Wall Street reform hits the utility business.
Utilities, long accustomed to regulation by FERC and state PUCs, now face extensive regulation of their energy trading activities by the Commodity Futures Trading Commission (CFTC). Under the Wall Street Reform and Consumer Protection Act—commonly known as Dodd-Frank—signed into law July 21, 2010, energy swap contracts may be subject to new capital, margin, reporting, business conduct, and other requirements that likely will increase their trading costs and create new compliance concerns.
Utilities and other energy companies should be particularly interested in the scope and applicability of an end-user exemption tied to the hedging of “commercial risk”—a term that’s expected to be further defined in one of the more than 60 implementing rulemakings the CFTC will be undertaking within the next year. Close monitoring of these rulemakings will be important for any company trading in energy contracts to ensure compliance with the final CFTC requirements.