NRECA Warns on Financial Reg Costs

By Steven Johnson Published: July 26, 2011

NRECA CEO Glenn English has warned lawmakers that overzealous implementation of a landmark financial reform act by the Commodity Futures Trading Commission could undermine co-ops’ ability to provide stable, affordable power to their members.

 

In testimony to the House Agriculture Committee , English said the CFTC should interpret the 2010 Dodd-Frank law to exclude small entities like cooperatives from regulations designed to apply to much larger players.

“Rural electric cooperatives are not financial entities, and therefore should not be burdened by new regulation or associated costs as if we were financial entities,” English said at a July 21 hearing on the impact of the law on small businesses.

The CFTC is still wrestling with putting the law into practice  and has extended until Dec. 31 the deadline for finalizing rules to regulate “swaps,” which include traditional commercial transactions and commodity derivatives.

Co-ops are minor players in the $600 trillion global derivatives market, but use swaps as one tool to control costs by reducing the commercial risks associated with electricity and capacity, English said.

Cooperatives are not in the speculation business, he said, cautioning that driving up the price of commodity derivatives through regulation would lead to price risks and cost increases that would be passed on to members.

Instead, the CFTC should define “swaps” to exclude the kinds of nonfinancial commodity contracts on which co-ops rely.

English also said the CFTC should follow the intent of Congress and exempt entities like cooperatives that use swaps solely to hedge commercial risk obligations.

“If properly implemented by regulation, that exemption would leave millions of dollars in electric consumers’ pockets that might otherwise sit in margin accounts or be paid in capital fees to financial institutions.”

Committee Chairman Frank Lucas, R-Okla., said he will continue to watch CFTC as it proceeds with its regulations under the Dodd-Frank law.

“If a rural electric cooperative finds itself in the same regulatory category as Goldman Sachs, the CFTC simply doesn’t have it right. We need to bring some balance and common sense back to this process,” he said.

The National Rural Electric Cooperative Association (NRECA) is the national service organization for the 900 not-for-profit rural electric cooperatives and public power districts providing retail electric service to more than 42 million consumers in 47 states. 


Article printed from ECT.coop: http://www.ect.coop

URL to article: http://www.ect.coop/public-policy-watch/legislation/nreca-warns-on-costs-of-financial-regs/32091

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