TheU.S. Commodity Futures Trading Commission and the U.S. Securities and ExchangeCommission on April 4 jointlyapproved proposed guidance relating to the treatment of certainelectric-power and natural gas contracts.
Theguidance proposed that certain capacity contracts in electric-power markets andcertain natural gas contracts, which commenters labeled as "peaking supplycontracts," should not be considered "swaps" under the CommodityExchange Act because they are examples of customary commercial arrangements asdescribed in the final rule defining the term "swap."
ChairmanTimothy Massad saidthe agency considered input from concerned market participants and that theproposal "will properly clarify the treatment of contracts used by manybusinesses with respect to the supply and delivery of electric power andnatural gas."
Hesaid that the CFTC proposed that certain power and gas contracts should not beconsidered swaps because "we believe they are examples of customarycommercial arrangements as described in the final rule defining the term 'swap.'"
Massadnoted that these contracts are entered into to assure availability of acommodity, not to hedge against risks arising from a future change in price ofthat commodity or for speculative or investment purposes.
"Theyare typically entered into in response to regulatory requirements, the need tomaintain reliable energy supplies, and practical considerations of storage ortransport. All of these factors are consistent with what has been set forth inprevious commission guidance," he said.
Theproposed guidance will serve as an important complement to the agency's finalrule regarding trade options, "which will reduce burdens on end-users andallow them to better address commercial risk," Massad said.
Theproposal met unanimous CFTC approval. The commission will continue to receivepublic comment on all aspects of its proposed guidance and the comment periodwill close 30 days after the proposed guidance is in the Federal Register.