Senate Banking Chairman Christopher Dodd's (D-CT) decision to retire at the end of 2010 may increase the chances for financial regulatory reform legislation to clear the Senate this year, said natural gas producers and industrial customers.
"Now that the pressure of reelection is off this will allow him to continue in a bipartisan mode...I don't think his retirement is necessarily a bad thing," said Susan Ginsberg, vice president of crude oil and natural gas regulatory affairs for the Independent Petroleum Association of America (IPAA).
The Senate's financial regulatory reform measure is expected to be multifaceted -- sweeping banking and financial reforms and more targeted reforms to limit speculation in energy commodity markets. Natural gas producers and end-users are most focused on aspects of the Senate bill that would give the Commodity Futures Trading Commission (CFTC) greater oversight and transparency of commodity trading markets, including the heretofore unregulated over-the-counter (OTC) derivatives market.
Derivatives, which were blamed in part for the financial meltdown in late 2008, are used by energy producers and large consumers to hedge against price fluctuations and other business risks.
'If you're just focusing on derivatives [portion of the reform bill], his retirement makes it more likely a bipartisan package can be crafted" and passed this year, Ginsberg told NGI . However, "if you're looking at the sweeping reforms," such as consolidating the Office of the Comptroller of Currency, "those are less likely to take place," she said.
The broader regulatory reforms, Ginsberg said, "were in trouble to begin with" even prior to Dodd's announcement last Wednesday of his plans not to run for a sixth term in the U.S. Senate.
Dodd's plans to retire "brings greater certainty that financial reform will be completed this year. His approach will be less political," said Paul Cicio, president of the Industrial Energy Consumers of America (IECA).
"I think this is a good thing. He'll put the very best legislative package together for the country. He doesn't have to worry about what Wall Street thinks" if he's not running for reelection, he said.
Unlike Ginsberg, Cicio believes that Dodd's planned retirement clears the way for the broader banking reforms, as well as reform of commodity trading and OTC derivatives markets. "I think reform of commodity trading is a high priority regardless of what happens to Dodd. And banking reform [has an] increased chance because of his retirement. Dodd now is free to pursue this, establish a legacy of financial reform, before he retires," Cicio noted.
Two committees have jurisdiction over financial regulatory reform legislation in the Senate -- Banking and Agriculture. The banking panel has established three working groups to craft legislation. Sens. Jack Reed (D-RI) and Sen. Judd Gregg (R-NH) are heading up a panel working on OTC derivatives, according to IPAA's Ginsberg. A committee measure may be ready when the Senate returns later this month.
The Dodd discussion draft for regulatory reform, which was circulated in November, was primarily to get the process started, and it no longer is being considered, Ginsberg said (see NGI, Nov. 16, 2009). The Senate agriculture panel is expected to come out with its own bill, possibly later this month. Agriculture Chairman Blanche Lincoln (D-AR) in December said an OTC derivatives bill was a "high priority" of the panel.
IECA's Cicio said he wants the Senate bill to take its cue from the House measure, which passed in December and gave more responsibility to the CFTC to oversee the OTC derivatives market and limit excessive speculation in the commodities markets (see NGI, Dec.14, 2009). The House measure exempted "end-users" and commercial traders who use OTC derivatives to hedge commercial risk from being centrally cleared and traded on regulated exchanges.
"We support clearing for speculators, but not for bona fide hedgers." Requiring industrial gas consumers to clear their transactions would "substantially increase" the costs of buying gas, Cicio said.
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