CONGRESSWOMAN ELISE STEFANIK
On Wednesday, June 12, 2013, the House will consider H.R. 1038, the Public Power Risk Management Act of 2013,under a suspension of the rules. The bill was introduced on March 11, 2013 by Rep. Doug LaMalfa (R-CA) and referred to the Committee on Agriculture, which held a mark-up and reported the bill by voice vote.
H.R. 1038 creates a new category of swaps known as the “utility operations-related swap”, which is defined as being related to the production or generation of electric energy or natural gas. The bill categorizes counterparties of utility special entities that are engaged in utility operations-related swaps under the general de minimis registration threshold of $8 billion, instead of the much lower special entity registration threshold.
In effect, this provision removes potentially burdensome registration requirements for parties that engage in utility operations-related swaps with utility companies, helping to ensure that there are enough swap partners to sufficiently mitigate risk. However, to ensure transparency, all special entity swap transactions are still required to be reported to the Commodity Futures Trading Commission (CFTC).
In 2012, the CFTC published a rule that further defined who is considered a “swap dealer” under the Dodd-Frank Act. Under the rule, entities do not have to register as a “swap dealer” if their annual gross notional swap positions do not exceed one of two thresholds: (1) $8 billion (phased-down to $3 billion), known as the “general de minimis threshold”; or (2) $25 million for swaps with a “special entity,” known as the “special entity threshold.”
Dodd-Frank broadly defined a special entity to include any government-owned enterprise, including publicly-owned natural gas and electricity utility companies. Many private companies that engage in swaps with public utilities, however, have reported that they may have to stop doing business with public utilities if they have to register as a swap dealer. By including public utility companies under the special entity threshold, this provision has threatened to remove a key tool for public utilities to hedge against operational risks. Thus, taxpayers may actually face increased costs as a result of a provision originally intended to protect them from risk.
H.R. 1038 exempts these private companies from the special utility threshold and instead places them under the general de minimis threshold, thereby removing the threat to taxpayers and public natural gas and electricity companies.
According to CBO, pay-as-you-go procedures apply because it could affect direct spending. However, CBO estimates that “the net effect on direct spending would not be significant in any year.”