Power lobbies sound alarm about
implementing Volcker Rule
Several major power lobbies warned financial regulators yesterday that the so-called Volcker Rule could harm their members' ability to get long-term financing or hedge their risks. The rule is a part of the Dodd-Frank Wall Street Reform Act and was proposed by former Federal Reserve Chairman Paul Volcker.
The rule generally prohibits any banking entity from engaging in proprietary trading, subject to some exemptions. The rule would start to go into effect in July with a two-year transition period.
EEI, EPSA, Large Public Power Council and NRECA submitted comments on the Volcker Rule to the CFTC, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Corporation and the Federal Reserve System.
The lobbies' members need liquid, efficient and competitive commodity markets and commodity derivatives markets to hedge exposure to commercial risks that come from their operations and to make investments in infrastructure.
The regulators should consider the potential unintended impacts of the Volcker Rule on their nonfinancial end-user entities, said the comment filers. Power firms do not represent interconnected risk to the global financial system.
The rule will prohibit or make it much less economically palatable for banks to engage in long-term energy industry transactions. Banks take part in bilateral power and natural gas markets, ISO/RTO markets, bilateral over-the-counter swaps markets, commodity futures markets and renewable energy credit markets.
Physical markets are already regulated by their own bodies such as FERC and state commissions. The Volcker Rule will cut the number of available counterparties and transactions, boosting volatility in already volatile wholesale markets, said the associations.
In addition to keeping banks out of proprietary trading in derivatives and futures markets, the rule would make non-bank financial firms subject to added capital requirements, quantitative limits and other restrictions.
The lobbies argued that the implementation proposed by the financial regulators goes too far and could broaden the prohibition of proprietary trading so that banks will not be allowed to engage in energy commodity forward contracts or swaps, except narrowly as "market makers."
The energy interests want the financial regulators to re-propose rules implementing the Volcker Rule to make they do not hurt the end-users of the financial system by cutting their access to financing, investment and hedging transactions.
© 2012 GHI LLC