The Federal Energy Regulatory Commission (FERC) should remain the sole regulatory authority that governs organized energy markets and the transactions that occur within those markets, Exelon Executive Vice President Elizabeth “Betsy” Moler told members of Congress today.
Making her comments on behalf of the Edison Electric Institute as part of testimony regarding financial reform and regulation of over-the-counter (OTC) derivatives trading, Moler said that any proposed regulation governing energy trading – including OTC derivatives – should clarify FERC’s role in relationship to other federal agencies, including the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC).
“Clear and unambiguous authority for FERC to regulate these transactions is essential,” Moler said in prepared testimony before the House Committee on Energy and Commerce, Subcommittee on Energy and Environment. “Because organized energy markets are already pervasively regulated by FERC, we see no reason for duplicative CFTC or SEC regulation in this space.”
Moler said that all regional transmission organization (RTO) or independent system operator (ISO) products and services provided under FERC-approved tariffs and oversight – or Electric Reliability Council of Texas tariffs approved by the Public Utility Commission of Texas – should be exempt from regulation by the CFTC.
“We believe that the Federal Power Act affords FERC plenary and exclusive jurisdiction over the organized energy markets and transactions, including financial transactions that settle through RTO and ISO systems, both within and between organizations subject to their regulation,” she said.
Moler, Exelon’s Executive Vice President for Government Affairs and Public Policy, told Congress that the member companies of EEI, the Electric Power Supply Association (EPSA) and the American Gas Association (AGA) -- along with other companies and trade groups -- support the goals of the Obama Administration and Congress to improve transparency and stability in OTC derivatives markets.
Moler said that, in addition to clarifying and harmonizing appropriate federal governance of these markets, effective legislation should accomplish the following:
- Provide a clear statutory exemption for end-users of OTC derivatives products, such as electric and gas utilities that use OTC derivatives markets to hedge against commodity price risk for natural gas and wholesale electric power;
- Promote clearing of standardized derivatives between large financial dealers, where appropriate, through regulated central counterparties to reduce systemic risk and bring additional transparency through sharing of information regarding pricing, volume and risk – excluding mandates that would require all or most OTC derivatives transactions to be central cleared or executed on exchanges;
- Promote greater regulatory oversight and transparency of OTC derivatives through increased transaction reporting and authority to the Commodities Futures Trading Commission (CFTC), to prevent manipulation of the derivatives markets;
- Amend the proposed definition of a “swap” to ensure that financially settled physical transactions, such as those utilized by electric and natural gas utilities and other end-users, are excluded from this definition.
Use of over-the-counter (OTC) derivatives by electric and natural gas companies is essential to shielding customers from market volatility and financial risks, Moler said. Therefore, any increased regulation and requirements of OTC derivatives markets established by Congress should include oversight rules that allow for prudent use of these tools by “end-users,” including electric, natural gas and numerous other U.S. companies, she said.
Moler said requiring that all OTC derivatives trading take place on organized exchanges would force substantial margin requirements that “could increase the power prices we charge . . . by anywhere from 5 to 15 percent.” Therefore, end-users that conduct these trades as a way of managing commercial risk should be exempt from clearing and exchange-trading requirements.
Read the testimony