National Rural Electric Cooperative Association (NRECA) CEO Glenn English, testifying before the House Energy and Environment Subcommittee, warned that provisions affecting electricity markets in the “Over-the-Counter Derivatives Markets Act of 2009” (HR 3795) could have unintended consequences.
English praised the efforts of House Agriculture Committee Chairman Collin Petersen (D-MN) to address the complicated issue of electricity markets fairly. At the same time, English expressed cooperatives’ concern about the impact of the legislation on utilities located in regions with Regional Transmission Organizations (RTOs) and who use RTO-administered transmission and energy markets. Under the bill, financial tools used by these utilities, such as “financial transmission rights” (FTRs) and “congestion revenue rights (CRRs),” would be treated as “swaps,” putting them under the jurisdiction of both the Commodities Futures Trading Commission (CFTC) and the Federal Energy Regulatory Commission (FERC), which currently has oversight.
NRECA is seeking a clarification in the definition of a “swap” that would exclude these financial tools. While NRECA believes the CFTC can play an important role in preventing market manipulation, NRECA also believes that FERC should maintain its exclusive jurisdiction over Regional Transmission Organizations (RTOs) and these transactions.
English pointed out that “[a]lthough H.R. 3795 includes a list of exclusions from the definition of ‘swap’ and exemptions from other provisions, none of the exclusions or exemptions appear to fit the FERC-regulated RTOs, RTO markets and RTO products.”
English reminded the committee members that the capacity markets at issue were created by Regional Transmission Organizations (RTOs) “at FERC’s direction, according to standards established by FERC, and are bought and sold pursuant to FERC-filed tariff.”
“Rural electric co-ops are concerned that the proposed regulation could impose duplicative and costly regulation on RTOs and jeopardize contracts for both FTR and capacity markets,” English said.
Shifting oversight to the CFTC could create problems, as the “CFTC does not have the same regulatory experience with power and transmission markets that FERC possesses,” said English, adding that “the CFTC does not have the same regulatory priorities – reliability and just and reasonable rates for electricity….”
English requested the Subcommittee to have the two commissions enter into a memorandum of understanding and have the CFTC and FERC “report back to Congress periodically on the ways in which both commissions are using their authority to avoid, reduce or eliminate duplicative and inconsistent regulation.”
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