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Energy groups pressure White House on derivatives rules

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.

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