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CFTC Should Follow Congressional Direction On Key Financial Reform Definitions
"It is clear from the legislative language and the stated intent of Congress that commercial end-users should not be captured as either an MSP or Swap Dealer. Preserving this intent is critical not only because it is what Congress directed but also because it will ensure that competitive power suppliers continue to have the maximum ability to invest in cleaner energy infrastructure, provide affordable energy to consumers and maintain the overall long-term reliability of the electricity system."
WASHINGTON, D.C. - The Electric Power Supply Association (EPSA) yesterday filed comments with the Commodity Futures Trading Commission (CFTC) stressing that competitive power suppliers do not pose a systemic risk to the economy and therefore must have the opportunity to continue using the over-the-counter (OTC) markets for managing commercial risks. The comments were filed in response to an Advanced Notice of Proposed Rulemaking issued by the CFTC asking for input on implementing the statutory definitions. EPSA pointed out that in passing the Dodd-Frank financial regulatory reform law Congress clearly indicated that commercial end-users, like competitive power suppliers, should not be designated as Major Swap Participants (MSPs) or Swap Dealers. Entities that fall under these two definitions are subject to costly mandatory clearing requirements for their swaps activities.
EPSA's comments include "It is clear from the stated legislative language and the intent of Congress that commercial end-users should not be captured as either an MSP or Swap Dealer. Preserving this intent is critical not only because it is what Congress directed but also because it will ensure that competitive power suppliers continue to have the maximum ability to invest in cleaner energy infrastructure, provide affordable energy to consumers and maintain the overall long-term reliability of the electricity system."
EPSA provided details on how concepts within the statutory MSP definition, such as "Substantial Position" and "Substantial Counterparty Exposure," should be more specifically written. The comments noted that these two terms "must be structured to include only those systemically important institutions, while recognizing that energy commodity derivatives do not pose the same level of risk as other derivatives and neither do energy end-users." Additionally, EPSA said that the definition of Swap Dealer should only include those entities that are predominantly and fundamentally in the business of dealing swaps and not those who are primarily in the swaps markets to hedge commercial risks to best serve consumers.
EPSA's comments also pointed out that those transactions with physical delivery options should not be included in the definition of a swap. These include transactions such as "book-outs" or others with the option for physical delivery, but which may settle financially as commonly occurs in energy markets.
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.