The Commodity Futures Trading Commission’s (CFTC’s) “swap dealer” rule issued is one of the most important rulemakings issued to date under the Dodd-Frank financial reform law, because it puts the interests of consumers first, EEI President Tom Kuhn said. It protects utility customers from wholesale price volatility in electricity markets, which is essential to consumers who depend on a reliable and affordable supply of electricity.
“We commend the CFTC for recognizing that the unintended consequences of capturing everyone as swap dealers would ultimately hurt consumers,” Kuhn said. “EEI has consistently supported the bi-partisan goals of the Dodd-Frank Act to enhance regulatory oversight and transparency in the derivatives markets. However, it is essential that utilities be included among exempt end-users so they can continue to use derivatives to insulate customers from price volatility. The Commission recognized this need and worked diligently to produce a rule that does just that.
An additional benefit of the rule, Kuhn said, was that it provided the stability and certainty EEI’s members need to make critical capital investments in energy infrastructure, which contribute to job creation and economic growth,” Kuhn said.
The swap dealer definition rule is vastly improved from the Notice of Proposed Rulemaking (NOPR) issued last year. The NOPR’s proposed de minimis exemption level of just $100 million would have treated utilities similarly to major banks, subjecting power companies to the highest and most costly levels of regulation, which would have increased costs to customers. The final rule increases the de minimis exemption to $8 billion (it may be reduced to $3 billion over time), a figure that exempts utilities from a level of regulation that Congress intended only for entities that present a potential risk to the economy. The rule accomplishes this by explicitly stating that hedging used by utilities and other end-users will not count towards the de minimis threshold. This will help to ensure that EEI members are not miscast as swap dealers, entities that trade or “swap” commodities in the marketplace for profit.
“Based on what we know so far – we’ll scrutinize the rule once published – the CFTC is to be complimented on its efforts to achieve a practical and fair rule that puts consumers first,” Kuhn said. “Furthermore, the House and Senate Agriculture Committees provided valuable oversight and input to the Commission during this process, which contributed to this rulemaking.”