Comment Text:
Meeting with Edison International
Friday, February 25, 2011
Memo from
Fajfar, Mark
CFTC Staff :
Terry Arbit
Mark Fajfar
Rose Troia
Somi Seong
Stephen Kane
Megan Sperling
External Attendees :
Michael Backstrom (Southern California Edison Company)
Christopher J. Bernard (Edison Mission Energy)
Heather Harrison (Southern California Edison Company)
Susan Court (Hogan Lovells LLP)
Mary Anne Mason (Hogan Lovells LLP)
Chris Schindler (Hogan Lovells LLP)
Eric Lashner (Hogan Lovells LLP)
Josh Kans (SEC)
Additional Information :
In the meeting, Edison International elaborated on the comment letter it had filed (Comment Number 27837). Edison explained that it uses swaps to hedge its price risks relating to natural gas it purchases to fuel generation facilities, as well as price risks in its supply of electricity. Edison explained that since its generation facilities supply a stable amount of electricity each day, it is able to enter into a regular volume of fixed/floating swaps in which it will pay the floating price it receives for electricity and receive fixed amounts. This allows Edison to hedge the price risk arising from the floating price of electricity but could be deemed to be swap dealing activity because market participants know that Edison is ready and available to enter into fixed/floating swaps upon request. However, Edison said that it should not be viewed as a swap dealer because it only enters into such swaps up to the amount of electricity that it is generating each day.
Edison made two additional points about the swap dealer definition. First, in terms of whether the swap activities of affiliates should be aggregated, the CFTC should take account of legal prohibitions on information sharing. For example, utility regulations prohibit certain information sharing between Edison subsidiaries that generate electricity and subsidiaries that distribute electricity. Therefore, the activities of a subsidiary should not be attributed to another subsidiary where those two subsidiaries would be prohibited from sharing information about their swap activities. Second, the CFTC should provide for a process that allows a person to file a statement with the CFTC explaining its good faith determination that it is not a swap dealer. This filing should provide a safe harbor from swap dealer registration for the person until the CFTC has responded to the statement.
