CFTC dials back Dodd-Frank

Commission votes to exempt producers, utility and other non-financial entities from registering as swap dealers.

In its first meeting since three new commissioners joined the Commodity Futures Trading Commission, the regulatory body voted 4-0 Wednesday to exempt producers, utility companies and other non-financial entities from being required to register as swap dealers when they enter into energy contracts with government-owned utilities. 

The rule largely reflects the intent of H.R. 1038, the Public Power Risk Management Act, which was sponsored by Rep. Doug LaMalfa (R., Calif.). The House Agriculture Committee advanced this bipartisan bill that ultimately won unanimous support on the House floor last year. Further, it was included within H.R. 4413, the Customer Protection and End-User Relief Act, that passed in the House this summer.

"I am pleased this is the agenda and outcome of the first open meeting under Chairman [Tim] Massad's leadership. It is encouraging to see commonsense has prevailed on a regulatory issue that is critical to the livelihoods of so many. The House acted with one, united voice and I applaud the CFTC for following suit thereby protecting Americans from electricity and natural gas rate increases," said House Agriculture Committee chairman Frank Lucas (R., Okla.).

"Not only will the CFTC’s decision to implement this rule help to ensure continued growth in our agriculture sector, but most importantly, it will protect public power utilities’ access to risk management practices, and in turn, protect American ratepayers from escalating energy prices due to misguided regulations," said Rep. Doug LaMalfa.

The CFTC's regulations under the Dodd-Frank Act had strained the ability of public utility companies to use commodity swaps to manage risk in their operations. Non-financial entities can engage in up to $3 billion (subject to an initial three year phase-in level of $8 billion) in most swap activities, including with a private utility, before being regulated as a swap dealer. But with a public utility, they can only engage in $25 million in swap activities.

The restrictive regulations served as a deterrent for many to do business with public utilities, which limited the ability of public utilities to protect themselves and their customers from increased costs and market volatility.  Ultimately, this unequal and illogical treatment of public utilities would have caused Americans’ electric and natural gas rates to increase.

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