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EPSA Releases Policy Paper on Energy Trading; Opposes Mandatory Clearing of OTC Transactions
EPSA Releases Policy Paper on Energy Trading; Opposes Mandatory Clearing of OTC Transactions
EPSA Releases Policy Paper on Energy Trading; Opposes Mandatory Clearing of OTC Transactions
"Thoughtful regulation of these markets should not needlessly raise the costs associated with responsible hedging strategies but rather work to facilitate the flow of the substantial amounts of capital required in the years ahead for the further development and operation of clean energy projects."
WASHINGTON, D.C. - The Electric Power Supply Association (EPSA) today released a policy paper on energy derivatives trading proposals being considered in Congress. The paper outlines EPSA's concerns with how over the counter (OTC) transactions would be regulated under some legislative proposals. OTC transactions relate to a range of energy products that are bought and sold outside of a centrally cleared exchange including those necessary for energy hedging strategies that EPSA members routinely use to manage costs and risks on behalf of customers.
Under some current legislative proposals, all OTC transactions would be handled through a centrally cleared exchange, which would require high amounts of cash collateral otherwise available for investment and narrow the products offered. Such a burdensome requirement would lead to significant cost increases for consumers, less liquidity in the marketplace and capital being taken away from important infrastructure projects to meet the higher cash collateral rules imposed by exchanges. EPSA believes that energy commodity transactions should be allowed to remain in OTC markets where, among other things, greater flexibility is permitted for collateral requirements.
"The OTC market's very purpose is to provide customized solutions that meet the individual needs of customers. Denying or effectively limiting access to these risk management tools by eliminating OTC trading of energy commodities would jeopardize the ability of energy providers to hedge their market risks exposing them and their customers to increased price volatility, as well as drain the liquidity in the markets. Such action could delay the move to a clean energy economy by drastically increasing costs for new infrastructure," the paper points out.
EPSA President & CEO John E. Shelk said, "EPSA members are eager to work with Congress on reforms that don't needlessly sweep up energy trading in broader financial regulatory efforts. It is critical that regulation of energy commodity trading not unnecessarily hinder the ability of power suppliers to effectively and efficiently manage the price risk for both their fuel inputs and their power output."
The paper also expresses concern about ambiguous definitions in certain proposals. "For example, some legislative language attempts to subjectively define what constitutes "legitimate" energy trading. The ambiguous definitions included in various bills would result in a situation where it becomes increasingly difficult, or prohibitively expensive, to hedge volatile and rising fuel costs which may drive up ultimate costs to consumers," the EPSA policy paper points out.
The full white paper may be downloaded at www.epsa.org.
EPSA White Paper on Regulation of Energy Derivatives Trading
CONTACT: JOHN SHELK
(202) 349-0154or 703-472-8660
EPSA is the national trade association representing competitive power suppliers, including generators and marketers. These suppliers, who account for nearly 40 percent of the installed generating capacity in the United States, provide reliable and competitively priced electricity from environmentally responsible facilities serving global power markets. EPSA seeks to bring the benefits of competition to all power customers.