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EPSA Urges Caution to CFTC in Setting Trading Position Limits
"The consequences of implementing position limits at this point in time, and structured in the manner as those in this Proposed Rule, would increase energy costs to consumers and lead to under-investment in infrastructure at a time when the industry is working to develop the resources to meet consumer demand."
WASHINGTON, D.C. - The Electric Power Supply Association (EPSA) today submitted a comment letter to the Commodity Futures Trading Commission (CFTC) on its "Notice of Proposed Rulemaking (NOPR) for Federal Speculative Position Limits for Referenced Energy Contracts and Associated Regulation." EPSA's comments provided an overview of the investments and products being offered by competitive suppliers in the electricity markets today and expressed concern that the NOPR would create unnecessarily costly commercial challenges if implemented.
The letter stated, "It is important to EPSA members that the CFTC can continue to fulfill its mission to protect all market users and the public from fraud, manipulation and abusive practices and to support competitive, efficient and financially sound futures and options markets."
EPSA, however, has concerns that the NOPR, among other things, would prohibit a single speculative position if a company has a large hedging position, create an arbitrary cap on risk management positions and not properly account for passive ownership positions in companies. EPSA's letter concludes by stating that, "The consequences of implementing position limits at this point in time, and structured in the manner as those in this Proposed Rule, would increase energy costs to consumers and lead to under-investment in infrastructure at a time when the industry is working to develop the resources to meet consumer demand."
EPSA noted that, "The practical effect of the Proposed Rule will be the opposite of what the CFTC intends. Instead of preventing excessive speculation, it will unfairly restrict commercial market participants, prohibiting them from taking a single speculative position if they are relying on a hedge exemption to manage the risks associated with their physical energy businesses. This will not prevent excessive speculation." EPSA went on to say, "While the CFTC proposes to deny commercial market participants relying on a hedge exemption from executing a single speculative trade, it would allow speculators who do not have a physical commodity business to speculate up to the limit. There is no apparent justification for this disparate treatment, which could significantly reduce the ability of EPSA members to manage their price risks."
With continuing active discussions in Congress in developing a sweeping financial reform legislation and its pertinence to this proceeding, EPSA recommended that the CFTC suspend implementation of the NOPR. EPSA urged the Commission "to continue to use its reporting, surveillance and other oversight authority to monitor the markets and to take corrective action when it determines that unwarranted price changes are the result of market manipulation, fraud or other rule violations."
EPSA Position Limits Comments
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.