Comment Text:
10-002
COMMENT
CL-08285
From:
Sent:
To:
Subject:
Attach:
Robin Lunt
Monday, April 26, 2010 12:05 PM
secretary
Proposed Federal Speculative Position Limits for Referenced Energy Contracts
and Associated Regulations
NARUC Comments on Federal Speculative Limits for Energy Contracts.pdf
Please find attached the comments of the National Association of Regulatorv Utilitv Commissioners regarding
CFTC's Proposed Federal Speculative Position Limits for Referenced Energv Contracts and Associated Regulations
RIN 3038-AC85.
Robin J. Lunt
Assistant General Counsel
National Association of Regulatory Utility Commissioners
202-898-1350 (direct)
202-898-1559 (fax)UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
Federal Speculative Position Limits for
Referenced Energy Contracts and
Associated Regulations
)
)
)
RIN 3038-AC85
COMMENTS OF THE
NATIONAL ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS
The National Association of Regulatory Utility Commissioners ("NARUC") appreciates
the opportunity to provide comments to the Commodity Futures Trading Commission (CFTC) on
the issue of Federal Speculative Position Limits for Referenced Energy Contracts and Associated
Regulations RIN 3038-AC85.75 Fed. Reg. 4144 (Jan. 26, 2010).
INTRODUCTION
NARUC is the national organization of the State commissions responsible for economic
and safety regulation of the retail operations of utilities. Specifically, NARUC's members have
the obligation under State law to ensure the establishment and maintenance of such energy utility
services as may be required by the public convenience and necessity, as well as ensuring that
such services are provided at just and reasonable rates. NARUC's members include the
government agencies in the fifty States, the District of Columbia, Puerto Rico, and the Virgin
Islands charged with regulating the rates and terms and conditions of service associated with theintrastate operations of electric, natural gas, water, and telephone utilities. Both Congress
1
and
the federal courts
2
have long recognized NARUC as the proper party to represent the collective
interests of State regulatory commissions. Our members are concerned about the consumer
impacts of hedging and excessive speculation and encourage regulation that minimizes volatility.
COMMENTS
NARUC is concerned about price volatility, market manipulation and other practices that
may unnecessarily increase the price of natural gas and other energy commodities. As regulators
we strive to ensure that natural gas prices are just and reasonable. Our member commissions
have an obligation to inform consumers, businesses and State policymakers about the causes of
increased natural gas prices. In July of 2008, in response to increasing prices and volatility in the
natural gas market, NARUC formed a working group to study and issue a report to NARUC
about the factors that may affect the price consumers pay for natural gas. This working group
was established through a NARUC policy resolution, and has resulted in an additional resolution.
These resolutions establish NARUC policy and are attached.
See
47 U.S.C. § 410(c) (1971). (Congress designated NARUC to nominate members of Federal-State Joint
Boards to consider issues of concern to both the Federal Communications Commission and State regulators with
respect to universal service, separations, and related concerns); Cf 47 U.S.C. § 254 (1996) (describing functions of
the Joint Federal-State Board on Universal Service). Cf
NARUC, et al. v. ICC,
41 F.3d 721 (D.C. Cir 1994) (where
the Court explains "... Carriers, to get the cards, applied to... [NARUC], an interstate umbrella organization that, as
envisioned by Congress, played a role in drafting the regulations that the ICC issued to create the 'bingo card'
system").
2
See United States v. Southern Motor Carrier Rate Conference, Inc.,
467 F. Supp. 471 (N.D. Ga. 1979),
aff'd
672 F.2d 469 (5th Cir. 1982),
aff'd en banc on reh 'g,
702 F.2d 532 (5th Cir. 1983),
rev'd on other grounds',
471
U.S. 48 (1985).NARUC supports the efforts of the CFTC and the Federal Energy Regulatory
Commission to promote and protect efficient natural gas markets with transparent pricing based
on market fundamentals that ensure that the price consumers pay for gas reflects the underlying
cost of the commodity. We recognize that CFTC has jurisdiction to prevent fraud, manipulation
and other abusive practices that relate to the sales of commodities and financial futures and
options and that the CFTC tries to foster open, competitive, and financially sound futures and
options markets. NARUC looks forward to working with the CFTC to ensure that consumers
are protected from price volatility in the cost of natural gas due to excessive speculation caused
by market manipulation.
Many utilities use
bona fide
or legitimate hedging practices to mitigate price volatility.
But in the last 5 years speculation in the natural gas market has increased dramatically with over
90% of trades coming from market participants who do not intend to take delivery of the
commodity. This speculation may drive up natural gas prices and negatively impact consumers.
While we oppose excessive speculation in the natural gas and other commodities
markets, NARUC supports legitimate hedging activities by electric and natural gas utilities to
manage the risk of price volatility and mitigate price impacts of such volatility on consumers.
To the extent that CFTC's proposed rule would limit the speculative positions of traders while
supporting
bona fide
hedges, NARUC supports the proposed rule. The proposed regulationwould establish three exemptions to the speculative position limits including one for
bona fide
transactions generally consistent with existing CFTC regulation 1.3(z) (1)-(2).
3
17 C.F.R. § 1.3(z);
See
75 Fed. Reg. 4149 (c.2). "(z) Bona fide hedging transactions and positions--
(1) General definition. Bona fide hedging transactions and positions shall mean transactions or positions in a
contract for future delivery on any contract market, or in a commodity option, where such transactions or positions
normally represent a substitute for transactions to be made or positions to be taken at a later time in a physical
marketing channel, and where they are economically appropriate to the reduction of risks in the conduct and
management of a commercial enterprise, and where they arise from:
(i) The potential change in the value of assets which a person owns, produces, manufactures, processes, or
merchandises or anticipates owning, producing, manufacturing, processing, or merchandising,
(ii) The potential change in the value of liabilities which a person owns or anticipates incurring, or
(iii) The potential change in the value of services which a person provides, purchases, or anticipates providing or
purchasing.
Notwithstanding the foregoing, no transactions or positions shall be classified as bona fide hedging unless their
purpose is to offset price risks incidental to commercial cash or spot operations and such positions are established
and liquidated in an orderly manner in accordance with sound commercial practices and, for transactions or
positions on contract markets subject to trading and position limits in effect pursuant to section 4a of the Act, unless
the provisions of paragraphs (z)(2) and (3) of this section and §§ 1.47 and 1.48 of the regulations have been
satisfied.
(2) Enumerated hedging transactions. The definitions of bona fide hedging transactions and positions in paragraph
(z)(1) of this section includes, but is not limited to, the following specific transactions and positions:
(i) Sales of any commodity for future delivery on a contract market which do not exceed in quantity:
(A) Ownership or fixed-price purchase of the same cash commodity by the same person; and
(B) Twelve months' unsold anticipated production of the same commodity by the same person provided that no such
position is maintained in any future during the five last trading days of that future.
(ii) Purchases of any commodity for future delivery on a contract market which do not exceed in quantity.
(A) The fixed-price sale of the same cash commodity by the same person.
(B) The quantity equivalent of fixed-price sales of the cash products and by-products of such commodity by the
same person; and
(C) Twelve months' unfilled anticipated requirements of the same cash commodity for processing, manufacturing, or
feeding by the same person, provided that such transactions and positions in the five last trading days of any one
future do not exceed the person's unfilled anticipated requirements of the same cash commodity for that month and
for the next succeeding month.
(iii) Offsetting sales and purchases for future delivery on a contract market which do not exceed in quantity that
amount of the same cash commodity which has been bought and sold by the same person at unfixed prices basis
different delivery months of the contract market, provided that no such position is maintained in any future during
the five last trading days of that future.
(iv) Sales and purchases for future delivery described in paragraphs (z)(2)(i), (ii), and (iii) of this section may also be
offset other than by the same quantity of the same cash commodity, provided that the fluctuations in value of the
position for future delivery are substantially related to the fluctuations in value of the actual or anticipated cash
position, and provided that the positions in any one future shall not be maintained during the five last trading days of
that future."When considering the rule and its exemptions, NARUC encourages CFTC to protect the
public from excessive speculation, fraud, and market manipulation that will negatively impact
consumers, while also considering the role that legitimate hedging plays in reducing price
volatility.COMMUNICATIONS
All pleadings, correspondence, and other communications related to this
should be addressed to the following person:
Robin J. Lunt
Assistant General Counsel
National Association of Regulatory Utility Commissioners
1101 Vermont Avenue, N.W., Suite 200
Washington, D.C. 2005
Phone: 202.898.1350
Fax: 202.898.2213
Email:
[email protected]..:..o..rg
Respectfully submitted,
proceeding
James Bradford Ramsay
GENERAL COUNSEL
Robin J. Lunt
ASSISTANT GENERAL COUNSEL
By:
/s/
Robin J. Lunt
National Association of Regulatory Utility Commissioners
1101 Vermont Avenue, N.W., Suite 200
Washington, D.C. 20005
202.898.1350
April 26, 2010
