CFTC "Not of the View" that Retail Energy Transactions Fall Within Dodd-Frank Regulated Exchange Section

The U.S. Commodity Futures Trading Commission (CFTC) announced an Interpretation concerning its authority over retail commodity transactions, as provided by Section 2(c)(2)(D) of the Commodity Exchange Act (CEA).

The Interpretation clarifies the CFTC's view of the meaning of "actual delivery" under Section 2(c)(2)(D).

Section 742(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amended the CEA to add Section 2(c)(2)(D), entitled "Retail Commodity Transactions."

Section 2(c)(2)(D) broadly applies to any agreement, contract, or transaction in any commodity that is entered into with, or offered to, a non-eligible contract participant or non-eligible commercial entity on a leveraged, margined, or financed basis. The Section requires such agreements, contracts, and transactions to be conducted on a regulated exchange and subjects them to the CFTC's anti-fraud authority.

However, the Section does not apply if "actual delivery" of the commodity is made within 28 days.

Retail energy suppliers and the National Energy Marketers Association had requested clarification on whether new CEA section 2(c)(2)(D) and/or any of its exceptions apply to the sale and delivery of physical energy commodities to industrial, commercial, and/or retail customers on a recurring basis.

"Specifically, under the scenario described in these comment letters, energy firms enter into fixed price contracts with customers to supply electricity or natural gas to the customer's residence or business for a period of one or more years. The customer consumes the electricity or natural gas and subsequently pays for that usage, along with all applicable taxes, on a periodic basis," the CFTC described in explaining the scenario.

"The Commission is not of the view that new CEA section 2(c)(2)(D) applies to this scenario, particularly in light of the fact that the customer regularly receives delivery of and consumes the physical energy commodity over the term of the contract and periodically pays for that usage," the CFTC in its Interpretation

Link to CFTC Interpretation