FEC Questions Derivative Use

Fortnightly Magazine - February 15 1995
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The Federal Energy Regulatory Commission (FERC) will allow Aquila Power Corp., a power marketing subsidiary of UtiliCorp United Inc., to sell electricity at market-based rates, and has approved open-access transmission tariffs for UtiliCorp (Docket Nos. ER95-203-000 and ER95-216-000). Commissioner William L. Massey used the case as an opportunity to state on the record that the FERC needs a better understanding of derivatives and their use in financial management.

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Aquila had asked the FERC to say that it lacks jurisdiction over risk-management transactions by power marketers. But the FERC said it intends to consider risk-management transactions in another order in the future.

Massey said that "power marketers are welcome in the market as long as they play by the rules." He added that appropriate and prudent use of derivatives can help manage risks, but cited the Orange County debacle as reason for caution. Massey noted that FERC will soon open a generic proceeding on reporting requirements for power marketers, and queried whether the FERC should use that docket to impose reporting requirements on the use of derivatives.

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