United States: CFTC Excludes Certain Swaps With Utility Special Entities From The Special Entity De Minimis Calculation For Purposes Of Swap Dealer Registration

Last Updated: October 16 2014
Article by Julian E. Hammar and Michael R. Sorrell

On September 26, 2014, the Commodity Futures Trading Commission ("CFTC") published a final rule in the Federal Register permitting a person to exclude "utility operations-related swaps" entered into with "utility special entities" in calculating the aggregate gross notional amount of the person's swaps positions for purposes of the de minimis exception from swap dealer registration applicable to swaps with special entities ("Final Rule").1 The Final Rule codifies previously granted no-action relief, with certain modifications.

The Final Rule will become effective October 27, 2014, and is available here.


CFTC Regulation 1.3(ggg)(4)(i), 17 C.F.R. 1.3(ggg)(4)(i), provides for a de minimis exception from swap dealer registration for any person that enters into swaps connected with swap dealing activities, the aggregate gross notional amount of which does not exceed during the preceding 12 months one of two thresholds:

  • $3 billion, subject to an initial phase-in level of $8 billion (the "General De Minimis Threshold"); and
  • $25 million, with respect to swaps with "special entities," as defined in section 4s(h)(2)(C) of the Commodity Exchange Act ("CEA") and CFTC Regulation 23.401(c) (the "Special Entity De Minimis Threshold").2

The CFTC received a petition requesting that Regulation 1.3(ggg)(4)(i) be amended to exclude from the Special Entity De Minimis Threshold the notional amount of swaps to which "utility special entities" were counterparties and that were related to their utility operations.3 The petition contended that such relief was necessary to increase the number of counterparties available to utility special entities. In response, CFTC staff issued a no-action letter, CFTC Staff Letter No. 12-18,4 pursuant to which the notional amounts of utility commodity swaps to which certain utility special entities were counterparties and which were related to their utility operations could be excluded from the Special Entity De Minimis Threshold, subject to certain conditions.

CFTC Staff Letter No. 14-34 subsequently superseded and expanded the original no-action letter, which had required the utility special entity to be using the swap to hedge a physical position in an exempt commodity and that the counterparty not be a financial entity. These conditions were deemed to be too restrictive such that potential counterparties were not entering into relevant swaps with special entities.5

Following the issuance of these no-action letters, on June 2, 2014, the CFTC published for comment a proposal to amend CFTC Regulation 1.3(ggg)(4) to permit a person to exclude "utility operations related swaps" with "utility special entities" in calculating the aggregate gross notional amount of the person's swaps solely for purposes of the Special Entity De Minimis Threshold.6


Under the Final Rule, a person may exclude "utility operations-related swaps" where the counterparty is a "utility special entity," solely for purposes of determining whether its swap dealing activity has exceeded the Special Entity De Minimis Threshold. However, such swaps would still have to be counted toward the determination of whether a person has exceeded the higher General De Minimis Threshold.

The Final Rule defines a "utility special entity" as any special entity that:

  • Owns or operates electric or natural gas facilities or operations (or anticipated facilities or operations);
  • Supplies natural gas and/or electric energy to other utility special entities;
  • Has public service obligations (or anticipated public service obligations) under federal, state or local law or regulation to deliver electric energy or natural gas service to utility customers; or
  • Is a federal power marketing agency under Section 3 of the Federal Power Act (16 U.S.C. 796(19)).

This definition is the same as proposed and set forth in CFTC Staff Letter No. 14-34.

For purposes of the Final Rule, a "utility operations-related swap" is a swap that meets the following conditions:

  • A party to the swap is a utility special entity;
  • A utility special entity is using the swap to hedge or mitigate commercial risk as defined in CFTC Regulation 50.50(c), 17 C.F.R. 50.50(c);
  • The swap is related to an exempt commodity (as defined in Section 1a(20) of the CEA) or to an agricultural commodity insofar as such agricultural commodity is used for fuel for generation of electricity or is otherwise used in the normal operation of the utility special entity; and
  • The swap is (1) an electric energy or natural gas swap or (2) is associated with:

    • The generation, production, purchase or sale of natural gas or electric energy, the supply of natural gas or electric energy to a utility, or the delivery of natural gas or electric energy service to utility customers;
    • Fuel supply for the facilities or operations of a utility special entity;
    • Compliance with an electric system reliability obligation; or
    • Compliance with an energy, energy efficiency, conservation, or renewable energy or environmental statute, regulation or government order applicable to a utility.

A person seeking to rely on the exclusion in the Final Rule may rely on the written representations of the utility special entity that it is a utility special entity and that the swap is a utility operations-related swap, unless it has information that would cause a reasonable person to question the accuracy of the representation. The Final Rule requires a person relying on such written representations to maintain such representations in accordance with the recordkeeping requirements in CFTC Regulation 1.31, 17 C.F.R. 1.31.

The Final Rule supersedes the relief granted by CFTC Staff Letter No. 14-34, except that parties may continue to rely upon that relief with respect to swaps entered into in reliance on that letter prior to the effective date of the Final Rule.

The Final Rule does not include a requirement that a person relying on the exclusion must not be a financial entity, which was included in CFTC No-Action Letter No. 12-18, but was eliminated by CFTC No-Action Letter No.14-34 and the proposed rule. The CFTC stated that barring financial entities from taking advantage of the exclusion would thwart the purpose of the rulemaking while providing minimal additional regulatory protections.

Unlike under the proposed rule, the Final Rule does not contain a notice filing requirement to rely on the exclusion. However, the CFTC has directed its staff to assess possible amendments to CFTC regulations that would provide the CFTC with information regarding whether counterparties to utility special entities are relying on the exclusion in the Final Rule to avoid swap dealer registration (such as amending the reporting rules to add a data reporting field identifying utility operations-related swaps) and generally how the exclusion is affecting the markets for utility operations-related swaps.


1. Exclusion of Utility Operations-Related Swaps with Utility Special Entities from De Minimis Threshold for Swaps with Special Entities, 79 Fed. Reg. 57,767 (Sept. 26, 2014).

2. Section 4s(h)(2)(C), 7 U.S.C. 6s(h)(2)(C) defines a special entity as: a federal agency; a State, State agency, city, county, municipality, or other political subdivision of a State; any employee benefit plan, as defined in the Employee Retirement Income Security Act of 1976 ("ERISA"); any government plan as defined in ERISA; and any endowment. CFTC Regulation 23.401(c), 17 C.F.R. 23.401(c), adds to the definition "any instrumentality, department, or a corporation of or established by a State or subdivision of a State."

3. The Petition was filed by the American Public Power Association, the Large Public Power Council, the American Public Gas Association, the Transmission Access Policy Study Group, and the Bonneville Power Administration.

4. CFTC Staff Letter No. 12-18 (Oct. 12, 2012).

5. CFTC Staff Letter No. 14-34 (Mar. 21, 2012).

6. Exclusion of Utility Operations-Related Swaps with Utility Special Entities from De Minimis Threshold for Swaps with Special Entities, 79 Fed. Reg. 31,238 (June 2, 2014).

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Julian E. Hammar
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions