Not-for-profit utilities commend CFTC proposal to provide permanent relief from hedging restrictions
Originally published July 14, 2014
The Not for Profit Electric Coalition commended the Commodity Futures Trading Commission (CFTC) on its proposal to amend its rules to provide permanent relief to public power utilities from a special entity de minimis rule that restricts their ability to hedge operational risks. The coalition, of which the American Public Power Association is a member, emphasized the need to treat government-owned electric or natural gas utilities (which are special entities under CFTC rules) no differently than investor-owned utilities that are also seeking to hedge commercial risks of utility operations.
Counterparties have now begun to offer utility operations-related swaps to utility special entities in reliance on the CFTC’s March 21, 2014 no-action letter, the coalition said, but utility special entities and counterparties alike have asked the commission to make the relief more permanent by means of a rule change. The CFTC’s proposed rule change would make permanent the relief provided by the 2014 no action letter, which in effect removed the special entity threshold for public power utilities, thus allowing them to hedge their power supply risks on an even playing field with other electric power providers.
The coalition urged the commission to make a few changes to the proposed rule, in particular the notification and recordkeeping requirements for counterparties. Those requirements would increase the cost of transactions and dampen the willingness of counterparties to engage in swap transactions with utility special entities, the coalition said in its July 2 comments.
When a utility special entity hedges commercial risks arising from its utility operations, it is not engaged in commodity or derivatives trading or speculation, the coalition said. "To the contrary, the utility special entity is hedging commercial risks that arise from its ongoing utility operations."
The members of the Not for Profit Electric Coalition are APPA, the Large Public Power Council, National Rural Electric Cooperative Association, and Bonneville Power Administration.
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