Energy groups pressure White House on derivatives rules

Natural gas and electricity trade groups are pressing the White House to ensure that regulations tightening controls on sprawling derivatives markets don’t create major new costs for energy companies that use them for protection against price volatility.

The groups want senior White House officials to weigh in with the Commodity Futures Trading Commission on its upcoming regulations that are among the various financial market reforms required under the sweeping Dodd-Frank financial reform law.

Seven groups including the Edison Electric Institute, the American Gas Association and the American Public Power Association on Tuesday wrote to White House Chief of Staff Jack Lew, National Economic Council Director Gene Sperling and Cass Sunstein, who is the top regulatory official at the White House Office of Management and Budget.

The energy companies, in a nutshell, worry that they’re getting unfairly swept up in rules to prevent the kind of freewheeling, risky Wall Street trading that helped spur the financial crisis.

The groups fear that energy companies use derivatives as a hedge against price risks will face increased margin and collateral costs that Congress sought to shield them from.

In the letter to the White House, the say the CFTC plan could allow energy companies to be unfairly lumped in with "swap dealers" that are the targets of the new controls.

“Currently, the CFTC’s proposed swap dealer rule is overly broad and would result in commercial end-users who use swaps to hedge their commercial risk and reduce price volatility for their customers being misclassified as swap dealers,” states the letter, which is also from the Electric Power Supply Association, the Independent Petroleum Association of America, the National Rural Electric Cooperative Association, and the  Natural Gas Supply Association.

The letter adds that “this action would needlessly increase the cost of hedging and reduce the capital available for capital investments and job creation by our members.”

It adds:

As you may know, derivatives provide electric and gas utilities, electricity providers, natural gas producers and energy companies with the ability to insulate our energy customers from wholesale commodity price volatility, and offer the stability and certainty that our respective members need to make critical capital investments that contribute to economic growth and job creation. However, the economic consequences of adopting an overly broad swap dealer rule will cause more harm to an already tumultuous economy with no regulatory gain.