• CFTC Swap Definition Could Capture FTRs
  • May 9, 2011
  • Law Firm: Troutman Sanders LLP - Atlanta Office
  • On April 27, 2011, the Commodity Futures Trading Commission (“CFTC”) and Securities Exchange Commission (“SEC”) issued a proposed rule to further define “swap,” “security-based swap” and “security-based swap agreement” in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).  As relevant to FERC-regulated utilities, these definitions could be interpreted to permit CFTC regulation of financial transmission rights (“FTRs”) in organized energy markets run by Regional Transmission Organizations (“RTOs”).  However, there are signs that the CFTC will consider a waiver to avoid regulating FTRs.

    At the April 27, 2011 meeting at which the proposed rule was issued, CFTC General Counsel Dan Berkovitz indicated CFTC staff has met with RTOs and will continue to meet with their representatives, suggesting that RTOs have been invited to submit a petition for a waiver outlining why CFTC should exempt FTRs under a “public interest” waiver under Dodd-Frank.  CFTC Chairman Gary Gensler indicated that the CFTC’s authority to issue such an exemption is consistent with Congressional intent.

    This proposed rule appears to be the latest volley in an ongoing jurisdictional debate between the Federal Energy Regulatory Commission (“FERC”) and CFTC.  FTRs have traditionally only been regulated by FERC.  On February 22, 2011, FERC General Counsel Michael Bardee submitted comments to CFTC, arguing that the CFTC should not regulate RTO instruments trading under a FERC-approved rate schedule or tariff (see February 24, 2011 edition of the WER).  No immediate FERC reaction to the CFTC/SEC proposed rule was available.