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ARTICLE · 26 APRIL 2016

Natural Gas And Electric Power Contracts: Recent End-User Developments

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The Proposed Guidance does not supersede or affect the CFTC's earlier exclusion from the swap definition for capacity contracts and peaking supply contracts that qualify as forward contracts with "embedded volumetric optionality."

United StatesFinance and Banking
Nikiforos Mathews
Nikiforos Mathews
Jonas Robison
Jonas Robison
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On April 4, 2016, the Securities and Exchange Commission ("SEC") and the Commodity Futures Trading Commission ("CFTC") jointly issued guidance ("Proposed Guidance") preliminarily concluding that certain electric power capacity contracts and certain natural gas supply contracts (each as described below) constitute "customary commercial arrangements"1 and, as such, should not be considered "swaps" under the Commodity Exchange Act, as amended by the Dodd-Frank Act ("CEA").  The Proposed Guidance generally describes these two types of qualifying contracts as follows:

  • Certain electric power capacity contracts: Capacity contracts in electric power markets that are used in situations where regulatory requirements from a state public utility commission obligate load serving entities and load serving electric utilities in that state to purchase ''capacity'' (sometimes referred to as ''resource adequacy'') from suppliers to secure grid management and

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