Advocacy Efforts Bring Some Relief, Cause for Optimism
Originally published June 1, 2013
PHOTO BY DENNIS BRACK
As we look forward this month to our annual National Conference in Nashville, Tenn., we can savor some of the positive effects of APPA’s public policy advocacy efforts. We’ve seen encouraging developments over the last few months related to our campaign to protect state and local government use of tax-exempt bonds to finance infrastructure improvements and to ameliorate some of the burden of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.
APPA has worked with a wide range of groups on tax-exempt financing concerns. Our allies on this issue include, among others, the National League of Cities, the U.S. Conference of Mayors, the National Association of State Treasurers and the National Governors Association. On April 2, we joined with the Large Public Power Council and the Transmission Access Policy Study group on a joint statement to the House Ways and Means Committee on tax reform and tax-exempt bonds. LPPC is a consortium of 26 of the largest public power utilities in the United States (all APPA members) and TAPS is an association of 45 transmission-dependent utilities. In our statement, we noted that tax-exempt bonds are the single most important financing mechanism for public power utilities. Each year, public power utilities issue an average of $15 billion to finance new power production and distribution projects. Over the last 10 years, power-related bond issues have totaled $147 billion and account for about 9 percent of all municipal bonds issued.
We have found support for our position on tax-exempt finance in both the House and Senate. In March, Rep. Lee Terry, R-Neb., a member of the House Energy and Commerce Committee, and Rep. Richard Neal, D-Mass., a member of the House Ways and Means Committee, jointly sponsored House Joint Resolution 112, which celebrates the contributions of municipal bonds to the nation’s economic growth and noted that exempting interest earned on municipal bonds from federal taxation reduces the cost of financing for state and local governments. By May 10, the resolution had attracted support from 55 House members.
On April 2, 14 Democractic senators sent a letter to President Obama opposing any changes to the tax-exempt status of municipal bonds. Pushing a financial burden on state and local governments to ease federal budget pressures would be “inappropriate and shortsighted,” the senators said. Sen. Mark Begich, D-Alaska, was the lead author of that letter to the president.
Public power utilities have been ensnared in the web of financial reform ever since the Commodity Futures Trading Commission moved to regulate financial swaps, instruments that figured prominently in the financial collapse of 2008. We have struggled to demonstrate to commodities regulators that the physical swaps electric utilities use to mitigate swing in wholesale power costs are very different from financial swaps traded on Wall Street. Part of this challenge relates to the CFTC’s limited understanding of wholesale electricity markets. Before Dodd-Frank was enacted in 2010, commodities regulators had limited jurisdiction over electricity markets. The commissioners are not familiar with electric utility ownership forms or industry risk management practices.
So it was welcome news on April 3 when CFTC Commissioner Bart Chilton released his “End-User Bill of Rights” that, among other things, would protect public power utilities’ right to hedge commercial risk and give our segment of the industry the same access to risk management markets that private power companies enjoy.
In addition to working with Commissioner Chilton and others at the CFTC on a regulatory fix, APPA is pursuing a legislative solution for the most vexing aspect of the CFTC’s implementation of Dodd-Frank. Under CFTC regulations, a non-financial entity that engages in $25 million or more annually in swap dealing activity with public power utilities is required to register as a “swap dealer” and comply with the CFTC’s swap dealer regulations. This requirement has prompted onetime trading partners to refuse to do business with public power entities, thus harming ongoing risk management activities. In March, Rep. Doug LaMalfa, R-Calif., introduced H.R. 1038, the Public Power Risk Management Act of 2013. The bill provides that an operations-related swap with a government-owned utility would be treated no differently than a utility-operations-related swap with any other entity. As a result, swap transactions with a government-owned utility would be subject to the same $8 billion swap threshold as applies to swaps with other utilities. The House Agriculture Committee approved the bill in March and we expect the full House to vote on it soon.
The CFTC on March 28 issued an order exempting energy transactions between public power or cooperative utilities from all but the anti-fraud, anti-manipulation and record inspection provisions of the Commodity Exchange Act. The exemption is retroactive to enactment of Dodd-Frank and thus removed a big potential regulatory burden for public power utilities, while giving us certainty about regulatory requirements going forward.
These developments are evidence of the value of our collective efforts to educate legislators and regulators about public power. Challenges will remain and new ones will arise, but it is encouraging to see that the advocacy efforts of APPA members, supported by staff, do make a difference.
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