Ensuring Financial Reform Helps Consumers and the Environment

President Obama recently signed into law a landmark financial regulatory reform bill that has implications for every business in the country. Reforms involving financial derivatives trading, among other things, and how companies manage their risks, were the focus of the energy and manufacturing industries. The legislation’s effects on electricity suppliers and customers, and thereby infrastructure investments and electricity prices, gained particular attention with key legislators recognizing the need to maintain financial risk-hedging tools for electricity providers.
 
A key issue for electricity suppliers and customers is the treatment of over-the-counter (OTC) derivatives. The legislation requires most derivatives transactions be cleared if both counter parties are financial entities designated “swap dealers” or ”major swap participants.” Congress appropriately recognized that commercial entities, like electricity suppliers and large consumers, managing their risks should not be forced to clear and therefore should not be classified as swap dealers or major swap participants. It was also not their intent to mandate margin requirements for transactions with commercial entities.
 
These aspects of the financial reform effort now shift to the implementation phase at the Commodity Futures Trading Commission (CFTC). It is incumbent on beneficiaries of these derivatives transactions to vigorously participate in the regulatory process to make sure the important regulatory details are correctly written. It is also critical for Congress to closely monitor and oversee the agencies to ensure that their legislative intent is appropriately carried out. 
 
Both the Electric Power Supply Association (EPSA) and Safeway will continue to be actively involved in this process. We hope other companies and organizations join us, as COMPETE has over the last year, in ensuring the risk management tools fundamental to keeping electricity prices affordable, as well as enabling the development of clean electricity infrastructure, continue to be cost effectively used. As Congress recognized, the electricity industry did not start the financial crisis nor does it constitute a systemic risk to the economy. Getting the details right at the CFTC matters and all those affected, suppliers as well as customers, should ensure their voices are heard at the CFTC.
 
By John E. Shelk, President & CEO, Electric Power Supply Association, and Joe Pettus, Senior Vice President of Fuel and Energy at Safeway. EPSA, is the national trade association representing competitive power suppliers, including generators and marketers. Safeway is a commercial food and drug retailer with 1,775 stores across the U.S. and Canada. Both organizations are members of the COMPETE Coalition.

John Shelk and Joe Pettus | August 24, 2010