energy Transactions do not serve a price 

discovery purpose. Please comment on 

the Commission’s assessment. What 

facts and circumstances would require 

the Commission to revisit its analysis 

and alter the relief proposed herein such 

that reporting to an SDR should be 

required for certain transactions? 112

5. The Commission believes that the 

Proposed Order’s definition of ‘‘Exempt 

Non-Financial Energy Transaction,’’ in 

combination with the definition of 

‘‘Exempt Entity’’, should ensure that 

Exempt Non-Financial Energy 

Transactions cannot be used for 

speculative purposes. Please comment 

on whether the Proposed Order would 

so foreclose the possibility for 

speculative trading and, if not, how the 

Proposed Order should be modified to 

achieve such a goal. 

6. The Commission has proposed that 

electric facilities owned by only 

federally-recognized Indian tribes be 

included as Exempt Entities for 

purposes of the relief provided in the 

Proposed Order. The Commission 

specifically requests comment on every 

aspect of the Proposed Order as it 

relates to Indian tribes. 

7. The Commission has limited its 

definition of Exempt Non-Financial 

Energy Transaction to six categories. Do 

any of the transactions described by or 

covered under these categories fail to 

come under the Commission’s 

jurisdiction, such that relief pursuant to 

CEA section 4(c) is unnecessary and/or 

inappropriate, either due to an 

interpretation in the Products Release or 

otherwise? 

8. Per the Petition’s request, should 

the Commission stipulate that the relief 

provided in the Proposed Order (i) 

applies retroactively to the enactment of 

the Dodd-Frank Act and (ii) that 

transactions covered by the relief will 

not be considered by the Commission 

for any purpose which affects or may 

affect an Exempt Entity’s regulatory 

status under the CEA (e.g., in 

determining status as a swap dealer or 

major swap participant)? 

9. The Petition requested that the 

Commission provide categorical relief 

by including ‘‘any other agreement, 

contract, or transaction to which an 

Exempt Entity is a party.’’ Should the 

Commission provide such categorical 

relief, so long as the primary purpose of 


tkelley on DSK3SPTVN1PROD with NOTICES
51014 Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 

113U.S. Small Business Administration, Table of 

Small Business Size Standards Matched to North 

American Industry Classification System Codes, 

footnote 1 (effective March 26, 2012), available at 

http://www.sba.gov/sites/default/files/files/ 

Size_Standards_Table.pdf. 

114 44 U.S.C. 3501 et seq. 

115 44 U.S.C. 3502(3)(a)(1). See also 44 U.S.C. 

3518(c)(1)(B)(i) and (ii) (excluding collections of 

information related to administrative investigations 

against specific individuals or entities, and any 

subsequent civil actions). 

116 7 U.S.C. 19(a). 

117As the Financial Crisis Inquiry Commission 

explained: 

The scale and nature of the [OTC] derivatives 

market created significant systemic risk throughout 

the financial system and helped fuel the panic in 

the fall of 2008: millions of contracts in this opaque 

and deregulated market created interconnections 

among a vast web of financial institutions through 

counterparty credit risk, thus exposing the system 

to a contagion of spreading losses and defaults. 

Financial Crisis Inquiry Commission, ‘‘The 

Financial Crisis Inquiry Report: Final Report of the 

National Commission on the Causes of the 

Financial and Economic Crisis in the United 

States,’’ Jan. 2011, at 386, available at http:// 

www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPOFCIC.pdf 

118See discussion above at note [13]. Dodd-Frank 

Act section 721 (amending the CEA to add new 

section 1a(47)) defines the term ‘‘swap’’ to include 

‘‘[an] option of any kind that is for the purchase or 

sale, or based on the value, of 1 or more * * * 

commodities * * *’’). 

119Section 4(c)(1) of the CEA. 

120As discussed above in section I.A., CEA 

sections 4(c)(2) and 4(c)(3) further articulate the 

conditions precedent to granting an exemption 

under 4(c)(1) and 4(c)(6)(C), including that the 

exempted agreements, contracts, or transactions be 

entered into between ‘‘appropriate persons,’’ as that 

term is defined in 4(c)(6)(3). 

121See section III.B. above. 

the agreement, contract, or transaction is 

to satisfy existing or anticipated 

contractual obligations to facilitate the 

generation, transmission, and/or 

delivery of electric energy service to 

customers at the lowest cost possible, 

and the contract is intended to be 

settled through physical delivery of the 

underlying commodity? 

10. Can any Exempt Non-Financial 

Energy Transaction, as defined in the 

Proposed Order, or any component of an 

Exempt Non-Financial Energy 

Transaction, be used to hedge price risk 

in an underlying commodity? If so, 

should the Commission explicitly 

exclude such price-hedging transactions 

from the definition of Exempt NonFinancial Energy Transaction? 

VI. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) requires that Federal agencies 

consider whether proposed rules will 

have a significant economic impact on 

a substantial number of small entities 

and, if so, provide a regulatory 

flexibility analysis on the impact. The 

relief provided in the Proposed Order 

may be available to some small entities, 

because they may fall within standards 

established by the Small Business 

Administration (‘‘SBA’’) defining 

entities with electric energy output of 

less than 4,000,000 megawatt hours per 

year as a ‘‘small entity.’’ 113

The Commission has considered 

carefully the potential effect of this 

Proposed Order on small entities and 

has determined that the proposed order 

will not have a significant economic 

impact on any Exempt Entity, including 

any entities that may be small. Rather, 

the Proposed Order relieves the 

economic impact that the Exempt 

Entities, including any small entities 

that may opt to take advantage of it, by 

exempting certain of their transactions 

from the application of substantive 

regulatory compliance requirements of 

the CEA and Commission regulations 

there under. Significantly, the Proposed 

Order prevents new requirements for 

swaps, such as clearing, trade execution 

and regulatory reporting, from affecting 

transactions that Exempt Entities 

traditionally have engaged in to serve 

their unique public service mission of 

providing reliable, affordable electric 

energy service to customers. Absent 

such relief and to the extent Exempt 

Non-Financial Energy Transactions 

would qualify as swaps, small entities 

covered by the Proposed Order could be 

subject to compliance with all aspects of 

the CEA and its implementing 

regulations. Accordingly, the Chairman, 

on behalf of the Commission, hereby 

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

the Proposed Order will not have a 

significant economic impact on a 

substantial number of small entities. 

B. Paperwork Reduction Act 

Under the Paperwork Reduction Act 

(‘‘PRA’’), an agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless it displays a currently valid 

control number from the Office of 

Management and Budget (‘‘OMB’’). The 

Proposed Order does not contain any 

new information collection 

requirements that would require 

approval of OMB under the PRA.114

While the Commission reserves its 

authority to inspect books and records 

kept in the normal course of business 

that relate to Exempt Non-Financial 

Energy Transactions between Exempt 

Entities pursuant to the Commission’s 

regulatory inspection authorities, the 

Commission is not imposing a 

recordkeeping burden with respect to 

the books and records of Exempt NonFinancial Energy Transactions that 

already are kept in the normal course of 

business. Moreover, any inspection of 

books and records typically only will 

occur in the event that circumstances 

warrant the need to gain greater 

visibility with respect to Exempt NonFinancial Energy Transactions as they 

relate to Exempt Entities’ overall market 

positions and to ensure compliance 

with the terms of this Proposed Order. 

Accordingly, each inquiry would be 

specific to the facts triggering the 

inquiry, and thus will not involve 

‘‘answers to identical questions posed to 

* * * ten or more persons,’’ as the term 

‘‘collection of information’’ is defined in 

the PRA in pertinent part.115

C. Consideration of Costs and Benefits 

1. Introduction 

Section 15(a) of the CEA 116 requires 

the Commission to consider the costs 

and benefits of its actions before 

promulgating a regulation under the 

CEA or issuing certain orders. 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. 

Prior to the passage of the Dodd-Frank 

Act, swap market activity was not 

regulated. In the wake of the financial 

crisis of 2008, Congress adopted the 

Dodd-Frank Act, in part, to address 

conditions with respect to swap market 

activities.117 Among other things, the 

Dodd-Frank Act amends the CEA to 

establish a comprehensive regulatory 

framework for swaps.118 In amending 

the CEA, however, the Dodd-Frank Act 

preserved the Commission’s authority 

under CEA section 4(c)(1) to ‘‘promote 

responsible economic or financial 

innovation and fair competition’’ by 

exempting any transaction or class of 

transactions, including swaps, from 

select provisions of the CEA.119 It also 

added new subparagraph 4(c)(6)(C) to 

the CEA specifically directing the 

Commission, in accordance with 4(c)(1) 

and (2), to exempt agreements, 

contracts, or transactions entered into 

between FPA 201(f) entities if doing so 

‘‘is consistent with the public interest 

and the purposes of’’ the CEA.120 For 

reasons explained above,121 the 

Commission proposes to exercise its 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 51015 

122As discussed and further described above in 

section III.A.2., these consist of: any agreement, 

contract, or transaction based upon a ‘‘commodity,’’ 

as such term is defined and interpreted by the CEA 

and regulations there under, so long as the primary 

purpose of the agreement, contract, or transaction 

is to satisfy existing or anticipated contractual 

obligations to facilitate the generation, 

transmission, and/or delivery of electric energy 

service to customers at the lowest cost possible. 

When entered into, Exempt Non-Financial Energy 

Transactions shall always be intended for making 

or taking physical delivery of the commodity upon 

which the transaction is based, and such 

commodity shall never be based upon, derived 

from, or reference any interest rate, credit, equity 

or currency asset class, or any grade of a metal, 

agricultural product, crude oil or gasoline that is 

not used as fuel for electric generation. Exempt 

Non-Financial Energy Transactions are limited to 

the following categories: electric energy delivered, 

generation capacity, transmission services, fuel 

delivered, cross-commodity pricing, and other 

goods and services. 

123As discussed and further described above in 

section III.A.1, these are: (i) Any government-owned 

electric facility recognized under Federal Power Act 

(‘‘FPA’’) section 201(f), 16 U.S.C. 824(f); (ii) any 

electric facility otherwise subject to regulation as a 

‘‘public utility’’ under the FPA that is 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 cooperativelyowned electric utility, regardless of status pursuant 

to FPA section 201(f), so long as the utility is 

treated as a ‘‘cooperative’’ organization 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 members at the lowest 

possible cost; or iv) any not-for-profit entity that is 

wholly owned, directly or indirectly, by any one or 

more of the foregoing. 

124Accord note 81, supra. 

125Petition at 33. 

126See CEA sections 2(a)(1)(B), 4b, 4c(b), 4o, 6(c), 

6(d), 6(e), 6c, 6d, 8, 9 and 13, and Commission rules 

32.4 and Part 180. 

127The CEA as amended by the Dodd-Frank Act 

contemplates two types of reporting to swap data 

repositories (‘‘SDRs’’). First, is real-time reporting: 

For every swap executed, certain transaction 

information, including price and volume, is to be 

reported to an SDR’’) ‘‘as soon as technologically 

practicable.’’ CEA section 2(a)(13)(A) & (C); see also 

Real-Time Public Reporting of Swap Transaction 

Data, 77 FR 1182 (Jan. 9, 2012) (adopting 17 CFR 

part 43 regulations to implement real-time 

reporting). For swaps executed off of a DCM or SEF 

and for which neither counterparty is a swap dealer 

or major swap participant—as the Commission 

expects Exempt Non-Financial Energy Transactions 

engaged in between Exempt Entities would be—the 

real-time reporting obligation for the transaction 

falls to one of the counterparties, as agreed between 

themselves. 17 CFR § 43.3(a)(3) Second, for each 

swap, additional information beyond that required 

in real-time reports must be reported to an SDR in 

a ‘‘timely manner as may be prescribed by the 

Commission.’’ CEA section 2(a)(13)(G); see also 

Swap Data Recordkeeping and Reporting 

Requirements 77 FR 2136 (Jan. 13, 2012) (adopting 

17 CFR part 45); Swap Data Recordkeeping and 

Reporting Requirements: Pre-enactment and 

Transition Swaps 77 FR 35200 (June 12, 2012) 

(adopting 17 CFR part 46). 

128Swap Data Recordkeeping and Reporting 

Requirements 77 FR 2136 (Jan. 13, 2012) (adopting 

17 CFR part 45); Swap Data Recordkeeping and 

Reporting Requirements: Pre-enactment and 

Transition Swaps 77 FR 35200 (June 12, 2012) 

(adopting 17 CFR part 46). 

129CEA section 2(h)(1)(A)(it ‘‘shall be unlawful 

for any person to engage in a swap unless that 

person submits such swap for clearing * * * if the 

swap is required to be cleared’’). 

130Transactions subject to the clearing 

requirement of CEA section 2(h)(1) must be 

executed on either a designated contract market 

(‘‘DCM’’) or a swap execution facility (‘‘SEF’’). CEA 

section 2(h)(8). 

131The term is defined in CEA section 1a(18). See 

also Further Definition of ‘‘Swap Dealer,’’ 

‘‘Security-Based Swap Dealer,’’ ‘‘Major Swap 

Participant,’’ ‘‘Major Security-Based Swap 

Participant,’’ and ‘‘Eligible Contract Participant,’’ 77 

FR 30596 (May 23, 2012). 

132CEA section 2(e). 

authority under CEA section 4(c)(1) and 

4(c)(6) with regard to Exempt NonFinancial Energy Transactions 122

engaged in between Exempt Entities,123

subject to the Commission’s general 

anti-fraud, anti-manipulation, and 

enforcement authority pursuant to CEA 

sections 2(a)(1)(B), 4b, 4c(b), 4o, 6(c), 

6(d), 6(e), 6c, 6d, 8, 9 and 13, and 

Commission rules 32.4 and Part 180. 

Additionally, the Commission has 

reserved its authority to inspect the 

books and records of Exempt NonFinancial Energy Transactions already 

kept in the normal course of business 

pursuant to the Commission’s regulatory 

inspection authorities, in the event that 

circumstances warrant the need to gain 

greater visibility with respect to Exempt 

Non-Financial Energy Transactions as 

they relate to Exempt Entities’ overall 

market positions and to ensure 

compliance with the terms of this 

Proposed Order. 

In the discussion that follows, the 

Commission considers the costs and 

benefits of the exemptive order 

proposed herein (the ‘‘Proposed Order’’) 

to the public and market participants 

generally, and to Exempt Entities 

specifically. As earlier discussed in 

sections I.A. and III.A.2., to exempt 

transactions under CEA section 4(c), the 

Commission need not first determine— 

and is not determining—whether the 

transactions subject to the exemption 

fall within the CEA. However, to 

capture all potential costs and benefits, 

this consideration assumes that the 

transactions may now or in the future be 

swaps.124 In the event the subject 

transactions would not be subject to the 

Commission’s jurisdiction, the costs and 

benefits of this Proposed Order relative 

to the baseline scenario discussed below 

would be zero. 

2. Baseline 

The Commission considers the costs 

and benefits of this Proposed Order 

against a baseline scenario of nonaction. In other words, the proposed 

baseline is the alternative situation that 

would result if the Commission declines 

to exercise its exemptive authority 

under CEA 4(c). This means that to the 

extent Exempt Non-Financial Energy 

Transactions engaged in between 

Exempt Entities qualify as a transaction 

subject to regulation under the CEA, 

they are subject to the regulatory regime 

that the CEA, as amended by the DoddFrank Act, and Commission regulations 

prescribes. 

Under the post-Dodd-Frank Act 

regulatory regime for swaps, Exempt 

Entity swap counterparties that, as 

represented in the Petition, are 

‘‘nonfinancial end-users of [Exempt 

Non-Financial Energy Transactions 

entered into] only to hedge or mitigate 

commercial risks’’ 125 are subject to the 

Commission’s general anti-fraud, antimanipulation, and enforcement 

authority,126 as well as requirements for 

swap data reporting 127 and 

recordkeeping.128 CEA section 2(h)(7) 

(the ‘‘end-user exception’’), excepts a 

swap from swap clearing 129 and trade 

execution,130 requirements if one 

counterparty is ‘‘not a financial entity; 

* * * is using swaps to hedge or 

mitigate commercial risk; and * * * 

notifies the Commission, in a manner 

set forth by the Commission, how it 

generally meets its financial obligations 

associated with entering into noncleared swaps.’’ However, unless both 

Exempt Entity counterparties are 

‘‘eligible contract participants’’ 

(‘‘ECPs’’),131 CEA section 2(e) prohibits 

them from executing a swap other than 

on a registered DCM, including directly 

transacting the swap bilaterally.132

Against this baseline scenario, with 

respect to an Exempt Non-Financial 

Energy Transaction that is a swap, the 

public and market participants, 

including Exempt Entities, would 

experience the costs and benefits related 

to the regulations, noted above, for them 

as swaps. As considered below, the 

Proposed Order could alter these costs 

and benefits. 

Also, the post-Dodd-Frank Act 

regulatory regime retains requirements 

applicable to ‘‘contract[s] of sale of a 

commodity for future delivery’’ within 

the meaning of CEA section 4(a) 

(commonly referred to as futures 

contracts), including that section’s 

exchange-trading requirement for such 

contracts. Though the Commission need 

not first determine whether the 

transactions subject to exemption under 

CEA section 4(c) are futures or swaps, 

it has defined the boundaries for 

inclusion within the Exempt NonFinancial Energy Transaction category 

in a way that comports with the 

distinctions between futures contracts 

subject to CEA section 4(a) and nonVerDate Mar<15>2010 16:59 Aug 22, 2012 Jkt 226001 PO 00000 Frm 00037 Fmt 4703 Sfmt 4703 E:\FR\FM\23AUN1.SGM 23AUN1

tkelley on DSK3SPTVN1PROD with NOTICES
51016 Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 

133See, e.g., Statement of Policy Concerning 

Swap Transactions, 54 Fed. Reg. 30694 (CFTC July 

21, 1989). For example, the transactions 

encompassed by this proposed exemption would be 

limited to those that are highly bespoke and thus 

not suitable for exchange trading, executed 

exclusively bilaterally, off-exchange between 

counterparties, and undertaken with the intent of 

making or taking physical delivery of the 

commodity upon which the transaction is based. 

134For example, Exempt Entities that receive 

financing from the Rural Utilities Service (‘‘RUS’’) 

are required to keep records of all master 

agreements and term contracts for the procurement 

of goods and services. See 18 CFR 125.3 (Schedule 

of records and periods of retention); RUS Bulletin 

180–2. Under the books and records inspection 

authority contained in the Proposed Order, the 

Commission could request any of these 

procurement agreements that document an Exempt 

Non-Financial Energy Transaction for the purchase 

or sale of ‘‘electric energy delivered,’’ as such term 

is defined in the Proposed Order. 

135As explained in section III.B.3.d, above, the 

commercial risks that Exempt Non-Financial Energy 

Transactions face generally are not related to 

fluctuations in the price of a commodity, but are 

rather related to electricity retail demand 

fluctuations. Exempt Entities engage in Exempt 

Non-Financial Energy Transactions primarily to 

assure their ability to meet production, 

transmission, and/or distribution obligations, not to 

hedge against the risk of electricity prices rising or 

falling. 

136See section II.A.1. above. 

137See section III.B.3.a. above. 138See section III.B.3.b. above. 

futures transactions.133 For this reason, 

the Commission foresees no costs or 

benefits relative to the baseline 

attributable to exempting Exempt NonFinancial Energy Transactions as 

proposed from CEA section 4(a). 

The Commission is also cognizant of 

the regulatory landscape as it existed 

before the Dodd-Frank Act’s enactment. 

Any Exempt Non-Financial Energy 

Transactions engaged in between 

Exempt Entities that now would qualify 

as swaps (excluding options) were not 

regulated prior to Dodd-Frank. Thus, 

measured against a pre-Dodd-Frank Act 

reference point, Exempt Entities 

engaging in such swaps could 

experience costs attributable to the 

conditions placed upon the Proposed 

Order. For example, Exempt Entities 

were not subject to the Commission’s 

regulatory inspection authorities with 

respect to swap transaction records 

prior to the enactment and effectiveness 

of the Dodd-Frank Act. 

As a general matter, in its cost-benefit 

considerations, where reasonably 

feasible, the Commission endeavors to 

estimate quantifiable dollar costs. The 

costs and benefits of the Proposed 

Order, however, are not presently 

susceptible to meaningful 

quantification. Accordingly, the 

Commission discusses proposed costs 

and benefits in qualitative terms. 

3. Costs 

To Exempt Entities 

The proposed rule is exemptive and 

would provide Exempt Entities with 

relief from regulatory requirements of 

the CEA for the narrow category of 

Exempt Non-Financial Energy 

Transactions engaged in between them. 

As with any exemptive rule or order, the 

proposed rule is permissive, meaning 

that potentially eligible affiliates are not 

required to elect it. Accordingly, the 

Commission assumes that an entity 

would rely on the Proposed Order only 

if the anticipated benefits warrant the 

costs. Here, the Proposed Order 

provides for the continued application 

of the anti-fraud, anti-manipulation, and 

enforcement provisions of the CEA and 

its implementing regulations, and 

additionally reserves the Commission 

inspection authority for books and 

records that the Exempt Entities 

currently prepare and retain 134—all 

continuations of the baseline regulatory 

scheme established in the CEA. 

Accordingly, they generate no 

incremental costs. 

To Market Participants and the Public 

The Commission has considered 

whether an exemption from the CEA as 

proposed for Exempt Non-Financial 

Energy Transactions engaged in between 

Exempt Entities will expose market 

participants and the public to the risks 

that the CEA guards against—a potential 

cost. For a variety of reasons, the 

Commission believes that it does not. 

These reasons include the following: 

• The highly bespoke nature of 

Exempt Non-Financial Energy 

Transactions, as well as the fact that 

they are used to manage unique 

electricity industry operational risks, 

rather than price risk of an underlying 

commodity, make them ill-suited for 

exchange trading and/or to serve a 

useful price discovery function.135

• The incentive structure for Exempt 

Entities—as limited to not-for-profit 

governmental, tribal, and IRC section 

501(c)(12) or section 1381(a)(2)(c) 

electric cooperative entities—is 

substantially different than that of 

investor-owned entities and poses a low 

risk for fraud, manipulation, or other 

abusive practices.136

• Exempt Non-Financial Energy 

Transactions are executed bilaterally 

within a closed-loop of non-financial, 

not-for-profit electric utility entities, are 

not market facing, and therefore have 

little, if any, ability to materially impact 

liquidity, fairness or financial security 

of derivative product trading on DCMs 

or SEFs.137

• This closed-loop trading 

characteristic, combined with the 

nonfinancial nature of the transacting 

parties, also limits the ability of Exempt 

Non-Financial Energy Transactions to 

create systemic risk.138

Moreover, besides carefully defining 

the boundaries for Exempt NonFinancial Energy Transactions between 

Exempt Entities, the Commission’s 

Proposed Order incorporates conditions 

designed to protect the markets subject 

to the Commission’s jurisdiction. 

Specifically, the Commission proposes 

to retain the general anti-fraud, antimanipulation, and enforcement 

authority contained in the CEA and its 

implementing regulations. Additionally, 

the Commission is also retaining 

authority to inspect books and records, 

pursuant to its regulatory inspection 

authorities, in the event that 

circumstances warrant the need to gain 

greater visibility with respect to Exempt 

Non-Financial Energy Transactions as 

they relate to Exempt Entities’ overall 

market positions and compliance with 

this Proposed Order. Accordingly, based 

on the expectations that—for the narrow 

subset of electric industry transactions 

covered by this Proposed Order—the 

risk potential, at most, is remote and the 

prescribed conditions appropriate to 

contain them to the extent they may 

emerge, the Commission foresees no 

material costs attributable to risk 

associated with the Proposed Order. 

The Commission has also considered 

the potential for the Proposed Order to 

exact a competitive cost by affording 

Exempt Entities an advantage vis-a`-vis 

other market participants that may not 

be entitled to the exemption. As not-forprofit governmental, tribal, and 

cooperative entities as defined in the 

Proposed Order, the Commission 

understands that the mandate for 

Exempt Entities is to provide reliable, 

affordable electricity for their 

customers. While the Proposed Order 

will afford Exempt Entities flexibility 

and/or reduced compliance burden to 

manage their operational risks relative 

to non-Exempt Entities, the Commission 

has no basis to expect that in so doing 

the Proposed Order will impose a 

competitive cost on the markets subject 

to its jurisdiction. 

4. Benefits 

To Exempt Entities 

Measured against the baseline 

scenario, the Proposed Order expectedly 

will benefit Exempt Entities by 

lessening the likelihood that CEA 

compliance would diminish their ability 

and/or incentive to continue to engage 

in Exempt Non-Financial Energy 

Transactions that, as described in the 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 51017 

139Petition at 12 (transactions for which 

exemption requested ‘‘are intrinsically related to 

the needs of * * * the [not-for-profit] Electric 

Entities * * * which arise from their respective 

electric facilities and ongoing electric operations 

and public service obligations’’ (citation omitted)); 

section III.A.2, above (the proposed order defines 

Exempt Non-Financial Energy Transactions as any 

agreement, contract, or transaction entered into 

primarily ‘‘to satisfy existing or anticipated 

contractual obligations to facilitate the generation, 

transmission, and/or delivery of electric energy 

service to customers at the lowest cost possible 

* * * .’’). 

140As discussed below with respect to benefits to 

market participants and the public, Exempt Entities’ 

members and other customers should be the 

indirect beneficiaries of these avoided costs. 

141CEA section 2(e). 

142That is, have ‘‘a demonstrable ability, directly 

or through separate contractual arrangements, to 

make or take delivery of the underlying commodity 

[or] incur * * * risks, in addition to price risk, 

related to the commodity.’’ CEA section 1a(17)(A)(i) 

& (2) (as referenced in CEA section 

1a(18)(A)(vii)(aa)). CEA section 1a(18)(A)(vii) 

specifies alternative criteria to qualify for 

governmental-entity ECP status that do not appear 

relevant given that Exempt Entities are not SDs, 

MSPs, or financial entities. 

143CEA section 1a(18)(A)(vii)(bb). 

144CEA section 1a(18)(A)(v). 

145Furthermore, a comment letter submitted by 

two of the Petitioners in connection with the 

Commission rulemaking on the Further Definition 

of ‘‘Swap Dealer,’’ ‘‘Security-Based Swap Dealer,’’ 

‘‘Major Swap Participant,’’ ‘‘Major Security-Based 

Swap Participant,’’ and ‘‘Eligible Contract 

Participant,’’ states that some not-for-profit 

consumer-owned electric utilities ‘‘may not meet 

the financial tests listed in the definition of ECP due 

to the relatively small size of their physical assets.’’ 

Letter from NRECA, APPA and LPPC dated 

February 22, 2011, RIN 3235–AK65, at 12. 

146See Real-Time Public Reporting of Swap 

Transaction Data, 77 FR 1182, 1232–40 (Jan. 9, 

2012) (adopting 17 CFR part 43 regulations to 

implement real-time reporting). Swap Data 

Recordkeeping and Reporting Requirements 77 FR 

2136, 2176–93 (Jan. 13, 2012) (adopting 17 CFR part 

45); Swap Data Recordkeeping and Reporting 

Requirements: Pre-enactment and Transition Swaps 

77 FR 35200, 35217–25 (June 12, 2012) (adopting 

17 CFR part 46). 

Swap Data Recordkeeping and Reporting 

Requirements 77 FR 2136 (Jan. 13, 2012) (adopting 

17 CFR part 45); Swap Data Recordkeeping and 

Reporting Requirements: Pre-enactment and 

Transition Swaps 77 FR 35200 (June 12, 2012) 

(adopting 17 CFR part 46). 

147 In that the impacted transactions are 

undertaken exclusively in a closed-loop 

environment from which financial participants are 

absent, the Commission does not foresee that 

derivative market participants beyond Exempt 

Entities will realize either a cost (as earlier 

discussed) or benefit impact. 

148See Salt River Project Agricultural 

Improvement and Power District v. Federal Power 

Commission, 391 F. 2d 470, 475 (D.C. Cir. 1968) 

(‘‘But of the 19 major abuses summarized [in a 

Federal Trade Commission report to Congress on 

the electric utility industry], virtually none could be 

associated with the cooperative structure where 

ownership and control is vested in the consumerowners* * * Consequently, the attention of the 

74th Congress, in enacting the Federal Power Act, 

was focused on the sorts of evils associated 

exclusively with investor-owned utilities’’) In Salt 

Continued 

Petition and above,139 are an operational 

tool relied upon by Exempt Entities to 

effectively execute their public service 

mission. It will also benefit them by 

avoiding regulatory costs to comply 

with CEA swap requirements whether 

or not any Exempt Non-Financial 

Energy Transaction actually constitutes 

a swap.140

To the extent any Exempt NonFinancial Energy Transactions are 

swaps, as a threshold matter Exempt 

Entities could not execute them off of a 

registered DCM unless both ExemptEntity counterparties qualify as ECPs.141

The relevant criteria for determining 

ECP status varies for Exempt Entities 

that are governmental entities (or 

political subdivisions of governmental 

entities) and those that are not. For the 

former, governmental Exempt Entities 

must meet certain line of business 

requirements,142 or ‘‘own * * * and 

invest * * * on a discretionary basis 

$50,000,000 or more in investments.143

For the latter, non-governmental Exempt 

Entities either must have: (a) Assets 

exceeding $10,000,000; (b) a guarantee 

for obligations; or, (c) greater than 

$1,000,000 net worth and ‘‘enter * * * 

into an agreement, contract, or 

transaction in connection with the 

conduct of the entity’s business or to 

manage the risk associated with an asset 

or liability owned or incurred or 

reasonably likely to be owned or 

incurred by the entity in the conduct of 

the entity’s business.’’ 144 While some of 

the larger Exempt Entities in particular 

may meet the definitional requirements 

to be ECPs, the Petition does not 

provide information evidencing that all 

Exempt Entities for all types of Exempt 

Non-Financial Energy Transaction 

clearly would.145

If Exempt Entities are not ECPs, and 

given that Exempt Non-Financial Energy 

Transactions, as proposed, are bespoke 

to an extent that makes them incapable 

of exchange trading, absent Commission 

action non-ECP Exempt Entities would 

be unable to engage bilaterally in any 

Exempt Non-Financial Energy 

Transactions that are swaps. Relative to 

a circumstance that would preclude 

non-ECP Exempt Entities from 

continuing to engage in Exempt NonFinancial Energy Transactions that are 

swaps, the Proposed Order would afford 

the benefit of allowing the use of 

transactions that are closely related to 

Exempt Entities’ public service mission 

to provide affordable, reliable 

electricity. The Proposed Order would 

also save Exempt Entities the time and 

expense that would be necessitated to 

determine if they were ECPs. For, with 

the Proposed Order, ECP status becomes 

largely irrelevant, while without it, 

Exempt Entities may have to concern 

themselves with ECP status 

determinations as a threshold for 

engaging in certain transactions. 

The Proposed Order would also avoid 

potential costs that Exempt Entities 

might incur to comply with swap data 

reporting and recordkeeping 

requirements as articulated in 

Commission regulations for any Exempt 

Non-Financial Energy Transactions that 

were swaps.146

Even for Exempt Non-Financial 

Energy Transactions ultimately 

determined not to be swaps, if Exempt 

Entities perceived some potential that 

they could be swaps (now or as evolved 

in the future), Exempt Entities would 

likely need to expend resources to 

monitor contemplated transactions and 

make status determinations as to them. 

Moreover, the bespoke nature of these 

transactions could complicate the 

ability to generalize conclusions across 

transactions, potentially resulting in a 

need for more frequent, individualized 

assessments that could multiply 

determination costs. While the 

Commission lacks a basis to 

meaningfully project any such benefit in 

dollar terms, qualitatively it expects that 

the benefit would include the avoided 

costs of training staff to differentiate 

between swap and non-swap 

transactions and, in some cases at least, 

to obtain an expert legal opinion to 

support a determination. Additionally, 

uncertainty about whether a certain 

transaction would or would not be 

deemed a swap could prompt an 

Exempt Entity to forego a beneficial 

transaction or to substitute a transaction 

that served the operational needs less 

effectively. Avoiding a result that would 

diminish the use of operationallyefficient Exempt Non-Financial Energy 

Transactions is another benefit. 

To Market Participants and the Public 

For reasons similar to those discussed 

above in the Commission’s analysis of 

the Proposed Order under CEA sections 

4(c)(1) and (6), the Commission expects 

that this Proposed Order will benefit the 

public generally.147

First, the Commission believes that 

the Proposed Order aligns with the 

beneficial public interests served by the 

FPA, which—in addition to granting 

comprehensive jurisdiction over the 

electric industry to FERC—reflects, 

through FPA section 201(f)’s exemption, 

Congress’ implicit view that, with 

respect to certain activities, a regulatory 

light-touch and avoidance of 

overlapping regulatory regimes for 

governmental and small cooperative 

electric utilities serves the publicinterest objectives of the FPA.148 The 


tkelley on DSK3SPTVN1PROD with NOTICES
51018 Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 

River, the court considered whether the FPA 201(f) 

exemption, which at the time did not expressly 

encompass REA-financed cooperatives—entities 

subject to ‘‘extensive [REA] supervision over the 

planning, construction and operation of the 

facilities [REA] finances’’—fell within the 

exemption, as the FPC had interpreted that it did. 

Id. at 473. The court found that, among other 

factors, the Congressional inaction in the face of 30 

years of administrative practice extending FPA 

201(f) exemptive treatment to REA-financed 

cooperatives reinforced the FPC’s interpretation 

that REA-financed cooperatives were exempt from 

FPA coverage as instrumentalities of the 

Government under Section 201(f). Id. at 476. 

150See HOUSE CONF. REPORT NO. 102–978, 

1992 U.S.C.C.A.N. 3179, 3213 (‘‘4(c) Conf. Report’’), 

noted in section I.A. above. 

151Petition at 33. 

152 It explicitly limits covered transactions to six 

articulated categories, while the Petition proposed 

a more open-ended approach that would have 

included all transactions relating to particular 

categories, but not others. See Petition at 4–5. 

Commission interprets CEA section 

4(c)(6)(C), directing the Commission to 

provide an exemption for FPA 201(f) 

entities to the extent consistent with the 

public interest and the CEA, as an 

extension of that view. Accordingly, by 

tailoring the Proposed Order for FPA 

section 201(f) entities (as well as others 

deemed equally suitable) in a careful 

manner intended to preserve the public 

interests protected under the CEA, the 

Proposed Order accommodates the 

public interests of both statutes. 

Second, in that the proposed Exempt 

Entities share the same public-service 

mission of providing affordable, reliable 

electricity to their customers, those 

aspects of the Proposed Order that 

benefit Exempt Entities directly should 

indirectly benefit their customers as 

well. For example, the Proposed Order 

would enable non-ECP Exempt Entities 

to engage in swap Exempt NonFinancial Energy Transactions that 

would be barred to them under CEA 

section 2(e), or facilitate the likelihood 

that they would continue to engage in 

Exempt Non-Financial Energy 

Transactions that they might choose to 

forego for regulatory uncertainty or costs 

reasons absent the exemption. In these 

circumstances, Exempt Entity customers 

should be the ultimate beneficiaries (via 

supply reliability and affordability) of 

the operational risk-management and 

efficiencies that Exempt Non-Financial 

Energy Transactions afford. Similarly, to 

the extent that the Proposed Order 

enables Exempt Entities to avoid 

compliance and/or monitoring costs 

they would otherwise incur, the nonprofit structure, compliance with 

requisite Internal Revenue Code 

conditions, and public service mission 

that Exempt Entities share means that 

the cost savings should be passed 

through to members and other 

customers proportionately in the form of 

lower electricity prices and/or higher 

revenue distributions to members. 

And third, the public also benefits by 

the promotion of economic and 

financial innovation that, as explained 

above,149 the Commission expects this 

Proposed Order will further. For, the 

unique environment in which these 

electric utilities must operate to reliably 

serve their customer load in the face of 

constantly fluctuating demand— 

compounded by the fact that many of 

these Exempt Entities do not enjoy the 

same scale economies as investorowned utilities—places a premium on 

innovative solutions to operational 

issues. Exempt Non-Financial Energy 

Transactions represent one such 

innovation. The Commission envisions 

the Proposed Order, as contemplated by 

Congress,150 will provide Exempt 

Entities regulatory certainty important 

to their ability to continue to utilize and 

develop innovative solutions through 

the use of highly bespoke, physically 

settled agreements, contracts, and 

transactions. Accordingly, the 

Commission expects the Proposed Order 

to benefit the public. 

5. Costs and Benefits as Compared to 

Alternatives 

The chief alternatives to this Proposed 

Order are for the Commission to: (1) 

Decline to exercise its exemptive 

authority, or (2) to exercise its 

exemptive authority more broadly and 

without conditions as requested in the 

Petition. 

With respect to the first alternative— 

decline to exempt—the costs and benefit 

consideration is the mirror-image of that 

discussed above relative to the baseline 

scenario. A decision not to exercise 

exemptive authority in this 

circumstance would preserve the 

current post-Dodd-Frank regulatory 

environment. 

Relative to the second alternative of 

exercising its exemptive authority more 

broadly and in a manner that would 

provide categorical relief from all of the 

requirements of the CEA as requested in 

the Petition, the Commission has 

purposefully proposed to define the 

categories of exempt entities and 

transactions more narrowly, and to 

preserve certain aspects of CEA 

jurisdiction for them. A potentially 

material difference between the entities 

that the Petition sought to exempt and 

how the Commission proposes to define 

the term Exempt Entities is the 

Commission’s explicit requirement that 

an Exempt Entity not be a ‘‘financial 

entity’’ within the meaning of CEA 

section 2(h)(7)(C). Given, however, that 

the Petition expressly represents that 

the not-for-profit electric entities that 

would be encompassed by the requested 

exemption ‘‘are all nonfinancial end 

users,’’ 151 the Commission does not 

foresee a material cost of expressly 

stating this requirement relative to the 

Petitioned-for alternative. Conversely, 

the requirement delineates what the 

Commission considers an important 

gating principle for the exemption’s 

appropriateness, and stating it explicitly 

reduces ambiguity that could fuel future 

disputes over the issue—a benefit. 

Also, compared to the Petition’s 

description of transactions for which 

exemption was sought, the proposed 

definition of Exempt Non-Financial 

Energy Transactions incorporates 

limiting language 152 and articulates 

additional definitional elements (e.g., 

intent at execution to make or take 

physical delivery of the commodity 

upon which the transaction is based). 

The more open-ended, Petitioned-for 

transaction description theoretically 

could save Exempt Entities effort that 

they might otherwise need to expend to 

determine whether a transaction 

engaged in between them is or is not 

exempted compared to the more refined 

and limited definition of Exempt NonFinancial Energy Transactions that the 

Commission proposes. That said, an 

equally, if not more, persuasive case 

might be made that the greater certitude 

that the proposed definition’s more 

bounded approach provides should 

mitigate determination costs. More 

importantly, given the inability to 

foresee how these transactions may 

develop, the Commission considers it 

prudent and in the public interest to 

ring-fence the definition within stated 

parameters to restrict the potential for 

the transactions to evolve in a manner 

incompatible with the purposes of the 

CEA. 

Finally, as proposed, the exemption 

retains the Commission’s general antifraud, anti-manipulation, and 

enforcement authority, as well as the 

Commission’s authority to review books 

and records already kept in the ordinary 

course of business in the event that 

circumstances warrant the need to gain 

greater visibility with respect to Exempt 

Non-Financial Energy Transactions as 

they relate to Exempt Entities’ overall 

market positions and to ensure 

compliance with the terms of this 

Proposed Order, in contrast to the 

Petition’s request for a wholesale 

exemption from the CEA. The 

Commission believes that the first two 

conditions serve important beneficial 

ends to ensure the integrity of 

commodity and commodity derivatives 

markets within its jurisdiction. To the 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 51019 

extent Exempt Entities incur some cost 

to remain compliant with the CEA’s 

anti-fraud, anti-manipulation, and 

enforcement regime, the Commission 

considers such costs warranted by the 

importance of maintaining commodity 

market and price discovery integrity. 

The Commission also believes that 

authority to inspect books and records 

kept in the ordinary course of business, 

pursuant to its regulatory inspection 

authority, as they relate to Exempt NonFinancial Energy Transactions is 

important to assure visibility into 

activity in such transactions on an asneeded basis. Further, as a general 

matter, the Commission expects 

infrequently to exert its regulatory 

inspection authority with respect to 

Exempt Non-Financial Energy 

Transactions and, as proposed, such 

authority would involve only records 

that Exempt Entities keep in the 

ordinary course of business, only in the 

event that circumstances warrant the 

need to gain greater visibility with 

respect to Exempt Non-Financial Energy 

Transactions as they relate to Exempt 

Entities’ overall market positions, and 

only to ensure compliance with the 

terms of this Proposed Order. The 

Commission anticipates that any costs 

occasioned by this condition are 

relatively insignificant. 

6. Consideration of CEA Section 15(a) 

Factors 

a. Protection of Market Participants and 

the Public 

As explained above, the Commission 

does not foresee that the Proposed Order 

will have any effect on the protection of 

market participants and the public. 

More specifically, Exempt NonFinancial Energy Transactions as 

transacted bilaterally and in a closed 

loop between Exempt Entities in the 

highly specialized and unique electricindustry circumstances proposed for 

exemption do not appear to the 

Commission to generate risks of the 

nature addressed by the CEA. The 

Commission has attempted to delineate 

the definitional boundaries for Exempt 

Entities and Exempt Non-Financial 

Energy Transactions in a manner that 

appropriately ring-fences against the 

possibility that they could generating 

such risks, either now or as they may 

evolve in the future. Moreover, the 

exemption incorporates conditions to 

counter residual risk that conceivably, 

though unexpectedly, might survive 

notwithstanding the Proposed Order’s 

careful definitional crafting. 

b. Efficiency, Competitiveness, and 

Financial Integrity of Futures Markets 

The Commission foresees no negative 

impact from the Proposed Order on the 

efficiency, competitiveness, and 

financial integrity of markets regulated 

under the CEA. As narrowly limited to 

highly bespoke transactions, executed 

bilaterally between non-financial 

entities primarily in order to satisfy 

existing or expected operations-related 

contractual obligations, as opposed to 

speculating or hedging against the price 

risk of an underlying commodity, the 

Commission foresees little to no 

capability for Exempt Non-Financial 

Energy Transactions, to the extent any 

are swaps, to directly impact swap 

market efficiency, competitiveness, or 

financial integrity. Also, the Proposed 

Order incorporates definitional 

attributes that largely eliminate the 

potential for any futures market impact. 

Further, as an exercise of the 

Commission’s CEA section 4(c) 

authority to provide legal certain for 

novel instruments as Congress intended, 

the Proposed Order affords Exempt 

Entities transactional flexibility that the 

Commission understands to be valuable 

to their ability to efficiently deploy their 

limited resources. 

c. Price Discovery 

The Commission does not foresee that 

the Proposed Order will directly impact 

price discovery. As discussed above, the 

highly bespoke nature of Exempt NonFinancial Energy Transactions, as well 

as the fact that they are used to manage 

unique electric industry operational 

risks rather than price risk of an 

underlying commodity, appears to make 

them ill-suited for exchange trading 

and/or to serve a useful price discovery 

function. 

d. Sound Risk Management Practices 

The Commission expects that the 

Proposed Order will promote the ability 

of Exempt Entities to manage the 

operational risks posed by unique 

electric market characteristics, 

including the non-storable nature of 

electricity and demand that can and 

frequently does fluctuate dramatically 

within a short time-span. As discussed 

above, the Commission understands that 

Exempt Non-Financial Energy 

Transactions are an important tool 

facilitating the ability of Exempt Entities 

to efficiently manage operational risk in 

fulfillment of their public service 

mission to provide affordable, reliable 

electricity. 

Also, the Commission does not 

anticipate that the Proposed Order will 

compromise systemic risk management. 

The transactions proposed for 

exemption are not market facing, but are 

executed exclusively within closedloops that do not include financial 

entities. These characteristics, among 

others, limit the ability of Exempt NonFinancial Energy Transactions to create 

systemic risk. 

e. Other Public Interest Considerations 

In utilizing its section 4(c)(1) and 

(6)(C) exemptive authority as proposed 

herein, the Commission believes it is 

acting to promote the broader public 

interest in an affordable, reliable electric 

supply as Congress contemplated. 

7. Request for Public Comment on Costs 

and Benefits 

The Commission invites public 

comment on its cost-benefit 

considerations, including the 

consideration of reasonable alternatives. 

The Commission invites public 

comment on the magnitude of specific 

costs and benefits that would result 

from the Proposed Order, including data 

or other information to estimate the 

dollar value of such costs and benefits. 

The Commission invites public 

comment on any cost or benefit impact, 

direct or indirect, that the Proposed 

Order may have with respect to the 

factors the Commission considers under 

CEA section 15(a), specifically: (a) 

Protection of market participants and 

the public; (b) efficiency, 

competitiveness and financial integrity 

of the markets subject to the 

Commission’s jurisdiction; (c) price 

discovery; (d) sound risk management; 

and (e) other public interest 

considerations. 

Issued in Washington, DC, on August 16, 

2012 by the Commission. 

Sauntia S. Warfield, 

Assistant Secretary of the Commission. 

Appendices to Request for comment on 

a proposal to exempt, pursuant to 

authority in section 4(c) of the 

Commodity Exchange Act, certain 

transactions between entities described 

in section 201(f) of the Federal Power 

Act, and other electric cooperatives 

—Commission Voting Summary and 

Statements of Commissioners 

Note: The following appendices will not 

appear in the Code of Federal Regulations 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Gensler and 

Commissioners Sommers, Chilton, O’Malia 

and Wetjen voted in the affirmative; no 

Commissioner voted in the negative. 


tkelley on DSK3SPTVN1PROD with NOTICES
51020 Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / Notices 

Appendix 2—Statement of Chairman 

Gary Gensler 

I support the proposed relief from the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act (Dodd-Frank Act) 

swaps provisions for certain electricity and 

electricity-related energy transactions 

between rural electric cooperatives; state, 

municipal, and tribal power authorities; and 

federal power authorities. 

Congress directed the CFTC, when it is in 

the public interest, to provide relief from the 

Dodd-Frank Act’s swaps market reform 

provisions for certain transactions between 

these entities. 

For decades, these entities have been 

recognized as performing a public service 

mission, a fundamentally different function 

than investor-owned utilities. The purpose of 

these entities is to provide their customers or 

cooperative members with reliable electric 

energy at the lowest cost possible. They have 

been largely exempt from regulation by the 

Federal Energy Regulatory Commission 

because of their government entity status or 

their not-for-profit cooperative status. 

The scope of the proposed relief extends 

only to non-financial electricity and 

electricity-related energy transactions for the 

generation, transmission and delivery of 

electric energy to customers. Such 

transactions must be intended for making or 

taking physical delivery of the underlying 

commodity. 

I look forward to receiving public comment 

on the proposed relief. 

[FR Doc. 2012–20589 Filed 8–22–12; 8:45 am] 

BILLING CODE 6351–01–P 

BUREAU OF CONSUMER FINANCIAL 

PROTECTION 

Agency Information Collection 

Activities: Submission for OMB 

Review; Comment Request 

Agency: Bureau of Consumer 

Financial Protection. 

ACTION: Notice and request for 

comments. 

SUMMARY: The Bureau of Consumer 

Financial Protection (Bureau), as part of 

its continuing effort to reduce 

paperwork and respondent burden, 

invites the general public and other 

Federal agencies to take this 

opportunity to comment on a proposed 

information collection, as required by 

the Paperwork Reduction Act of 1995. 

The Bureau is soliciting comments 

concerning the information collection 

efforts relating to the collection titled, 

‘‘CFPB Office of Intergovernmental 

Affairs Outreach Activities.’’ The 

proposed collection has been submitted 

to the Office of Management and Budget 

(OMB) for review and approval. A copy 

of the submission, including copies of 

the proposed collection and supporting 

documentation, may be obtained by 

contacting the agency contact listed 

below. 

DATES: Written comments are 

encouraged and must be received on or 

before September 24, 2012 to be assured 

of consideration. 

ADDRESSES: You may submit comments, 

identified by ‘‘Consumer Financial 

Protection Bureau’’ and the collection 

title below, to: 

• Agency: Consumer Financial 

Protection Bureau (Attention: PRA 

Office), 1700 G Street NW., Washington, 

DC 20552; (202) 435–9011; and 

CFPB_Public_PRA@cfpb.gov. 

• OMB: Shagufta Ahmed, Office of 

Management and Budget, New 

Executive Office Building, Room 10235, 

Washington, DC 20503; (202) 395–7873. 

FOR FURTHER INFORMATION CONTACT: 

Requests for additional information 

should be directed to the Consumer 

Financial Protection Bureau (Attention: 

PRA Office), 1700 G Street NW., 

Washington, DC 20552, (202) 435–9011 

or through the Internet at 

CFPB_Public_PRA@cfpb.gov. 

SUPPLEMENTARY INFORMATION: 

Title: CFPB Office of 

Intergovernmental Affairs Outreach 

Activities. 

OMB Number: 3170–00xx. 

Type of Review: New generic 

collection. 

Abstract: The Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(Dodd-Frank Act) contemplates that the 

Bureau will conduct outreach activities, 

as appropriate. See, e.g. 12 U.S.C. 5495; 

12 U.S.C. 5512(c)(1), 12 U.S.C. 5493(d), 

12 U.S.C. 5493(b)(2), 12 U.S.C. 

5511(c)(6). The Bureau’s Office of 

Intergovernmental Affairs seeks to 

conduct outreach by collecting 

information from state, local, and tribal 

governments related to the Bureau’s 

exercise of its functions under the 

Dodd-Frank Act. These governments 

interact closely with consumers and are 

critical partners in promoting 

transparency and competition in the 

marketplace, preventing unfair and 

unlawfully discriminatory practices, 

and enforcing consumer financial laws. 

The information collected through the 

Office of Intergovernmental Affairs 

Outreach Activities will be shared, as 

appropriate, within the Bureau in the 

exercise of its functions, such as the 

Bureau’s financial education, 

rulemaking, market monitoring, 

outreach to traditionally underserved 

populations, fair lending monitoring, 

supervision, and enforcement functions. 

The information collected may be 

used to form policies and programs 

presented to state, local, and tribal 

governments, as well as to other federal 

agencies and the general public. Nearly 

all information collection will involve 

the use of electronic communication or 

other forms of information technology 

and telephonic means. 

The Bureau received one comment 

letter on the proposed collection from a 

coalition of cities committed to local 

action for financial empowerment and 

consumer protection. The comment 

supported the Bureau’s proposal to 

formalize processes for information 

collection from local governments, 

noting that the proposed information 

collection would maximize efficiency of 

information sharing and minimize 

burden on cities. The letter 

recommended that the Bureau set up 

protocols to solicit information and 

develop a mechanism for local 

governments to provide information to 

the Bureau. The letter further 

recommended that the Bureau offer 

cities a distinct communication channel 

through which cities can obtain 

information from the Bureau and inform 

regulatory or enforcement actions. The 

Bureau notes that this regular and 

structured solicitation of information 

may help mitigate the effects of future 

ruptures in consumer financial markets 

by helping to facilitate effective 

monitoring of local markets for risks to 

consumers. 

Affected Public: State, Local, or Tribal 

Governments. 

Estimated Number of Responses: 

1,600. 

Estimated Time per Respondent: 2 

hours. 

Estimated Total Annual Burden 

Hours: 3,200. 

An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless the collection of information 

displays a valid OMB control number. 

The Bureau issued a 60-day Federal 

Register notice on April 30, 2012, 77 FR 

25438–39. Comments were solicited and 

continue to be invited on: (a) Whether 

the collection of information is 

necessary for the proper performance of 

the functions of the Bureau, including 

whether the information shall have 

practical utility; (b) the accuracy of the 

Bureau’s estimate of the burden of the 

collection of information, including the 

validity of the methodology and the 

assumptions used; (c) ways to enhance 

the quality, utility, and clarity of the 

information to be collected; and (d) 

ways to minimize the burden of the 

collection of information on 

respondents, including through the use 

of automated collection techniques or 

other forms of information technology. 


tkelley on DSK3SPTVN1PROD with NOTICES