Energy Alert: Deadline Approaches For Energy Company Swap Reporting

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First Major Dodd-Frank Compliance Obligation Begins April 10

The CFTC's Dodd-Frank swap reporting and recordkeeping requirements become mandatory on April 10, 2013, for all persons and companies engaging in swaps. These requirements include the agency's swap data reporting and recordkeeping requirements, real-time swap reporting requirements and reporting requirements for pre-enactment and transition swaps. This marks the first major Dodd-Frank compliance date for most energy companies and other swaps end users.

The reporting rules require the "reporting counterparty," trading exchange and/or clearing organization involved in each swap to report certain data to a swap data repository with respect to the swap. The rules provide a hierarchy to determine which party is responsible for reporting such data and identify the time intervals after execution and confirmation and throughout the life of each swap at which data must be reported. The recordkeeping rule requires each counterparty to a swap to keep "full, complete, and systematic records, together with all pertinent data and memoranda" for the swap until five years after termination.

The first step energy companies must take to determine their reporting obligations under the new rules is to determine which of their agreements or transactions are now considered swaps. This is not always a simple task. "Forward contracts" are excluded from the definition of the term "swap" in the first instance, but the CFTC has multiple multi-factor tests for forward contracts with "embedded optionality" to determine whether such contracts are, in fact, "options" (which are regulated as "swaps"). Tolling, capacity and asset management agreements—to name a few common commercial arrangements in the utility industry—may have characteristics warranting such analysis and ultimate treatment as options. Nonetheless, to the extent such agreements or other commodity options qualify as "trade options," they will be subject to a lighter regulatory burden—including, in certain cases, annual aggregate reporting as opposed to transaction-by-transaction reporting.