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FERC, CFTC Officials Provide Regulatory Update to Energy Marketers

While FERC waits to hear what its role will be under the Clean Power Plan (CPP) being formulated by the U.S. Environmental Protection Agency (EPA), one of its five commissioners said he is more concerned about infrastructure issues with natural gas, not limiting access to abundant supplies.

Meanwhile, the chairman of the U.S. Commodity Futures Trading Commission (CFTC) said the agency has fined-tuned several rules governing derivatives to enhance trading for end users, and is working to finish the few remaining rules required under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

During a keynote address at the National Energy Marketers Association annual National Energy Restructuring Conference in Washington, DC, Federal Energy Regulatory Commissioner Philip Moeller said the United States was entering a "new era of interesting reliability challenges," as 10 GW of coal-fired units at power plants are retired by the end of May.

"The fundamental transformation that's happening in such a short amount of time is really profound. It's not universal; it's not ubiquitous; it hits some parts of the country more heavily than others, but I think we have to be prepared," Moeller said at the April 30 conference, warning that extreme weather and security issues could make things difficult. "We're on a relatively smooth and steady road right now without a lot of potential dangers on the road ahead, but it won't take much to throw off our smooth and steady ride."

On the CPP, Moeller said his "main concern all along has not been with the motivation or the goals of cleaning up the grid. That I support. My concern has been -- as someone who is a proponent and a supporter of the interstate wholesale markets -- the fact that you have 47 state plans kind of plopped onto vibrant interstate commerce is inelegant at best, and perhaps creates some real challenges in terms of how markets actually function.

"If [the CPP] adds to inefficiencies, if certain footprints cannot fully deploy or dispatch the way they do now, that actually could increase emissions, which would be counter to what the goal of the CPP is. So that has to be very concerning. In the meantime, we try to be proactive and at least working with the EPA to make sure they are aware of our concerns, so that they can deal with them."

Moeller said EPA was still determining what FERC's role will be under the CPP. "We'll have to see what they do come up with," he said, adding that the Commission would more than likely be working with the North American Electric Reliability Corp. (NERC), regional market operators, states and the reliability entities. Together, they could be tasked with analyzing state compliance plans and how they all fit together.

"It's hard to define what FERC's role should be," Moeller said. "I believe our motivating factor is we don't want to be put in a position where we're given kind of a 'paper responsibility' without the actual ability to affect decisions -- so that if something goes wrong, we're not in the position where we get the blame but we didn't have anything to do with how we could have prevented it."

Moeller said North America was blessed with a bounty of natural gas, "and technology is only going to allow us to find more of it. I'm not saying I endorse this, [but] as a society we may restrict access to some of those supplies -- either by setting aside certain areas or potentially affecting methods of production. But I'm very bullish on the long-term supply of gas.

"And yet, it goes to the paradox of pipes and wires. Another vulnerability of the CPP is that you can't snap your fingers and just suddenly have more transmission lines and gas pipelines. I love the poignant [fact] that last winter, the most expensive natural gas prices in the world were in New England, and they were 100 miles away from the cheapest gas in the world. That was solely restricted by a lack of pipeline capacity. That's pretty telling, and there are now some live proposals there."

Moeller said FERC has made a lot of progress with NERC on gas-electric coordination issues since the massive power outage in the southwest in February 2011 (see Daily GPI, Feb. 7, 2011).

"We put out a proposal to add nomination schedules and change the gas day, [and] we were extraordinarily successful in unifying the gas industry in opposition," Moeller quipped, which drew laughter from attendees. "Those issues haven't gone away. The next set [of issues involve asking whether] we have the proper financing mechanisms to get more [pipelines] when the new customer base is a gas plant that may or may not run on a daily basis. We'll see where that goes."

Moeller's term as FERC commissioner expires on June 30.

In a separate speech, CFTC Chairman Timothy Massad said his commission has made it easier for local utility companies to access the energy swaps market, after unanimously approving a change to the swap dealer registration threshold for transactions with special entities (see Daily GPI, Sept. 17, 2014). He added that the CFTC had voted that day to issue a proposed rule revising the rules for trade options -- specifically, to reduce reporting and recordkeeping requirements for trade options, and eliminating the requirement to file Form TO.

"We will continue to look at ways that we can make sure commercial end-users can use these markets effectively and to make sure that the new regulatory framework for swaps does not impose unintended consequences or burdens for them," Massad said.

Massad added that the CFTC needed to finalize rules on position limits and margin for uncleared swaps transactions. The commission proposed rules on both in November 2013 (see Daily GPI, Nov. 5, 2013; Nov. 4, 2013).

"Since that time, we have received and benefited from substantial input during the notice and comment process, including through roundtables and face-to-face meetings," Massad said. "I know that the provisions pertaining to bona fide hedging are an area of keen interest.

"This is vitally important. We must make sure that market participants can still engage in bona fide hedging. And we appreciate that hedging strategies vary and are often complex. There are many other aspects to this rule that are complex, such as making sure deliverable supply estimates are based on good data. And so we are considering comments carefully and taking the necessary time to get this right."

On a proposed rule on margin for uncleared swaps transactions, Massad said, "our rule makes clear that swap dealers are not required to collect margin from end-user counterparties, recognizing that the activities of commercial end-users in the derivatives markets do not create the same types or degree of risk as with large financial institutions. But I mention this rule to you because of its importance to reducing risk in our financial system as a whole."

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