Comment Text:
Meeting with NARUC
Wednesday, January 12, 2011
Memo from
Fajfar, Mark
CFTC Staff :
Megan Sperling
Mark Fajfar
Terry Arbit
Mark Higgins
Christopher Hower
Lee Ann Duffy
Julian Hammar
David Aron
Marshall Horn
Rose Troia
Somi Seong
External Attendees :
James Bradford Ramsay (NARUC)
Robin J. Lunt (NARUC)
Peter Curley (SEC)
Joshua Kans (SEC)
Richard Grant (SEC)
Jeffrey Dinwoodie (SEC)
Additional Information :
NARUC’s primary comment is that the regulations implemented under the Dodd-Frank Act and in particular margin requirements for swaps should not inappropriately increase costs for regulated utilities (which are end users of swaps), since the utilities’ costs would be passed on to consumers. Also, posting of margin for swaps by utilities would draw capital away from other uses that would improve service to consumers. The regulations should also avoid redundancy with other regulations to which the utilities are subject.
NARUC also expressed the concern that regulated utilities that would be within the swap dealer definition would be subject to capital requirements and compliance costs that would be passed on to consumers or reduce capital available for other purposes.
NARUC said that the economic impact on regulated utilities from the Dodd-Frank requirements would be an unintended, negative consequence of the law. Also, since the utilities are already subject to heavy regulation and oversight, the benefits of applying the Dodd-Frank Act to them are less than would be the case for unregulated end users.
NARUC also pointed out a risk that the Dodd-Frank requirements would reduce the use of swaps which could lead to increased risks being assumed by the utilities. Utilities, in particular, could face conflicting requirements. For example, they may face both a requirement that the utility operate prudently, which may require that the utility use swaps, and limitations that restrict the utility’s ability to engage in transactions, such as swaps, that entail certain costs, or restrict its ability to pass those costs to ratepayers.
