U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre 

1155 21st Street, NW, Washington, DC 20581 

Telephone: (202) 418-5438 

Facsimile: (202) 418-5547 

jcarley@cftc.gov

11111 

Division of Clearing and 

Intermediary Oversight

James L. Carley 

Director

CFTC letter No. 04-12 

April 2, 2004 

No-Action 

Division of Clearing and Intermediary Oversight 

Re: Request for No-Action Relief on Behalf of “X”

Dear : 

This is in response to your letter dated January 28, 2004 to the Division of Clearing and 

Intermediary Oversight (“Division”) of the Commodity Futures Trading Commission 

(“Commission”) on behalf of your client, (“Company”), as supplemented by additional 

correspondence1 and telephone conversations with Division staff.2 By your letter, you request 

written assurance in the form of a no-action letter that the Division will not recommend any 

enforcement action against the Company for failure to register as a commodity trading advisor 

(“CTA”) under the Commodity Exchange Act (“Act”) based on the similarities between the 

Company and the energy management firm that was granted no-action relief from CTA 

registration in Staff Letter No. 02-59.3 

Facts 

 Based upon representations made in the aforementioned correspondence and 

conversations, as well as the Company’s website,4

 we understand the facts to be as follows: 

 The Company is a privately held “Y” corporation that currently has 27 employee-owners. 

The Company’s shareholders’ agreement requires that all stockholders be active employees of 

the Company. Formed in 1992, the Company provides energy management, consulting, and 

engineering services. 

 

1

 The Division received information by e-mail dated February 11, 2004. 

2

 Division staff had discussions with you prior to the submission of your January 28, 2004 

letter. 

3

 See CFTC Staff Letter No. 02-59, [2002 –2003 Transfer Binder] Comm. Fut. L. Rep. 

(CCH) ¶ 29,063 (May 17, 2002). 

4

 See Company (visited February 3, 2004). 
Page 2 

The Company engages in the management of energy services for natural gas and 

electricity end-users. The Company provides a number of energy management and invoicing 

services intended to reduce the energy costs of its customers and increase energy reliability. In 

this regard, the Company offers a full range of services, including price risk management, 

monthly billing reporting, review, verification and payment of monthly invoices, tariff review, 

contract negotiation, and procurement of electric and gas supply for customers who have 

multiple supplier options. The Company integrates the areas of invoice analysis, procurement, 

and usage management to produce a comprehensive energy management plan. 

The Company may provide energy execution services upon a client’s request, conducting 

purchases and sales in the forward and futures markets as agent for its customers. Any such 

transactions will be conducted pursuant to a power-of-attorney that gives the Company authority 

to make such trading decisions on the customer’s behalf. The Company will not take title to any 

electricity it purchases on a customer’s behalf, and it may engage in limited principal trades in 

the forward gas markets. 

Although the Company intends to primarily make power purchases and sales in the 

forward markets, it also may establish hedge positions in the energy futures markets for its 

customers if market conditions and pricing so warrant. Futures or options trades for customers 

are executed based on the customer’s underlying energy needs. The Company immediately 

reports to the customer each trade made on its behalf. The Company does not hold customer 

funds to support any commodity interest orders placed on behalf of a customer. The customer is 

expected to transfer any required funds to its futures commission merchant. 

The Company does not offer trading services independent of its other services. Any 

trading of cash or futures instruments is directly linked to the overall strategic recommendations 

made by the Company which, in turn, are derived from the customers’ energy needs. The 

Company is not a stand-alone trading advisor; it does not advertise or market its commodity 

trading services separately from the other services it performs, nor does it hold itself out as an 

expert in speculative trading. Specifically, the commodity trading services of the Company are 

only one product in a basket of products being offered, all intended to stabilize and hedge the 

price of gas or electricity for the customer. 

The Company and its customers execute a Management Agreement that governs the 

contractual relationship between the parties. Under this contractual arrangement, the Company 

receives a fixed monthly fee, plus travel expenses. 

The Company primarily markets its services to industrial and governmental customers.5

 

Each of its customers is or would qualify as an “eligible contract participant” as defined under 

Section 1a(12) of the Act. The Company will verify each customer’s status as an eligible 

contract participant based on financial and other information that customers are required to 

 

5

 The Company’s customer base is comprised of industrial customers (71 %), utilities 

(17%), and commercial customers (12%). 
Page 3 

provide to the Company. In addition, customers will provide a specific representation to this 

effect in the Management Agreement that they enter into with the Company. 

The Company does not, and does not plan to, provide or market its services to any 

commodity pool, passive collective investment vehicle, or any other entity not involved in 

natural gas or electricity consumption. The Company does not act as an agent for the purchase 

and sale of power in the wholesale energy market, nor does it own any generation or 

transmission facilities. 

Statutory and Regulatory Background 

In your no-action request, you state that by developing hedging strategies tailored to the 

needs of its customers, as well as engaging in purchases and sales involving swaps, forwards, or 

exchange-traded futures or options contracts on behalf of such customers for a fee, the Company 

will be deemed to be providing commodity interest trading advice to its customers for 

compensation or profit. You conclude that, consequently, the Company falls within the statutory 

definition of a CTA,6 with the resulting obligation to register under Section 4m(1) of the Act7

and Rule 4.14(a)(1) of the Commission’s regulations.8 You have not asserted that the Company 

is exempt from registration under either Section 4m(1) of the Act or Rule 4.14(a)(1). 

Discussion

You have represented that the Company is in a position substantially similar to that of the 

energy management firm that was granted relief in Staff Letter No. 02-59, except that the 

Company is not subject to regulation by the Federal Energy Regulatory Commission (“FERC”). 

Related to this, you have further represented that there is no FERC registration requirement 

applicable to the Company given that the Company does not take title to any electricity. 

In view of all of the facts and circumstances presented, the Division believes that it is 

appropriate to take a no-action position with respect to the Company’s failure to register as a 

 

6

 Section 1a(6) of the Act, 7 U.S.C. § 1a(6), defines a CTA generally as any person who, 

for compensation or profit, engages in the business of providing advice to others about 

the value or advisability of trading or using commodity futures or option contracts. 

7

 7 U.S.C. § 6m(1). Section 4m(1) of the Act generally requires each person that comes 

within the CTA definition to register as such with the Commission. It exempts from 

registration any CTA who, during the course of the preceding twelve months, has not 

furnished commodity trading advice to more than 15 persons and who does not hold 

himself out generally to the public as a CTA. 

8

 17 C.F.R. § 4.14(a)(1). This rule provides an exemption from registration for a CTA that 

is “a dealer, processor, broker, or seller in cash market transactions of any commodity (or 

product thereof) and the person’s commodity trading advice is solely incidental to the 

conduct of its cash market business.” 
Page 4 

CTA. This no-action position is based upon, in particular, the increased use of market-based 

pricing in newly deregulated wholesale and retail electricity markets, the corresponding increase 

in the need for risk management strategies to hedge cash market transactions, and the 

representation that the Company’s exchange-traded futures and options activities will be limited 

to hedging transactions on behalf of entities that would qualify as eligible contract participants. 

The Division believes that the absence of FERC regulation does not warrant denial of your 

request for no-action relief. In addition, the Division notes that the Company has represented 

that that none of the principals of the Company or any persons providing commodity trading 

advice to customers are subject to any of the statutory disqualifications from registration listed in 

Section 8a(2) of the Act, 7 U.S.C. § 12a(2). 

Accordingly, the Division will not recommend that the Commission commence any 

enforcement action against the Company based solely upon the Company’s failure to register as 

a CTA under Section 4m(1) of the Act in connection with providing commodity trading advice 

to its customers, as described above. 

Other Matters 

 This letter is applicable to the Company solely in connection with its provision of energy 

management services to customers qualifying as eligible contract participants, as described 

above. It does not excuse the Company from compliance with any other applicable requirements 

contained in the Act or in the Commission’s regulations issued thereunder. For example, the 

Company remains subject to all of the antifraud provisions of the Act and the Commission’s 

regulations, to the reporting requirements for traders set forth in Parts 15, 18 and 19 of the 

Commission’s regulations to the extent applicable, and to all otherwise applicable provisions of 

Part 4 of the Commission’s regulations. 

 This letter and the no-action position taken herein are based upon the representations 

made by the Company. Any different, changed, or omitted material facts or circumstances might 

render this letter void. You must notify us immediately in the event that the operations or 

activities of the Company, including the range of services offered or the type of customer served, 

change in any material way from those represented to the Division. Moreover, this letter 

represents the position of the Division only and does not necessarily represent the views of the 

Commission or those of any other division or office of the Commission. 

 If you have any questions concerning this correspondence, please contact Phyllis Dietz, 

an attorney on my staff, at (202) 418-5430. 

 Very truly yours, 

 James L. Carley 

 Director