The Commodity Futures Trading Commission (CFTC) recently approved measures that ease registration requirements for financial firms that enter into swap transactions with government-owned utilities. Under the new rule, firms do not need to register as swap dealers when entering into swap agreements at the sub threshold of $25 million. This allows utilities access to the counterparties necessary to mitigate risks and provide reliable and affordable service to customers.
The original CFTC regulations required entities that expected to enter into swap agreements totaling more than $8 billion to register as a swap dealer. In addition, there was the $25 million sub threshold for dealing with “special entities,” of which government-owned utilities would be categorized. This rule effectively deterred entities that did not expect to meet the $8 billion minimum to stop entering into swap agreements with special entities, given the $25 million sub threshold. Utilities found it difficult to obtain partners because of the requirements. The CFTC update raises the threshold for firms working with government-owned utilities to the $8 billion by not including them in the special entity sub threshold.
The new CFTC update will allow government-owned utilities to enter into swap agreements in similar fashion to other market participants such as investor-owned utilities and rural electric cooperatives. In addition to added value to the utilities from an operations standpoint, customers will benefit from protection from rate increases with the increase in available swap counterparties. The overall ruling is a considered a benefit to public utility operations.