On March 21, 2014, the Division of Swap Dealer and Intermediary Oversight (“Division”) of the CFTC issued a no-action relief letter (the “2014 Letter”),¹ to temporarily allow entities to deal in utility operations-related swaps, as defined in the 2014 Letter, without counting such swaps towards the “sub-limit” threshold for swap dealer registration with regard to such swaps. This does not affect the general limit applicable to all swaps which requires an entity whose aggregate gross notional amount of all swap dealing activities exceeds $8 billion per year to register as a swap dealer.²

Previously, counterparties providing swaps to gas and power utilities (“utility special entities”) faced strict threshold limits based on the notional dollar amount of such swaps before being required to register as swap dealers (the “Sub-Limit”). Under CFTC Regulations put in place pursuant to the Dodd-Frank Act, this Sub-Limit was $25 million.³ A 2012 no-action letter (CFTC Letter No. 12-18) (the “2012 Letter”)⁴ raised the Sub-Limit to $800 million.

The 2014 Letter was in response to petitions received from the American Public Power Association and other utilities industry representative groups requesting relief from the Sub-Limit set by the 2012 Letter (the “Petition”). This relief was granted to allow utility special entities to significantly increase the total number of swap counterparties available to utility special entities.⁵ 

The 2014 letter defines “utility special entities” to be entities that own or operate electric or natural gas facilities or operations, supply natural gas or electric energy to other utility special entities, have public service obligations under Federal, state or local law to deliver electric energy or natural gas services to utility customers, or are Federal power marketing agencies under Section 3 of the Federal Power Act (16 U.S.C. § 769(19)).⁶

Furthermore, the letter defines “utility operations-related swap” to mean any swaps that meet all of the following conditions:⁷

(1)	A party to the swap is a utility special entity;
(2)	Representations were made that the swaps are used in the manner described in 17 C.F.R. 50.50(c); and
(3)	The swap is either:
	a.	An electric energy or natural gas swap, or
	b.	The utility special entity represents that the swap is related to:
		i.	The generating, producing, purchasing or selling of natural gas or electric energy, the supplying of natural gas or electric energy to a utility, or the delivery of natural gas or electric energy service to utility customers;
		ii.	Fuel supply for the facilities or operations of a utility;
		iii.	Compliance with an electric system reliability obligation; or
		iv.	Compliance with an energy, conservation or environmental statute applicable to a utility.

For more information, please contact one of the lawyers listed below.

Brian Y. Sung 212.659.4964 [email protected]

Jeff Nichols 713.547.2052 [email protected]

Diana Liebmann 210.978.7418 [email protected]