Legislation
English Warns on Derivatives
An overly aggressive approach to regulating the $600 trillion over-the-counter derivative market could sweep up small hedgers like co-ops and drive up the cost of electricity, NRECA CEO Glenn English warned a House committee.
“The thrust of the effort, we don’t really have an objection to,” English told the House Agriculture Committee at a Sept. 17 hearing. “The problem is the cost and what it’s going to mean for electric bills.”
The panel is mulling a plan drafted by the Treasury Department that would overhaul parts of the financial regulatory system to guard against a repeat of the 2008 meltdown of companies like Lehman Brothers that helped trigger a worldwide recession.
Among the proposals being offered are higher capital and margin requirements on hedging and required “clearing” of all standardized over-the-counter products.
English told the panel that co-op trades involving natural gas probably fall under the regulatory clearing requirement, which would result in co-ops needing to come up with large sums of cash for working margins.
While co-ops are not major players in derivatives, they do use them as an important tool to keep down costs by hedging against wild swings in energy prices.
“We’re very small, and much of this is focused and addressed toward big traders with a lot of money. We don’t have that many trades and we’re not of that size and magnitude,” he added.
English said he hopes the committee will find a middle ground “for people like us with legitimate business, not speculation, in such a way that we can keep the costs down.”
Committee Chairman Collin Peterson, D-Minn., said he’s open to suggestions on some aspects of the proposal, but made it clear that he wants an overhaul of the market for derivatives.
“While I do have some outstanding concerns regarding Treasury’s ideas, such as the fair treatment for end users in any regulatory overhaul, I think their ideas can contribute to much-needed legislation that gives the American people the confidence that our markets are being overseen and monitored by strong, effective regulators,” he said.