A large coalition of energy companies, serving virtually every electricity and natural gas customer in the United States, today sent a letter to the White House expressing deep concerns with the direction the U.S. Commodity Futures Trading Commission (CFTC) appeared to be heading with its proposed “swap dealer rule.” The rule, being drafted by the CFTC pursuant to the Dodd-Frank financial reform law, must not ignore the intent of Congress by miscasting end-users as swap dealers, the coalition wrote.
Such action would, among other things, preclude energy companies from using over-the-counter (OTC) derivatives to help shield customers from wholesale commodity price volatility.
The letter was sent to White House Chief of Staff Jacob Lew, National Economic Council Director Gene Sperling, and White House Office of Information and Regulatory Affairs Administrator Cass Sunstein. It was signed by the American Gas Association, American Public Power Association, Edison Electric Institute, Electric Power Supply Association, Independent Petroleum Association of America, National Rural Electric Cooperative Association, and Natural Gas Supply Association.
“Currently, the CFTC’s proposed swap dealer rule is overly broad and would result in commercial end-users who use swaps to hedge their commercial risk and reduce price volatility for their customers being misclassified as swap dealers,” the groups said. “Limiting the scope of this particular rule is critically important to our members because entities designated as swap dealers would no longer be able to use the end-user protections contained in Dodd-Frank and would, thus, be subjected to increased levels of margin and other collateral requirements. This action would needlessly increase the cost of hedging and reduce the capital available for capital investments and job creation by our members.”
“Derivatives provide electric and gas utilities, electricity providers, natural gas producers and energy companies with the ability to insulate our energy customers from wholesale commodity price volatility, and offer the stability and certainty that our respective members need to make critical capital investments that contribute to economic growth and job creation,” the coalition said. “However, the economic consequences of adopting an overly broad swap dealer rule will cause more harm to an already tumultuous economy with no regulatory gain.”
The groups urged the White House to press the CFTC to propose a swap dealer rule that ensures that energy companies and consumers “are not collateral damage from an overly broad and restrictive rule.”
Click here to view the letter.