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Public power utilities advised to begin preparing for life under Dodd-Frank rules


From the October 17, 2012 issue of Public Power Daily

Originally published October 17, 2012

By Robert Varela
Editorial Director

Don’t assume that your utility will be exempt from Dodd-Frank Act regulations because it is "just an end-user" and "just hedging," attorney Patricia Dondanville said in advising public power utilities on what they can do now to prepare for regulation by the Commodity Futures Trading Commission. And don’t assume all your power, fuel, renewable energy certificate and interest rate transactions will be exempt, Dondanville, APPA’s outside counsel for CFTC issues, told APPA’s Legal Seminar Oct. 15. 

Public power utilities should anticipate new regulatory compliance challenges and increased costs, especially during the transition to a new market structure for derivatives under Dodd-Frank, Dondanville said.

Evaluate your commodity transactions, which could include futures and exchange-traded options, "real swaps," commodity forward transactions and commercial agreements, regional transmission organization transactions and bilaterals, etc., Dondanville advised. Determine who you are and who your counterparty is under Dodd-Frank—a special entity, "appropriate person" for an exemption order, "exempt entity," financial entity, commercial entity or commercial market participant, etc., she said.

Public power utilities need to understand the questions they will be asked by counterparties and the CFTC, in representations, waivers and certifications, Dondanville said. 

Review your agreements with vendors, agents and asset managers, Dondanville said. Utilities also should review their finance and commodity risk management programs and their regulatory and compliance programs, she said. Strengthen internal compliance processes and consider steps to encourage internal reporting by potential whistleblowers, she said. Since whistleblowers are eligible for potentially hefty rewards for reporting to the CFTC, some utilities are  considering offering rewards for internal reports, she said.

Evaluate final rules issued by the CFTC and monitor effective, compliance and phased implementation dates that apply to categories of swaps used by your utility, Dondanville advised attendees of the Legal Seminar. Public power utilities need to be aware of approaching dates for registered swap dealers and major swap participants to comply with  documentation and reporting rules, and also be on the lookout for the final margin rules applicable to swap dealers and major swap participants, she said.

Review (along with your information technology staff) the final swap reporting rules, Dondanville said, in anticipation of the spring 2013 compliance dates for reporting transactions between  nonfinancial entities and non-swap dealer/major swap participants.


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