CFTC is urged, once again, to grant public power utilities' petition for narrow exclusion from swap dealer rules
Originally published November 21, 2012
APPA has renewed its appeal to the Commodity Futures Trading Commission to grant a petition that public power utilities filed over the summer. The petition, filed on July 12, asked the CFTC for relief from the $25 million special entity limit in the agency's swap dealer rule.
In a Nov. 19 letter to CFTC Chairman Gary Gensler, APPA, the Large Public Power Council, the Transmission Access Policy Study Group and the Bonneville Power Administration all urged the commission "to act promptly" on the July 12 petition.
In mid-October, the CFTC issued a "no-action" letter granting interim relief from the $25 million special entity limit. (See the Oct. 15 Public Power Daily.) However, this has not worked to bring counterparties back to the table to conduct business with government-owned utilities, said APPA and the others. The no-action letter "has not produced the hoped-for effect," they said.
"As one of our members put it, counterparties had already changed their policies regarding transactions with special entities and aren’t adjusting them based on the no-action letter," APPA and the others told the CFTC.
The no-action letter, issued on Oct. 12, allows counterparties to deal in up to $800 million in swaps with government-owned utilities without being required to register as a swap dealer, but the relief imposes certain conditions. Some of these conditions create uncertainty, and it appears that counterparties are taking a cautious approach in evaluating whether they meet these conditions, said APPA and the others. Among other things, the conditions require counterparties to adopt additional procedures to deal with government-owned utilities.
APPA, LPPC, TAPS, and BPA asked the commission either to grant the July 12 petition or provide similar permanent relief that would give counterparties the certainty they need to enter into transactions with utility special entities.
The July 12 petition "was designed to provide narrow relief only to government-owned utilities engaging in operations-related swaps," said APPA, LPPC, TAPS and BPA. "It would allow counterparties to enter into such swaps with utility special entities on the same basis as with other electric and natural gas utilities."
In contrast, under the commission’s Oct. 12 no-action letter, counterparties have to
consider whether they meet certain conditions and whether to develop separate, specialized compliance programs for dealing with government-owned utilities, said APPA and the other groups.
Although it is typically the larger government-owned utilities that use swap transactions to hedge their operational risk, many small utilities also will be affected because they buy power or natural gas from larger government-owned utilities that are engaged in such hedging, APPA told the CFTC in July.
The CFTC rules "will make it harder for many of our members to hedge their commercial and operational risks, exposing their customers to either greater fluctuations in prices or higher costs, and we must find relief," said APPA President and CEO Mark Crisson. (See the July 13 Public Power Daily.)
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