Are Cash-Settled Power Transactions Subject to FERC’s Jurisdiction?
As is often the case in other commodity markets, many power forward contracts are financially settled between the parties without actual delivery of the underlying power. In other words, they are “booked-out.” A book-out is an agreement between two parties, typically in a chain or string of forward contracts, to settle their respective obligations with a cash payment of the difference between the contract and reference (market) prices, as opposed to making and taking physical delivery. The CFTC repeatedly has affirmed that the forward contract exclusion to CFTC jurisdiction remains available even in the absence of routine delivery. While not addressing electricity markets directly, the CFTC has explained that cash settlement does not change a forward contract into a futures contract if the original contracts are entered into between commercial participants in connection with their businesses and create specific delivery obligations that impose substantial commercial risks on the partie
