APPA applauds reintroduction of the Public Power Risk Management Act

April 28, 2015

Press Release

Washington, D.C., April 28, 2015—The American Public Power Association (APPA) today applauded the reintroduction of the Public Power Risk Management Act of 2015 (PPRMA) by Congressmen Doug LaMalfa (R-CA) and Jim Costa (D-CA), and Senators Joe Donnelly (D-IN) and James Inhofe (R-OK).

PPRMA codifies welcome changes to swap dealing rules adopted by the Commodity Futures Trading Commission (CFTC) in 2014 which ensured that public power utilities have access to all types of counterparties in risk-hedging swap transactions—not just big banks and national/multinational energy dealers.

Electric power utilities, including public power utilities, often rely on swaps to hedge the risk of fluctuations in the price of power (and the price of fuel for power). Hedging these risks allow public power utilities to keep electric power rates lower and predictable. However, because electric power markets have incredible regional diversity, standard swap contracts are often inadequate to hedge these risks and regional counterparties must be found to provide the level of customization necessary. These counterparties include regional utilities, natural gas distributors, and independent power generators.

Previous CFTC regulations had driven non-financial entities from being willing to act as counterparties to such swaps with public power utilities.

“The CFTC appropriately and responsibly amended its rules to address this issue in 2014,” said APPA President and CEO Sue Kelly said. “Introduction of the Public Power Risk Management Act today is a welcome step toward ensuring that this relief is permanent.”

The legislation is substantively the same as H.R. 1038 and S. 1802, the House and Senate versions of the Public Power Risk Management Act of 2013. H.R. 1038 passed the House 423-0 in 2013 and S. 1802 had 15 bipartisan cosponsors in the Senate, but failed to advance during an end of session logjam in December 2014.

The bill as introduced today include some clarifications and simplifications to more closely align the legislation with regulations adopted by the CFTC, further ensuring that no further action by the commission should be necessary if PPRMA is enacted. One substantive change to the bill would allow CFTC to reconsider the types of transactions that can qualify for the relief. CFTC can only approve such a change as part of a rule or order and only after consultation with the appropriate regulatory commissions, such as the Federal Energy Regulatory Commission and state or local public utility commissions. APPA does not think the provision is strictly necessary, but believes CFTC will act in good faith if it does decide to make use of the authority.

Among the stakeholders supporting the legislation are the U.S. Chamber of Commerce, Public Citizen, the Consumer Federation of America, the Edison Electric Institute, and the Commodities Markets Oversight Coalition.