The Renewable Energy Law Review: Renewable Energy and the Dodd–Frank Act

TITLE VII OF THE DODD-FRANK ACT

Title VII of the Dodd–Frank Act (DFA) amended the Commodity Exchange Act (CEA) to impose reporting, record-keeping, clearing, margining and other compliance obligations on certain types of transactions. The Commodity Futures Trading Commission (CFTC) is the primary Title VII regulator.2

Congress excluded most energy sector participation while drafting the DFA.3 Despite causal remoteness from the 2008 financial crisis and vigorous participation in CFTC rule-making, the energy sector ended up with new regulatory compliance burdens. This chapter provides information about some of these.

Energy commodity transactions

The CFTC groups energy commodity transactions involving future delivery or settlement obligations4 into several broad categories. First are futures contracts and options on futures contracts, which are defined by and traded on CFTC-regulated exchanges (e.g., the Henry Hub Natural Gas contract traded on NYMEX). Second are forward contracts, such as fixed-price commodity purchase and sale agreements, which are excluded from regulation as swaps5 but still subject to anti-fraud, anti-manipulation and market abuse laws and regulations.6 Third are swaps.7 The CFTC includes within the term 'swaps' physically settled commodity options and forward contracts with certain types of embedded optionality.8 A fourth category of physical energy transactions are those that the CFTC has found Congress did not intend to regulate as swaps9 and customary commercial arrangements.

Renewable power purchase agreement compliance

The CFTC's position is that its swaps jurisdiction includes some – but not all – contracts for the future physical delivery of energy commodities with variable volumes. Therefore, all physically settled commodity transactions, even those between commercial end users,10 should be analysed by their parties for potential regulatory coverage as swaps if the transaction provides for optionality in deliveries or volumes.

A contract can have embedded optionality that does not make it a swap, such as a contract for all of a generating facility's power,11 or a right to change delivery time and delivery points.12 The consequences of a right to change delivery quantities vary under the various CFTC interpretations and guidances. Optionality to change volumes to take advantage of market price movements would be interpreted by the CFTC as a swap, whereas changing volumes in response to physical or regulatory requirements driving the buyer to need different volumes would not.13 An intermittent solar resource only generates when the sun shines. That solar resource could be interconnected to the electric grid near many other solar resources and, without integrated energy storage, each would deliver a lot of energy on a sunny day, potentially causing negative real-time prices because of congestion. The party bearing that negative price risk may want the contractual right to curtail energy deliveries during periods of this kind. That right could be interpreted by the CFTC as an embedded volumetric option, subjecting the transaction to regulation as a swap. This is not necessarily the case, because it is exercised in response to physical factors – namely, sunny weather – that drive the negative pricing.14

The CFTC excludes from swaps regulation customary commercial arrangements that the CFTC has interpreted Congress did not intend to regulate as swaps, but that could have otherwise been captured by the CFTC's expansive interpretation of its jurisdiction.15 These include ordinary retail consumer transactions16 and probably certain regulatory compliance transactions, such as those for California Resource Adequacy capacity.17 Because, at a gas station, an energy commodity customer can choose whether to buy one gallon or fill his or her tank, visiting a gas station could be a transaction with an embedded commodity option. Purchasing groceries online for delivery next week could be a forward contract and orders could embed swap-like optionality in that forward contract. These transactions would be swaps but for the customary commercial arrangement exception, which is separate from the forward contract exclusion, trade options exemption and other CFTC exemptions regarding energy commodity transactions. Unfortunately, the full scope of each of these is often unclear. There is no single CFTC regulation, nor indeed any combination of regulations, that delineates compliance requirements. The CFTC provided a complex three-part test18 and a seven-part test,19 which it followed with final regulations,20 interim final regulations,21 proposed regulations,22 no-action letters,23 proposed interpretations,24 staff interpretations,25 final interpretations,26 proposed guidance,27 guidance and policy statements,28 and undated frequently asked questions.29 It is unclear which of the two contracting parties to a transaction confirms the legal interpretation or whose potentially differing application of the various pieces of CFTC guidance is in control.30 Under Chairman Massad, the CFTC revised rules31 and provided additional interpretations and guidance32 that, in general, make it less likely that most commercial users will run afoul of the CFTC's swap regulations and interpretations, which somewhat reduces the risks to those who do not perform, perhaps not knowing the need to perform, the requisite analysis.

A very important compliance issue is the distinction between a commodity option and a trade option.33 Parties must first filter transactions through the CFTC's tests to determine whether they have a commodity option. Next, if the parties to the option, the commodity underlying the option and the consequences upon exercise of the option all meet conditions in the trade option exemption rule,34 it is considered a non-financial commodity trade option and is regulated as DFA-lite.35 If not, it is considered a commodity option and subject to the full panoply of DFA regulation as a swap.

The trade option rule refers to an offeree and an offeror of the option, which do not necessarily mean buyer (or holder) and seller. The offeree must be, and seem to be, a commercial user.36 The offeror must be a commercial user or an eligible contract participant (ECP).37 As it is unclear which is which, it helps a contract to be a trade option or DFA-lite swap (good) – and not a commodity option or full DFA swap (bad) – if the parties each are, and represent that they are, ECPs.

ECPs

The definition of an 'ECP'38 and the related definition of 'eligible commercial entity'39 are long and involved status and net worth tests. The ECP representation can be made by a just-formed renewable facility project entity that will satisfy the rule by the commercial operation date, even if it has no assets when signing a power purchase agreement, because the CFTC allows 'anticipatory ECPs'.40 Further, under the Products Release,41 a recourse guarantee of a swap is a swap42 and therefore the guarantor of a commodity option (bad) must also be an ECP because it is the guarantor of a swap,43 while the guarantor of a trade option (good) need not be.44

Renewable energy certificates

'Renewable energy certificates' (RECs) is a common term for the commodified and tradable 'renewableness' of renewable energy.45 The CFTC originally proposed to regulate environmental commodities, such as RECs and carbon allowances, as swaps by changing the regulatory meaning of 'physical' to 'tangible'.46 This would also have brought under CFTC jurisdiction all other intangibles, such as patents and hunting licences. The CFTC backed off and, in the Products Release, found that environmental commodities as intangible commodities that are capable of physical delivery and 'can be consumed' qualify as non-financial commodities,47 and that straightforward sales of environmental commodities settled by transfer – such as RECs transferred using the applicable generation information system – are not swaps, but rather excluded forward contracts.48 Had the CFTC regulated RECs as swaps as it proposed, it could have decimated renewable energy in the United States as margin rules were unclear at the time, and developers and their financiers would have risked massive collateral posting requirements for long-term agreements for renewable energy, which generally include RECs.49 Physically settled environmental commodities, including RECs, are subject to CFTC anti-fraud and anti-manipulation rules.50

Virtual power purchase agreement compliance

A virtual power purchase agreement (VPPA) is an energy price swap typically tied to an identified renewable resource, with a corporate or other energy consumer as the fixed-price payor. A VPPA also usually includes a transfer to the fixed-price payor of the RECs created by that (or another) generating facility. VPPAs are a popular tool for companies to participate in the development of renewable energy while hedging energy costs with a fixed-for-floating price swap that is tied to the volumetric production of the identified renewable generation resource. These are generally documented as custom agreements or as long-form confirmations under an International Swaps and Derivatives Association (ISDA) Master Agreement.51 VPPA transactions are often interpreted to be swaps,52 invoking all applicable DFA swap regulations and requirements. However, such transactions can also be structured as commodity forward contracts for RECs, with the RECs priced at the difference between a floating price and a fixed price53 and, so structured, are not swaps.

Some companies add bells and whistles to VPPAs, such as replacing actual performance with theoretical performance, or using embedded weather swap or insurance products, the costs of which the buyer ultimately bears. However, in the absence of energy storage, neither the actual nor theoretical output of an intermittent renewable resource is likely to match the steady load profile of a corporate end user's factory, office building or data centre. A corporate purchaser using retail energy seeking hedging value should also ensure that the wholesale energy price being hedged bears a long-term relationship to its retail cost of energy.

Obligation to report

The DFA requires that one party to every off-facility uncleared swap report it to a swap data repository.54 CFTC rules set out a hierarchy of the parties that must report and, as a term of the swap, entities at the same level in the hierarchy must agree which party reports.55 The reporting obligation does not end with the initial report as there are obligations to report continuation events, valuations and even party organisational changes.56 The International Energy Credit Association (IECA) makes freely available forms for parties to allocate reporting obligations.57 It is not uncommon to see the meat of these forms copied into VPPAs structured as swaps, which the IECA allows. If doing so, note that regulatory definition citations changed when the CFTC alphabetised its definitions58 and the CFTC somewhat ameliorated trade option regulation in 2014. In addition, ongoing CFTC rule-making and guidance have affected compliance requirements.

Record-keeping

Parties to swaps, including commercial end users, must 'keep full, complete, and systematic records, together with all pertinent data and memoranda' of each swap,59 although the CFTC 'does not believe that it should specifically delineate the meaning of “all pertinent data and memoranda”'.60 Therefore, parties must retain records in a manner that interprets and anticipates the CFTC's expectations, as those expectations may change over time.

Special entities

There is a de minimis threshold of US$8 billion in swap transactions over the course of a year that an entity can enter into before being required to register with the CFTC as a 'swap dealer'. Exceeding the de minimis threshold mandates the expensive new business model of regulation by the CFTC as a swap dealer.61 The US$8 billion threshold is lowered to US$25 million for swaps with counterparties that are 'special entities',62 the definition of which includes government instrumentalities such as state general service administrations. The complexity of long-term transactions involving energy commodities and the ambiguity as to which transactions (or embedded parts of a transaction) may be considered swaps mandate taking great care when transacting with special entities. For example, a transmission-basis swap embedded in what would otherwise be a physical forward power purchase agreement could count towards the de minimis threshold. Utility operations-related swaps with utility special entities are not subject to the lower US$25 million sub-threshold.63 Parties may rely on representations from the utility special entity, but CFTC record-keeping requirements for such a representation are different from those for the rest of the transaction documents.64

Some don'ts

Do not (mis)use savings clauses in forward contracts

Fear that a forward transaction might be a swap has sometimes led market participants to include ill-advised savings clauses in agreements. Some such clauses purport to require a meet and confer if the transaction is 'found to be' a swap and 'amend' the agreement to avoid the swap designation. Such clauses should be avoided. There is no good-faith safe harbour for determining whether an energy commodity transaction is a swap.65 The determination must be made, one way or the other and correctly, when the transaction is signed.66 If the transaction is a swap, or a forward contract with an embedded option that does not meet the commodity trade option exemption conditions and does not fit another CFTC exemption, it must be reported almost immediately to a swap data repository.67 One cannot safely report a transaction that might be a swap but really is not, 'out of an abundance of caution', as companies have been fined by the CFTC for over-reporting.68 Although the CFTC encouraged parties to 'seek an interpretation from the Commissions as to whether the agreement, contract or transaction is a swap',69 the only published response to such a request took four months and, in it, the CFTC declined to answer.70

Entering into a physical forward contract instead of a swap is not evasion.71 However, modifying what should have been reported as a swap after it has been executed to avoid the reporting obligation might be prohibited evasion and, in that case, the CFTC will continue to interpret the transaction as a swap.72 Agreeing in advance to modify a transaction that should have been reported to avoid reporting or the consequences of not reporting could be interpreted as conspiracy to commit evasion.

One could analogise to securities laws. Securities must be either registered or exempt from registration before sale. Few securities practitioners would write into an agreement: 'we do not think this is a security, so we are not registering it, but if this turns out to be a security, we will try to amend it so that it is not'.

Do not call it a 'contract for differences'

VPPAs structured as swaps (rather than as forward REC purchase agreements) are sometimes improperly called 'contracts for differences' (CfDs). This usage should be avoided in favour of the term 'swap'. Swaps are generally legal, while CfDs that are not swaps are generally illegal.

Starting in the 19th century, unscrupulous operators pretended to be commodity brokers or stockbrokers entering trades on behalf of retail investors on margin. Rather than actually enter the trade on a regulated securities or commodity exchange, the operator served as the undisclosed counterparty and 'bucketed', or threw away, the trade.73 About two dozen states outlaw bucket shops.74 In New York and California, CfDs are felonies.75 Until federal pre-emption began in the 1990s, swaps enforceability was jeopardised by state anti-bucket shop and gambling laws.76

The CFTC has exclusive jurisdiction over trading in non-exempt swaps, pre-empting state anti-bucket shop laws.77 The protection of being an exempt swap that pre-empts state laws can be withdrawn by the CFTC or Congress for particular types of transactions.78 The CFTC has noted that CfDs can be excluded from the definition of a swap.79 Although most financial derivatives are swaps subject to CFTC regulation, state laws against CfDs are only federally pre-empted for swaps, so it would be wise to call any derivative by the lawful name of 'swap' rather than the unlawful name of 'CfD'. Saying 'swap' rather than 'CfD' could be likened to calling lawful vegetation management a 'controlled burn' rather than arson.


Footnotes

1 Jeremy D Weinstein is the principal of Law Offices of Jeremy D Weinstein, PC. The author gratefully acknowledges the review and comments of Patricia Dondanville, K C Hairston, Geoff Heffernan, Phil Lookadoo, Steve Mickelson, Julie Morris, Ginger Price, Bobby Singh and Chris York, and takes sole responsibility for content.

2 The Securities and Exchange Commission (SEC) regulates 'security-based swaps.'

3 Statement by (currently CFTC chair) Rostin Behnam, then on the US Senate Agriculture Committee Staff – Senator Stabenow, 'Panel on The Effect of Wall Street Reforms on Energy Markets', Virginia Governor's First Biennial Natural Resource Law Symposium, 23 September 2013.

4 Those with current delivery or delivery during the 'spot' period are part of the 'cash market' for the commodity, and subject to CEA anti-fraud, anti-manipulation and market abuse laws and regulations but not CFTC regulation as futures contracts or swaps.

5 CEA Section 1a(47)(B)(ii), and Joint Final Rule, '. . . Further Definition of 'Swap,' . . .', 77 Federal Register (Fed Reg) 48208 at 48227-44 (13 August 2012) (the Products Release).

6 CEA Sections 6(c) and 9(a)(2); 17 Code of Federal Regulations (CFR) Sections 180.1 and 180.2.

7 CEA Section 1a(47)(A).

8 77 Fed Reg at 48236-37.

9 e.g., CFTC, 'Final Order in Response to a Petition From Certain Independent System Operators . . .', 78 Fed Reg 19880 (2 April 2013); CFTC, 'Final Order Regarding Southwest Power Pool, Inc. Application . . .', 81 Fed Reg 73062 (24 October 2016); CFTC, 'Order Exempting . . . Certain Transactions Between Entities . . .', 78 Fed Reg 19670 (2 April 2013).

10 'CFTC Division of Market Oversight Responds to Frequently Asked Questions Regarding Commodity Options', footnote 10 (undated).

11 77 Fed Reg at 48239.

12 77 Fed Reg at 48240.

13 See CFTC, 'Final Interpretation, Forward Contracts with Embedded Volumetric Optionality', 80 Fed Reg 28239 (18 May 2015); CFTC, 'Proposed Guidance, Certain Natural Gas and Electric Power Contracts', 81 Fed Reg 20583 (8 April 2016).

14 See 77 Fed Reg at 48238, footnote 341; CFTC, 'Final Interpretation, Forward Contracts with Embedded Volumetric Optionality', 80 Fed Reg 28239 (18 May 2015).

15 See 77 Fed Reg at 48246-50. For example, the CFTC said that it would not regulate the sale of patents or trademarks as swaps at 77 Fed Reg 48247, column 1, paragraph 7. The CFTC noted 'new types of agreements' may be 'evaluated' for the customary commercial arrangement exemption and encouraged parties to 'seek an interpretation from the Commissions as to whether the agreement, contract or transaction is a swap' (77 Fed Reg 48248), although the CFTC has yet to publish one.

16 The CFTC listed such transactions at 77 Fed Reg at 48246-47 and expanded on the criteria at 81 Fed Reg at 20585, column 3. The CFTC noted that, although these might not be 'considered swaps', they could be subject to other CEA provisions or CFTC regulations (77 Fed Reg at 48246, footnote 433). The CFTC has anti-fraud jurisdiction under CEA Section 6(c)(1) over transactions in commodities, including 'customary commercial arrangements' that use instrumentalities of interstate commerce. CFTC v. Monex, 931 F.3d 966 (Ninth Circuit 2019) (cert. denied).

17 CFTC, 'Proposed Guidance, Certain Natural Gas and Electric Power Contracts', 81 Fed Reg 20583 at 20584-86 (22 June 2015), citing International Energy Credit Association (IECA) comment letter co-written by the author. See also 77 Fed Reg at 48238, footnote 340, citing comment letter co-written by the author during his time as Pacific Gas & Electric's attorney (13 August 2012).

18 77 Fed Reg at 48237.

19 77 Fed Reg at 48237-40.

20 See Products Release; CFTC, 'Final Rule, Adaptation of Regulations to Incorporate Swaps', 77 Fed Reg 66288 (2 November 2012); CFTC, 'Trade Options Final Rule', 81 Fed Reg 14966 (21 March 2016); 7 CFR Sections 32.2 and 32.3; 17 CFR Section 45.2.

21 CFTC, 'Commodity Options Final and Interim Final Rules', 77 Fed Reg 25320 (27 April 2012), superseded by 81 Fed Reg 14966.

22 CFTC, 'Notice of Proposed Rulemaking, Trade Options', 80 Fed Reg 26200 (7 May 2015).

23 CFTC Letter No. 13-08 (5 April 2013); CFTC, 'Staff Interpretations and No-Action Relief Regarding ECP Status: Swap Guarantee Arrangements', CFTC Letter No. 12-17 (12 October 2012).

24 CFTC, 'Proposed Interpretation, Forward Contracts With Embedded Volumetric Optionality', 79 Fed Reg 69073 (20 November 2014), superseded by 80 Fed Reg 28239.

25 CFTC Staff Letter No. 12-17.

26 CFTC, 'Final Interpretation', 80 Fed Reg 28239 (18 May 2015).

27 CFTC, 'Proposed Guidance', 81 Fed Reg 20583 (8 April 2016).

28 CFTC, 'Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations', 78 Fed Reg 45292 (26 July 2013).

29 'CFTC Division of Market Oversight Responds to Frequently Asked Questions Regarding Commodity Options – Commodity Options FAQs' (possibly withdrawn, but available at https://web.archive.org/web/20170421203524/https://forms.cftc.gov/_layouts/PublicForms/Docs/TradeOptionsFAQ.pdf); 'CFTC OGC Response to Frequently Asked Questions Regarding Certain Physical Commercial Agreements for the Supply and Consumption of Energy' (available at https://www.cftc.gov/PressRoom/PressReleases/6411-12).

30 e.g., 17 CFR Section 45.14. The CFTC also invented a dual intent test for trade options, using the term 'both parties' (77 Fed Reg at 25326, column 3), that the CFTC seems to have backed away from in the final rule at 81 Fed Reg 14967, column 1.

31 17 CFR Section 32.3; CFTC, 'Trade Options Final Rule', 81 Fed Reg 14966 at 14969 (21 March 2016).

32 For example, '“physical factors” should be construed broadly to include any fact or circumstance that could reasonably influence supply of or demand for the nonfinancial commodity [that] . . . could include not only environmental factors, such as weather or location, but [also] broader social forces, such as changes in demographics or geopolitics . . . [I]f the embedded volumetric optionality is primarily intended, at contract initiation, to address concerns about price risk . . . the seventh element would not be satisfied absent an applicable regulatory requirement . . . to obtain or provide the lowest price (e.g., the buyer is an energy company regulated on a cost-of-service basis)' (80 Fed Reg at 28241-42). See also potentially helpful language for supply transactions at 81 Fed Reg at 20586, column 2-3, which is possibly too hedged to be definitive. Although Chairman Gensler's CFTC specifically excluded good-faith determinations for swap characterisation (77 Fed Reg at 2170; 77 Fed Reg at 48297), Chairman Massad's CFTC allowed good-faith determinations (80 Fed Reg at 28242, column 3, footnote 33) and reliance on counterparty representations (80 Fed Reg at 28242, column 1, footnote 25), at least for the seventh element of the seven-part test.

33 A compliance map is available in Jeremy D Weinstein, 'CFTC Regulation of Trade Options: Unfinished Project KISS Business', 39 Futures and Derivatives Law Report (November 2019) (available at http://bit.ly/tradeoptionsarticle).

34 17 CFR Section 32.2.

35 17 CFR Section 32.3; 81 Fed Reg at 14966-67. CFTC position limits rules exclude trade options. CFTC, 'Final Rule, Position Limits', 86 Fed Reg 3236 at 3278 (14 January 2021). Trade options (but not commodity options) are excluded from the swap dealer de minimis threshold (81 Fed Reg at 14967, footnote 18 (21 March 2016); 77 Fed Reg at 25326, footnote 39 (27 April 2012)).

36 17 CFR Sections 32.3(a)(1) and 32.3(a)(2).

37 17 CFR Section 32.3(a)(1). CEA Section 2(e) provides that it is 'unlawful for any person, other than an eligible contract participant, to enter into a swap unless the swap is entered into on, or subject to the rules of, a board of trade designated as a contract market . . .'.

38 CEA Section 1a(18); 17 CFR Section 1.3.

39 CEA Section 1a(17).

40 CFTC, 'Staff Interpretations and No-Action Relief Regarding ECP Status: “Anticipatory ECPs”', CFTC Letter No. 12-17, pp. 11–13 (12 October 2012).

41 See footnote 5.

42 See 77 Fed Reg at 48226. Guaranties are part of the collateral data required to be reported as continuation data (17 CFR Section 45.4(c)).

43 CFTC Letter No. 12-17. pp. 2–5.

44 CFTC Letter No. 12-17, p. 3, column 3, footnote 15.

45 RECs are also claims to have brought the benefits of renewable energy to the electric grid and so are also federally regulated for truth in advertising (Federal Trade Commission, 'Final Rule, Guides for the Use of Environmental Marketing Claims'; 77 Fed Reg 62122 at 62124 and 62131-32; 16 CFR Section 260.15). For a comprehensive explanation of RECs and their US legal basis, see Jeremy D Weinstein, 'What Are Renewable Energy Certificates?', 41 Futures and Derivatives Law Report (January 2021) (available at http://bit.ly/WeinsteinRECsArticle).

46 CFTC, 'Notice of Proposed Rulemaking, Adaptation of Regulations to Incorporate Swaps', 76 Fed Reg 33066 at 33069, columns 2–3; 33069, footnote 31 (7 June 2011); CFTC and SEC, 'Joint Proposed Rules, Further Definition of “Swap,” . . .', 76 Fed Reg 29818 at 29867, column 3 (23 May 2011); Environmental Marketing Association comment letter co-written by the author (available at https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=47883); Jeremy Weinstein and Christopher Berendt, 'The nature of the thing', Environmental Finance (June 2011) pp. 20–21 (available at http://docsjweinsteinlaw.com/pdfs/EF0611_pp,20-21.pdf). After failure of a bill that would have established a carbon market under CFTC jurisdiction (HR 2454, Waxman-Markey, Title III, Subtitles D and E), the CFTC sought to assert itself in environmental commodities – see, for example, CFTC 'Notice of Intent', 74 Fed Reg 42052 (20 August 2009) and CFTC, 'Order', 75 Fed Reg 23686 (28 April 2010) (citing the author's comment letter). The DFA included many provisions rooted in Waxman-Markey, but did not give the CFTC 'swaps' jurisdiction over carbon or other environmental markets – DFA Section 750 merely established a study group.

47 77 Fed Reg 48233, column 1.

48 77 Fed Reg at 48233-35. The CFTC's interpretation of the new term 'nonfinancial commodity' used in the DFA definition of 'swap' in the forward contract exclusion (CEA Section 1a(47)(B)(ii)) means a commodity that can be physically delivered and that is an 'exempt' commodity or an 'agricultural' commodity. Unlike 'excluded' commodities, which generally are financial, exempt and agricultural commodities generally are 'non-financial', such as natural gas, nuclear fuels, energy, coal, metals and environmental products (77 Fed Reg at 48232). Emissions allowances issued by the Environmental Protection Agency (EPA) may also be excluded from the definition of 'swap' as an obligation of the federal government (CEA Section 1a(47)(B)(ix)), although the CFTC has 'declined to address' this view (77 Fed Reg at 48235).

49 California Public Utilities Commission and California Energy Commission staff, who should have sought to protect the California Renewables Portfolio Standard, declined to do so, despite being fully and repeatedly briefed. Fortunately, EPA staff and others successfully pressed this point with the CFTC. 77 Fed Reg 48233-35 (citing comment letters co-written by the author); CFTC, 'Final Rule, Adaptation of Regulations to Incorporate Swaps', 77 Fed Reg 66288 at 66293-94 (2 November 2012) (citing comment letters co-written by the author).

50 77 Fed Reg at 48234, footnote 281; CEA Sections 6(c) and 9(a)(2); 17 CFR Sections 180.1 and 180.2; 17 CFR Section 32.3(d).

51 The ISDA Master Agreement is the standard contract used for over-the-counter derivatives transactions.

52 Some VPPAs structured as swaps have embedded options allowing the buyer to call for physical settlement or delivery (CFTC, 'Final Rule, Position Limits for Derivatives', 86 Fed Reg 3236 at 3292 (citing an IECA comment letter co-written by the author)). Such physical delivery probably should be to a designee if the buyer lacks Federal Energy Regulatory Commission market-based rate authority. A physical power or REC purchase agreement that can be converted into a swap is a swaption (CEA Section 1a(47)(A)(vi)) that should be reported as a swap under Part 45 when the transaction is first executed, rather than when or if such option is exercised.

53 e.g., New York State Energy Research and Development Authority's annual 'RFPs for Purchase of New York Tier 1 Eligible Renewable Energy Certificates (RECs) Request for Proposals' (example available at https://portal.nyserda.ny.gov/servlet/servlet.FileDownload?file=00Pt000000UOhG5EAL).

54 17 CFR Section 45.3.

55 17 CFR Section 45.8.

56 The CFTC eliminated quarterly valuation reporting for commercial end user reporting parties, effective 2021 (CFTC, 'Final Rule', 85 Fed Reg 75503 at 75515 (25 November 2020) (citing an IECA comment letter co-written by the author)).

57 Available at www.ieca.net/education-resources/resource-library and from the author. The IECA also provides market-accepted forms of bilateral agreement substituting for adhering to the ISDA August and March Protocols, and other ISDA sponsored DFA-resultant form documents that were written to protect the interests of its energy company members, and pre-negotiated with representatives of ISDA and major banks.

58 CFTC, 'Interim Final Rule, Definitions', 83 Fed Reg 7979 (23 February 2018).

59 17 CFR Section 45.2.

60 77 Fed Reg 2141, column 3. In 2019, the CFTC said the phrase is 'an expansive requirement' (84 Fed Reg 21057, footnote 118). The CFTC used the phrase in pre-DFA regulation, for example 62 Fed Reg at 59637, column 3 (1997).

61 17 CFR Section 1.3, 'swap dealer' (4)(i)(A).

62 CEA Section 4s(h)(2)(C).

63 17 CFR Section 1.3, 'swap dealer' (4)(i)(B)(1); CFTC, 'Final Rule, Exclusion of Utility Operations-Related Swaps With Utility Special Entities From De Minimis Threshold for Swaps With Special Entities', 79 Fed Reg 57767 (26 September 2014).

64 'The person must keep such representation in accordance with [CFTC Regulation] Section 1.31' (17 CFR Section 1.3 'swap dealer' (4)(i)(B)(4)). 17 CFR Section 1.31 requirements differ from 17 CFR Section 45.2(e)(2) (79 Fed Reg at 57776, column 2). The IECA provides a form, available on its website or from the author, that can be used as a stand-alone documentation of the representation that can be kept both with and independently of the underlying agreement to meet the two different CFTC requirements.

65 CFTC, 'Final Rule, Swap Data Recordkeeping and Reporting Requirements', 77 Fed Reg 2136 at 2170 (13 January 2012).

66 77 Fed Reg at 48297.

67 17 CFR Section 45.3.

68 e.g., Strumpf, 'CFTC Fines Futures Firm Over Reports', Wall Street Journal (10 January 2012). The CFTC fined Newedge US$700,000 for overreporting trading positions.

69 77 Fed Reg at 48248.

70 CFTC, 'Commission Statement Concerning a Request for an Interpretation as to Whether a Particular Agreement Is a Swap . . .', 82 Fed Reg 27044 (13 June 2017).

71 77 Fed Reg at 48235, footnote 297; 77 Fed Reg at 48299-301. Criticism that the proposed rule for seeming to say entering into a forward contract instead of entering into a swap was evasion can be found in Jeremy D Weinstein, 'Quicksand in the Hedges', 31 Futures and Derivatives Law Report (November 2011) (available at http://docsjweinsteinlaw.com/pdfs/Weinstein-Quicksand in the Hedges.pdf).

72 17 CFR Section 1.3 'swap' (6)(i), (iv), (v); 17 CFR Section 1.6.

73 See Thomas A Hieronymus, 'Economics of Futures Trading', pp. 89–93 (Commodity Research Bureau, 1971); Joshua C Tate, 'Gambling, Commodity Speculation, and the “Victorian Compromise”', 19 Yale JL & Human, 97 (2007); John Hill, Jr, 'Gold Bricks of Speculation', (Chicago 1904).

74 e.g., Arizona Revised Statutes Annotated Section 44-1651; California Corporations Code (Cal Corp Code) Sections 29008 and 29100; Massachusetts General Laws Annotated Chapter 271, Sections 35–38; North Carolina General Statute 16-3; Consolidated Laws of the State of New York (NY Cons Laws) Article 23, Section 351; Oregon Revised Statutes Chapter 59.710–740; 18 Pennsylvania Consolidated Statutes Annotated Sections 7316 and 7319; Annotated Revised Civil Statutes of the State of Texas Title 132, Articles 8653–54.

75 Cal Corp Code Section 29100: 'Any person who makes . . . any contract constituting bucketing under [Section] 29008 . . . is guilty of a felony.' Cal Corp Code Section 29008(c): '“Bucketing” [includes] . . . any contract respecting the purchase or sale of any . . . commodities, wherein both parties . . . intend . . . a settlement of the contract based upon the differences in the public market quotations of prices'. NY Cons Laws Article 23-351: 'Any person, . . . or corporation, whether acting in his . . . or its own right or as the officer . . . of another, who . . . 3. Makes . . . any contract respecting the purchase or sale . . . [of ] commodities, . . . intending a settlement of such contract based upon the difference in such public market quotations . . . shall be guilty of a felony.'

76 Practicing Law Institute, 'Advanced Swaps and Derivative Financial Products' 52-73, 162-176 (1991). Federal pre-emption was settled with the Futures Trading Practices Act of 1992, Section 502(a); Thrifty Oil Co v. Bank of Am, 310 F.3d 1188, 1207 (Ninth Circuit 2002); the Commodity Futures Modernization Act of 2000, Section 408(c); and the DFA.

77 The DFA moved federal pre-emption to CEA Sections 2(a)(1)(A) and 2(d) from CEA Section 12(e). See Barry Taylor-Brill, 'Cracking the Preemption Code: The New Model for OTC Derivatives', 13 Virginia Law & Business Review 1 (2019).

78 e.g., a DFA progenitor bill would have specifically rescinded federal pre-emption of state anti-bucket shop and anti-gaming laws for credit-default swaps (HR 2454, Waxman-Markey, p. 1070, proposed Section 355(b), 'Elimination of Preemption of State Bucketing Laws Regarding Naked Credit Default Swaps').

79 77 Fed Reg at 48260, column 1.

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