A coalition of four energy associations has requested that the Commodity Futures Trading Commission (CFTC) provide clarification guidance for a rule establishing limits on speculative positions in 28 core physical commodity contracts, including four energy contracts, which is due to go into effect in September.
“Unlike other aspects of its regulatory implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act…the Commission has offered no formal guidance to assist market participants in understanding what is expected of them by the Position Limits Rule,” according to a letter sent to the CFTC by the Coalition of Physical Energy Companies, Electric Power Supply Association, Edison Electric Institute and Natural Gas Supply Association.
“Given that the Commission approved the final rule further defining the term ‘swap’ on July 10, 2012 [see Daily GPI, July 11], guidance must be provided sufficiently in advance of the effective date of the rules such that it may be assimilated and implemented in the compliance programs of market participants,” said the energy associations. To date, the associations’ requests for guidance have garnered only informal “good faith efforts” from CFTC staff “to provide its views informally,” they said.
The associations requested CFTC provide guidance “concerning the proper techniques to calculate ‘gross notional amount,'” and requested that CFTC “establish a safe harbor for good faith efforts to comply with the rule…”
The CFTC in October voted out the rule to curb excessive speculation in commodity futures contracts and economically equivalent swaps (see Daily GPI, Oct. 19, 2011). The rule established limits on speculative positions in 28 core physical commodity contracts, four of which are energy contracts: Nymex Henry Hub Natural Gas, Nymex Light Sweet Crude Oil, Nymex New York Harbor Gasoline Blendstock and Nymex New York Harbor Heating Oil. Spot-month position limits for any of the referenced 28 contracts will be set at 25% of estimated deliverable supply.
In a separate filing with the CFTC, a quintet of energy industry groups asked for a narrow exclusion from swap dealer rules set to take effect on July 23.
“Under these rules, government-owned electric and gas utilities would see their ability to hedge against operational risks substantially hindered,” according to a petition filed by the American Public Power Association (APPA), the Large Public Power Council, the American Public Gas Association, the Transmission Access Policy Study Group and the Bonneville Power Administration. “Under the exclusion being sought, government-owned utilities’ swap transactions related to hedging the commercial risks of utility operations would not count toward the rule’s de minimis threshold for swap dealing activity with special entities.”
The groups have been working with the CFTC since the final swap dealer regulations were released earlier this year, according to APPA CEO Mark Crisson. “We will continue to work with them, but with these regulations soon set to take effect, we needed to act.”
In April the CFTC defined swap dealers as those companies that trade less than an aggregate of $8 billion in swaps annually during an initial phase-in period, but left in place a $25 million threshold on swaps with “special entity” counterparties (see Daily GPI, April 19).
“As a result, entities that do not want to be swap dealers (many natural gas producers, independent generators, and utility companies, for example) will severely limit their swap dealing activities with government-owned utilities to avoid reaching the $25 million threshold,” the energy industry groups said.
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