The Dodd-Frank Act was formulated in 2009 and became law in July 2010. The Commodity Futures Trading Commission (CFTC) was created as a regulatory body and established a framework for the regulation of financial derivatives for energy companies. The CFTC is responsible for establishing rules to define swap dealers and major swap participants, who are required to register with the CFTC and other types of counterparties that may be subject to lesser levels of reporting and regulations. The CFTC also has issued rules related to the definitions of regulated swaps and other transactions, swap data recordkeeping and reporting requirements, and outlining certain types of transactions that are exempt from the regulations.
Title VII of Dodd-Frank is most likely to impact energy companies as it deals with over-the-counter derivatives. Because utilities often use swaps or derivatives to hedge risk, they will need to evaluate the types of transactions they enter into to determine if the transactions fall under the regulation of the CFTC. If the volume or purpose of transactions results in the utility being a swap dealer or end user, there will be implications on record keeping, reporting and registration.
It is believed that most municipal or public power utilities will be end users and subject primarily to record keeping requirements. However, due to the complexity of the rules this will need to be evaluated on a case by case basis.
As the exact rules for Dodd-Frank continue to be developed, Baker Tilly has formulated reference points in order assess how Dodd-Frank currently affects the way energy companies handle the new regulations and what decisions need to be made.