Interpretive Release Certain Natural Gas and Electric Power Contracts 33-10062

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COMMODITY FUTURES TRADING COMMISSION
SECURITIES AND EXCHANGE COMMISSION
[Release No. 33-10062; 34-77506; File No. S7-05-16]
RIN 3235- AL93
Certain Natural Gas and Electric Power Contracts
AGENCY: Commodity Futures Trading Commission; Securities and Exchange
Commission.
ACTION: Proposed guidance.
SUMMARY: In accordance with section 712(d)(4) of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Commodity Futures
Trading Commission (the “CFTC”) and the Securities and Exchange Commission
(“SEC”), after consultation with the Board of Governors of the Federal Reserve System
(“Board of Governors”), are jointly issuing the CFTC’s proposed guidance on certain
contracts that provide for rights and obligations with respect to electric power and natural
gas. The CFTC invites public comment on all aspects of its proposed guidance.
DATES: Comments must be received on or before [INSERT DATE 30 DAYS AFTER
DATE OF PUBLICATION IN THE FEDERAL REGISTER].
ADDRESSES: You may submit comments by any of the following methods:
• 	CFTC web site: http://comments.cftc.gov. Follow the instructions for
submitting comments through the Comments Online process on the web site.
• 	Mail: Send to Christopher Kirkpatrick, Secretary of the Commission,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW,
Washington, DC 20581.

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• 	Hand Delivery/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 of these methods.
All comments must be submitted in English, or if not, accompanied by an English
translation. Comments will be posted as received to 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,
17 CFR 145.9.
The CFTC reserves the right, but shall have no obligation, to review, pre-screen,
filter, redact, refuse or remove any or all of a submission from 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 the notice will be
retained in the public comment file and will be considered as required under all
applicable laws, and may be accessible under the Freedom of Information Act.
FOR FURTHER INFORMATION CONTACT: CFTC: David N. Pepper, Special
Counsel, Division of Market Oversight, at (202) 418-5565 or dpepper@cftc.gov; or Mark
Fajfar, Assistant General Counsel, Office of the General Counsel, at (202) 418-6636 or
mfajfar@cftc.gov, Commodity Futures Trading Commission, Three Lafayette Centre,
1155 21st Street, NW, Washington, DC 20581. SEC: Carol McGee, Assistant Director,

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Office of Derivatives Policy, Division of Trading and Markets, at (202) 551-5870,
Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549.
SUPPLEMENTARY INFORMATION:
I. 	Introduction
In the final rule further defining the term “swap,” the CFTC and the SEC adopted
an interpretation regarding the facts and circumstances in which certain agreements,
contracts, or transactions entered into by commercial and non-profit entities should be
considered not to be swaps because they are customary commercial arrangements.1
Following adoption of this interpretation, the CFTC received public comments describing
certain types of contracts that are closely tied to regulatory obligations in the markets for
electric power and natural gas.2
Having reviewed these comments, the CFTC proposes to issue guidance
regarding particular facts and specific circumstances in which these contracts should be
considered not to be “swaps” for purposes of the Commodity Exchange Act (“CEA”).3
This proposed guidance applies the interpretation in the Products Release to the contracts
described in Part II.A. of this document and the CFTC preliminarily concludes that such
1 See Further Definition of “Swap,” Security-Based Swap,” and “Security-Based Swap Agreement”; Mixed
Swaps; Security-Based Swap Agreement Recordkeeping, 77 FR 48207, 48246 (Aug. 13, 2012) (the
“Products Release”).
2 The comments were received in response to the CFTC’s proposed interpretation on Forward Contracts
With Embedded Volumetric Optionality, 79 FR 69073 (Nov. 20, 2014) (comments available at
http://comments.cftc.gov/PublicComments/CommentList.aspx?id=1541), and the CFTC’s notice of
proposed rulemaking on Trade Options, 80 FR 26200 (May 7, 2015) (comments available at
http://comments.cftc.gov/PublicComments/CommentList.aspx?id=1580). In addition, the CFTC’s Energy
and Environmental Markets Advisory Committee discussed related issues at its meeting on July 29, 2015
(transcript available at http://www.cftc.gov/PressRoom/Events/opaevent_eemac072915).
3 See 7 U.S.C. 1a(47). This proposed guidance is being issued jointly with the SEC pursuant to section
712(d)(4) of the Dodd-Frank Act but, given the specific types of contracts at issue, pertains only to the
CFTC and swaps. Because the proposed guidance is limited to the particular facts and circumstances of the
contracts at issue, the proposed guidance, if adopted, would not pertain to the SEC or security-based swaps.

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contracts should be considered not to be swaps because they are customary commercial
arrangements.
II. 	Proposed Guidance
A. 	Commenters’ Description of Certain Contracts
Commenters described two types of contracts that are similar in some respects,
but are used in different situations to provide for rights and obligations that are suitable to
the parties’ particular needs in those situations, and which are closely tied to compliance
with certain regulatory requirements and frameworks. Each is described briefly below.
1. 	Certain Capacity Contracts – Electric Power
The CFTC understands that certain types of capacity contracts in electric power
markets are used in situations where regulatory requirements from a state public utility
commission (“PUC”) obligate load serving entities (“LSEs”) and load serving electric
utilities in that state to purchase “capacity” (sometimes referred to as “resource
adequacy”)4 from suppliers to secure grid management and on-demand deliverability of
power to consumers. A commenter explained that the LSE or load serving electric utility
will be recognized by the PUC and the Federal Energy Regulatory Commission
(“FERC”) as having purchased capacity and, therefore, having satisfied that portion of its
4 The resource adequacy framework adopted by the California Public Utilities Commission (“CPUC”) is an
illustrative example. The CPUC adopted a resource adequacy policy framework in 2004 in order to ensure
the reliability of electric service in California. The CPUC established resource adequacy obligations
applicable to all LSEs within the CPUC’s jurisdiction. The CPUC’s resource adequacy policy framework –
implemented as the Resource Adequacy program – guides resource procurement and promotes
infrastructure investment by requiring that LSEs procure capacity so that capacity is available to the
California Independent System Operator (“ISO”) when and where needed. See generally the discussion of
resource adequacy available at http://www.cpuc.ca.gov/ra/.

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obligation to purchase the ability to supply the electricity when and as needed.5 In each
of these instances, a commenter asserted, the purchaser, as required by law, will be
considered to have purchased the supplier’s capacity to generate, produce and deliver
electric power, regardless of whether the electricity underlying the capacity contract is
called upon and delivered.6
A commenter said the purchaser does not treat this type of capacity contract as a
“hedge” in the same sense as it would otherwise use a commodity option as a financial
hedge.7 In this type of capacity contract, the commenter contended, the purchaser is not
procuring the right to profit from a change in the value of the underlying commodity,
which the purchaser will then financially settle in order to offset the price volatility risk
of some underlying physical transaction in the cash market.8 Rather, the purchaser is
purchasing a supplier’s capacity to produce, generate, and deliver the underlying
electricity, thereby ensuring its ability to supply electricity in compliance with a
regulatory requirement.9 Certain commenters explained that they do not view these
contracts as financial instruments, but rather as commercial agreements that enable the
purchaser of capacity to ensure that the underlying electricity is delivered when needed
5 See letter from International Energy Credit Association (“IECA”) (June 22, 2015) at 9. The CFTC
understands that this type of contract enables a Regional Transmission Organization (“RTO”) or ISO to call
on resource adequacy capacity to ensure the reliability of electric service to end users or consumers. The
LSE or load serving electric utility, which is required to purchase capacity contracts, cannot itself call on
the supplier to deliver electricity – only the RTO or ISO can.
6 See id.
7 See id.
8 See id.
9 One commenter contended that although this type of capacity contract may not impose a binding
obligation on the parties to make and take delivery of a specific quantity of electricity, it does impose a
binding obligation on the parties to make and take delivery of the capacity. See id. at 10.

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by the purchaser to meet state- and/or federally-required reliability objectives.10 One
commenter stated that state PUCs and the FERC generally do not treat a purchase of
capacity in this context as a purchase of a financial instrument or an option, but rather as
a purchase of the ability to ensure delivery of the underlying physical commodity.11
A commenter explained how the payment structure under a capacity contract for
resource adequacy is different from the payment structure under a financially-settled
commodity option. According to this commenter, capacity contracts do not involve
payment of a nominal option premium, followed by payment of the full market price of
the electric power if and when the “option” is exercised.12 Instead, the initial payment
under the capacity contract frequently recovers for the seller the entire fixed cost of
producing, generating, supplying or transmitting the electric power.13
2. 	Certain Peaking Supply Contracts – Natural Gas
Commenters requested further guidance on whether certain natural gas contracts,
which commenters labeled as “peaking supply contracts,” and which are entered into by
electric utilities (with or without a minimum gas delivery requirement) should be
regulated as swaps.14 The CFTC understands a peaking supply contract in this context to
10 See letter from IECA (June 22, 2015) at 10, and letter from Coalition for Derivatives End-Users
(“CDEU”) (Dec. 22, 2014) at 7-8.
11 See letter from IECA (June 22, 2015) at 10.
12 See id. at 11.
13 See id. Resource adequacy capacity is not tied to a specific power price and the purchaser of capacity
does not have access to the energy tied to the capacity requirement. The capacity purchased is essentially
conferred or assigned to the RTO or ISO, and these entities can call the capacity.
14 See letter from American Gas Association (“AGA”) (Dec. 22, 2014) at 9-11, letter from AGA (June 22,
2015) at 2-5; and letter from Cogen Technologies Linden Venture, L.P. (“Linden”) (June 22, 2015) at 2-3.
For purposes of this proposed guidance, the term electric utility means “all enterprises engaged in the
production and/or distribution of electricity for use by the public, including investor-owned electric utility
companies; cooperatively-owned electric utilities; government-owned electric utilities (municipal systems,

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be a contract that enables an electric utility to purchase natural gas from another natural
gas provider on those days when its local natural gas distribution companies (“LDCs”)
curtail its natural gas transportation service. For example, one commenter, Linden,
explained that it procures sufficient natural gas and gas transportation services to operate
its cogeneration facility in the ordinary course through natural gas service agreements
with its LDCs.15 Linden explained that its natural gas service agreements require Linden
to take natural gas from the LDCs if they supply it. However, to ensure that the LDCs
are able to meet their regulatory commitments to prioritize and serve residential demand
for natural gas, the local board of public utilities (“BPU”) requires that the service
agreements permit the LDCs to interrupt natural gas transportation service to Linden
during certain specified conditions.16 Due to the LDCs’ tariff-based commitments to
serve residential natural gas demand, the BPU will not allow the LDCs to provide a
“firmer” category of natural gas service to Linden.17 Because of the possibility of these
interruptions of transportation service, Linden uses peaking supply contracts to ensure it
has sufficient natural gas to operate its cogeneration facility during the interruptions.18
federal agencies, state projects, and public power districts).” See Federal Energy Regulatory Commission
(FERC) Glossary, available at http://ferc.gov/resources/glossary.asp.
15 Linden is an exempt wholesale generator selling electric power at market-based rates under the
jurisdiction of the FERC, and owns and operates a combined cycle natural gas-fired cogeneration facility
located in Linden, New Jersey. The electricity produced from Linden’s generator is sold, under a long-term
power purchase agreement, to Consolidated Edison Company, which then uses the power to serve the
electricity needs of consumers in New York City. Steam from Linden’s operation is sold, also under a
long-term contract, to the co-located Bayway Refinery, the largest refinery on the East Coast, for its
industrial processes. See letter from Linden (June 22, 2015) at 1-3.
16 See id.
17 See id.
18 See id.

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Linden represented that, under its natural gas service agreements, the LDCs
determine when the conditions for interrupting Linden’s service are present, and Linden
therefore has no control over such conditions. Thus, Linden does not have discretion as
to whether and when an interruption of service as described above will occur.19
Linden explained that, under the terms of its natural gas service agreements,
Linden is required to take natural gas from the LDCs if they supply it. There is no ability
for financial settlement under Linden’s peaking supply contracts, and natural gas supplied
under those peaking supply contracts cannot be re-sold by Linden.20 Linden represented
that the price for natural gas in its peaking supply contracts is based on the market cost of
fuel at specified delivery points, plus a specified adjustment depending on delivery
point.21 Thus, since Linden could not use that natural gas for any purpose other than to
fuel its facility when an interruption of service occurs, Linden represented that it is
practically limited to exercising its right to take delivery under its peaking supply
contracts only in the event of an interruption of service, and that it has no discretion as to
whether and when it will exercise the right to take delivery under its natural gas peaking
supply contracts.22
3. 	Common Characteristics Described by Commenters
As they have been described by commenters, the natural gas and electric power
contracts discussed above are all entered into by commercial market participants, who
contemplate physical settlement of the transactions, in response to regulatory
19 See id. at 3.
20 See letter from Linden (Dec. 22, 2014) at 6.
21 See letter from Linden (June 22, 2015) at 4, n. 12.
22 See id. at 3-4.

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requirements, the need to maintain reliable supplies, and practical considerations of
storage or transport.23 In each case, the particular commodities covered by the contract
are needed by at least one of the parties for the normal operation of its business, and the
specific identity of the counterparty is an important consideration because of, for
example, concerns about reliability or the practicability of supply.24
B. 	Products Release Discussion of Commercial Contracts
In the Products Release, the CFTC and the SEC (the “Commissions”) adopted an
interpretation to assist commercial and non-profit entities in understanding whether
certain agreements, contracts, or transactions that they enter into would or would not be
regulated as swaps.25 To that end, the Products Release listed several specific types of
commercial agreements, contracts, and transactions that involve customary business
arrangements (whether or not involving a for-profit entity) that will not be considered
swaps, including: employment contracts; sales, servicing, or distribution arrangements;
certain fixed or variable interest rate commercial loans or mortgages; and certain
agreements, contracts, or transactions related to business combination transactions, real
property, intellectual property, and warehouse lending arrangements.26 The
Commissions stated their intent that this interpretation should “allow commercial and
non-profit entities to continue to operate their businesses and operations without
significant disruption and provide that the swap … definition [is] not read to include
23 See letter from CDEU (Dec. 22, 2014) at 7, letter from EDF Trading North America, LLC (Dec. 22,
2014) at 13.
24 See letter from AGA (Dec. 22, 2014) at 9.
25 See Products Release, 77 FR at 48246.
26 See id., 77 FR at 48247.

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commercial and non-profit operations that historically have not been considered to
involve swaps.”27
The Commissions also explained that the list provided in the Products Release
was not intended to be exhaustive and that there may be other, similar types of
agreements, contracts, and transactions that also should not be considered to be swaps.28
The Commissions said that in determining whether similar types of agreements,
contracts, and transactions entered into by commercial entities should not be considered
swaps, they intend to consider the characteristics and factors that are common to the
commercial transactions listed in the Products Release, which are:
• 	They do not contain payment obligations, whether or not contingent, that are
severable from the agreement, contract, or transaction;
• 	They are not traded on an organized market or over-the-counter; and …
• 	In the case of commercial arrangements, they are entered into:
—By commercial or non-profit entities as principals (or by their agents) to serve
an independent commercial, business, or non-profit purpose, and
—Other than for speculative, hedging, or investment purposes.29
The Commissions concluded that in determining whether an agreement, contract,
or transaction not enumerated in the Products Release is a swap, the agreement, contract,
or transaction will be evaluated based on its particular facts and circumstances,30 and the
representative characteristics and factors set out in the Products Release “are not intended
27 See id.
28 See id.
29 See id.
30 See id., 77 FR at 48248.

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to be a bright-line test for determining whether a particular … commercial arrangement is
a swap.”31
In the Products Release, the CFTC also addressed certain capacity contracts and
peaking supply contracts in the context of the CFTC’s interpretation of when an
agreement, contract, or transaction with embedded volumetric optionality would be
considered a forward contract.32 The CFTC stated that depending on the relevant facts
and circumstances, capacity contracts and peaking supply contracts may qualify as
forward contracts with embedded volumetric optionality if they met the elements of the
CFTC’s interpretation of that provision.33 This remains the case; the CFTC does not
intend that the proposed guidance herein would affect the interpretation of when an
agreement, contract, or transaction with embedded volumetric optionality would be
considered a forward contract.34
31 See id., 77 FR at 48250.
32 See id., 77 FR at 48238.
33 See id., 77 FR at 48240.
34 The CFTC has clarified this interpretation. See Forward Contracts With Embedded Volumetric
Optionality, 80 FR 28239 (May 18, 2015). In this clarification, the CFTC addressed certain retail electric
market demand-response programs, under which electric utilities have the right to interrupt or curtail
service to a customer to support system reliability. See id., 80 FR at 28242, citing letter from the National
Rural Electric Cooperative Association, the American Public Power Association, the Large Public Power
Association, and the Transmission Access Policy Study Group (Oct. 12, 2012) at 9.
The CFTC clarified that since a key function of an electricity system operator is to ensure grid
reliability, demand response agreements, even if not specifically mandated by a system operator, may be
properly characterized as the product of regulatory requirements within the meaning of the seventh element
of the CFTC’s interpretation regarding forward contracts with embedded volumetric optionality. For the
avoidance of doubt, the CFTC reiterates that the proposed guidance herein would not affect this
interpretation.
Also, the CFTC’s interpretations regarding full requirements and output contracts, as provided in the
Products Release, would be unaffected by the proposed guidance herein. See Products Release, 77 FR at
48239-40.
Furthermore, the CFTC does not intend that the proposed guidance would supersede or modify a
document issued by the CFTC’s Office of General Counsel – “Response to Frequently Asked Questions
Regarding Certain Physical Commercial Agreements for the Supply and Consumption of Energy,”

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C. 	Proposed Guidance on Whether Certain Contracts Should be Considered
to be Swaps
In response to the comments, described above, which were provided by market
participants regarding certain capacity contracts for electric power and certain peaking
supply contracts for natural gas, the CFTC has considered the specific facts and
circumstances of these contracts in light of the interpretation in the Products Release of
when a contract would be considered not to be a swap because it is a customary
commercial arrangement.
The CFTC understands, based on the commenters’ descriptions, that the contracts
described in Part II.A. above are not traded on an organized market or over-the-counter,
and do not have severable payment obligations. Thus, the CFTC preliminarily believes
that the contracts described in Part II.A. are consistent with the first two elements of the
interpretation in the Products Release.35
The CFTC has also considered the contracts described in Part II.A. in light of the
statement in the Products Release that, in order not to be considered swaps, the contracts
should be entered into “[b]y commercial or non-profit entities as principals (or by their
agents) to serve an independent commercial, business, or non-profit purpose, and [o]ther
than for speculative, hedging, or investment purposes.”36 In view of all the facts and
circumstances of the contracts described in Part II.A., the CFTC preliminarily believes
available at http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/leaselike_faq.pdf – which
continues to be the position of the CFTC’s Office of General Counsel on the issues discussed in that
document.
35 See Products Release, 77 FR at 48247 (the contracts “do not contain payment obligations, whether or not
contingent, that are severable from the agreement, contract, or transaction; [and] …are not traded on an
organized market or over-the-counter”).
36 See id.

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that such contracts would satisfy this element of the Products Release, and therefore
should be considered not to be swaps under the interpretation set forth in the Products
Release because they are customary commercial arrangements of the type described in
the Products Release.
The CFTC notes that commenters have represented that the contracts described in
Part II.A. are entered into in response to regulatory requirements, the need to maintain
reliable supplies, and practical considerations of storage or transport which arise in the
course of the normal operation of at least one party’s business. In this respect, the CFTC
preliminarily believes that the contracts described in Part II.A. are similar to certain
contracts – namely, sales, servicing and distribution arrangements, and contracts for the
purchase of equipment or inventory – listed in the Products Release as commercial
contracts that will not be considered swaps.37 Also, in the Products Release the
Commissions addressed commenters’ assertion that all commercial merchandising
transactions hedge an enterprise’s commercial risks by stating that a commercial
arrangement undertaken for hedging purposes may or may not be a swap depending on
the particular facts and circumstances of the arrangement.38
The CFTC observes that when an entity enters into a purchase contract, it is
assured of a supply of the equipment or inventory it will need in the future. Similarly, a
service contract assures the availability of a needed service in the future. The contracts
described in Part II.A. are similar to the purchase and service contracts enumerated in the
Products Release because they appear to satisfy the elements of commercial contracts,
37 See id.
38 See id., 77 FR at 48249.

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transactions or arrangements that are not considered swaps, including that they are
entered into by commercial or non-profit entities to assure availability of a commodity,
not to hedge against risks arising from a future change in price for the commodity or to
serve a speculative or investment purpose.
As stated in the Products Release, whether a particular commercial arrangement is
a swap depends on the particular facts and circumstances of the arrangement.39 This
proposed guidance would not apply to any agreement, contract or transaction other than
those described in Part II.A., and would not preclude the CFTC from issuing further
guidance considering other commodity contracts under the interpretation in the Products
Release.
III. 	Request for Comment
The CFTC believes that it would benefit from public comment about its proposed
guidance, and therefore requests public comment on all aspects of its proposed guidance
set forth above, and on the following questions:
1. Are there natural gas and electric power contracts that would not qualify as
trade options within the scope of CFTC regulation 32.3 but which would be covered by
the proposed guidance? If so, should the proposed guidance be limited so that it
encompasses only contracts that do qualify as trade options? Why or why not?
2. Does the proposed guidance provide sufficient clarity on whether the specific
types of natural gas and electric power contracts in question should or should not be
considered to be swaps? If not, how should the guidance be revised to provide more
clarity?
39 See id., 77 FR at 48248.

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3. Are there other facts and circumstances that the CFTC should consider in
determining whether the contracts described in Part II.A. are swaps? If so, what are these
factors and how should they be considered?
4. Are there contracts (other than those described in Part II.A.) that are entered
into by participants in the electric power and natural gas markets and necessitated by, or
closely tied to, compliance with regulatory obligations or frameworks that are similar to
those described in Part II.A.?
5. Are there other types of commodity contracts, outside of the electric power and
natural gas markets, which are necessitated by, or closely tied to, compliance with
regulatory obligations or frameworks that should be considered under the interpretation
in the Products Release? If so, please describe these contracts and the regulatory
obligations and frameworks to which they are closely tied.
6. Are there public interest considerations regarding the natural gas and electric
power contracts in question that should be reflected in the proposed guidance? If so, why
and how?
7. Does the proposed guidance provide sufficient clarity that it does not
supersede or modify the CFTC OGC FAQ referenced in footnote 34? Is there any
potential overlap between the proposed guidance and the CFTC OGC FAQ that should be
further clarified? If so, what elements of the proposed guidance should be clarified to
indicate that the proposed guidance does not supersede or modify the CFTC OGC FAQ?
8. With respect to natural gas peaking contracts, are there natural gas providers
other than LDCs, such as Intrastate and Interstate Natural Gas Pipelines (as those terms

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are defined by the Energy Information Administration),40 which are subject to regulatory
obligations to prioritize and serve residential demand for natural gas, such that the
providers are obligated to curtail service to electric utilities under certain circumstances?
If so, please explain.
By the Securities and Exchange Commission.
Dated: April 4, 2016
Brent J. Fields,
Secretary.
40 See Distribution of Natural Gas: The Final Step in the Transmission Process, Energy Information
Administration, Office of Oil and Gas, June 2008, available at
https://www.eia.gov/pub/oil_gas/natural_gas/feature_articles/2008/ldc2008/ldc2008.pdf.

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Issued in Washington, DC on April 4, 2016, by the Commodity Futures Trading
Commission.
Christopher J. Kirkpatrick,
Secretary of the Commission.
Commodity Futures Trading Commission (CFTC) Appendices to Certain Natural
Gas and Electric Power Contracts – Commission Voting Summary and Chairman’s
Statement
Appendix 1 – Commodity Futures Trading Commission Voting Summary
On this matter, Chairman Massad and Commissioners Bowen and Giancarlo
voted in the affirmative. No Commissioner voted in the negative.
Appendix 2 – Statement of CFTC Chairman Timothy G. Massad
Today, the CFTC and the Securities and Exchange Commission (SEC), have
jointly proposed guidance relating to the appropriate treatment of certain peaking supply
and capacity contracts. We are issuing this guidance after considering the useful input
we have received from market participants expressing concern about this issue. I support
this proposal, as it will properly clarify the treatment of contracts used by many
businesses with respect to the supply and delivery of electric power and natural gas.
We have proposed that certain electric power and natural gas contracts should not
be considered “swaps” under the Commodity Exchange Act. We have done so because
we believe they are examples of customary commercial arrangements as described in the
final rule defining the term “swap.”

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For example, these contracts are entered into to assure availability of a
commodity, not to hedge against risks arising from a future change in price of that
commodity or for speculative, or investment purposes. They are typically entered into in
response to regulatory requirements, the need to maintain reliable energy supplies, and
practical considerations of storage or transport. All of these factors are consistent with
what has been set forth in previous commission guidance.
Today’s proposed guidance is an important complement to our final rule
regarding Trade Options, which will reduce burdens on end-users and allow them to
better address commercial risk. I thank my fellow Commissioners Bowen and Giancarlo
for joining me in unanimously approving this proposal as well as that final rule.