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CFTC Commissioner Chilton proclaims 'Bill of Rights' for end-users

From the April 4, 2013 issue of Public Power Daily

Originally published April 4, 2013

By Jeannine Anderson
Citing the April 10 date for end-user compliance with Dodd-Frank swap reporting rules, Commissioner Bart Chilton of the Commodity Futures Trading Commission yesterday announced 10 principles designed to protect consumers and end-users as the CFTC carries out the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Point No. 8 in the set of principles, which Chilton called the "End-User Bill of Rights," says public power end-users that are using swaps to hedge commercial risk "should have the same access to risk management markets as privately owned utilities." APPA applauded the commissioner’s action with a statement posted in the association's Newsroom.

Under the Dodd-Frank swap dealer rules, an entity does not have to register as a swap dealer as long as its swap dealing activity falls below two thresholds: $8 billion overall and $25 million for transactions with special entities, a category that includes public power utilities. Since the rule went into effect, nonfinancial counterparties have been refusing to enter into swaps with public power utilities because they do not want to exceed the $25 million special entity threshold, said APPA Director of Statistical Analysis Diane Moody, who participated in Commissioner Chilton’s conference call announcing the Bill of Rights. 

These nonfinancial counterparties, including investor-owned utilities, merchant generators, and natural gas suppliers, "are particularly important as counterparties to public power utilities because they operate in the same physical markets as public power and can provide customized products," Moody said.

"Fewer available counterparties means that public power utilities are spending more to hedge their risks," she  said. "The alternative is to go unhedged and be exposed to greater price volatility," driving up electricity prices for public power consumers.

Last summer, APPA filed a petition with the CFTC asking it to count government-owned utilities’ swaps related to utility operations toward the overall threshold but not toward the special entity threshold. "This would allow government-owned utilities to enter into swaps with the same counterparties as do investor-owned and cooperative utilities and manage their operations-related risks in the same manner," Moody said.

APPA hopes the commission will grant its petition, Moody said. Meanwhile, the association is also working with Congress to urge enactment of H.R. 1038, the Public Power Risk Management Act of 2013, which would have the same effect as the petition, she said.

Under the CFTC's swap dealer rules, "your ultimate consumers could be paying more because we haven't done what I think we should do," Chilton told Moody yesterday in the conference call announcing the End-User Bill of Rights. 

The eighth point in the Bill of Rights reads as follows:

"8. Right to hedge.  While limits on speculation are critical to returning commodity markets to their principal role as risk management markets, the Commission should be sensible in coming up with standards for bona fide hedging.  Speculative position limits should encourage and not unduly complicate prudent commercial risk management practices.  Public power end-users using swaps to hedge commercial risk should have the same access to risk management markets as privately-owned utilities.  This should be done through regulatory relief or, if need be, it could be done through passage of H.R. 1038."

Among the other principles are No. 1, "Right to reasonable Dodd-Frank implementation," which says the commission should not take enforcement action against any end-users who are seeking in good faith to comply until after Oct. 31; and No. 2, "Right to legal certainty," which says the CFTC should "provide the market with as much legal certainty as possible as we  move through a challenging implementation period."

"End-users were not the culprit or the cause of the financial crisis" that led to the Dodd-Frank Act, Chilton told reporters and others during yesterday's conference call. When it drafted Dodd-Frank, Congress had the interests of end-users in mind. Accordingly, end-users "should expect a right to reasonable implementation" of that law, he said. "We need to be expeditious, but we also need to do it in a way that's not overly harsh -- in a way that is textured, and granular to how people actually do business," the commissioner said.

Russ Wasson, director of tax, finance and accounting policy for the National Rural Electric Cooperative Association, said during the call that NRECA would like to see a CFTC division devoted to end-users, and would recommend an end-user section on the CFTC's website. "I suspect many end-users have similar questions" that could be answered via a website, he said.

Wasson urged the CFTC to provide prompt responses to end-users questions about the commission's regulations before it begins to enforce regulations. "Electric utilities are very compliance-oriented," he said, but "we need time to comply without disrupting our business."

Chilton was apologetic on behalf of the CFTC, which he said has not given adequate guidance to end-users, especially to end-users (such as utilities) who never have been subject to commission rules before. 

"I think we should have done a better job," he said. "You're a week away from having people comply, and they don't even know what the rules are yet? Shame on us!"

"We have put businesses in a predicament," he added.

Chilton's statement, along with the complete End-User Bill of Rights, is posted on the CFTC's website.


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Senior Vice President, Publishing 
Jeanne Wickline LaBella

Editorial Director
Robert Varela

Editor, Public Power Daily
Jeannine Anderson

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Fallon W. Forbush

Manager, Integrated Media 
David L. Blaylock

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Laura D’Alessandro