[Congressional Record Volume 160, Number 103 (Thursday, July 3, 2014)]
[Extensions of Remarks]
[Pages E1101-E1102]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




              CUSTOMER PROTECTION AND END USER RELIEF ACT

                                 ______
                                 

                               speech of

                        HON. K. MICHAEL CONAWAY

                                of texas

                    in the house of representatives

                         Monday, June 23, 2014

       The House in Committee of the Whole House on the state of 
     the Union had under consideration the bill (H.R. 4413) to 
     reauthorize the Commodity Futures Trading Commission, to 
     better protect futures customers, to provide end users with 
     market certainty, to make basic reforms to ensure 
     transparency and accountability at the Commission, to help 
     farmers, ranchers, and end users manage risks to help keep 
     consumer costs low, and for other purposes:

  Mr. CONAWAY. Mr. Chair, I submit the following exchange of letters:

                            American Public Power Association,

                                    Washington, DC, June 16, 2014.
     Hon. Frank D. Lucas,
     Hon. Collin C. Peterson,
     Committee on Agriculture, House of Representatives, 
         Washington, DC.
       Dear Chairman Lucas and Ranking Member Peterson: On behalf 
     of the American Public Power Association (APPA), I am writing 
     in support of House passage of H.R. 4413, the Customer 
     Protection and End-User Relief Act. The legislation includes 
     important relief for public power utilities and other end-
     users seeking to use swaps to hedge commercial-operations 
     risks. APPA is the national service organization representing 
     the interests of more than 2,000 not-for-profit, locally-
     owned electric utilities in the United States. These public 
     power utilities are in every state in the nation (except 
     Hawaii) and provide power to more than 47 million Americans.
       In particular, the legislation incorporates the provisions 
     of H.R. 1038, the Public Power Risk Management Act (PPRMA). 
     As you know, PPRMA was approved on a 423-0 vote in the House 
     on June 12, 2013, and has since been introduced on a 
     bipartisan basis in the Senate. The legislation is needed to 
     address Commodity Futures Trading Commission rules which 
     resulted in public power utilities losing--on average--half 
     the available counterparties to swaps needed to hedge their 
     commercial operations risks. The legislation will allow 
     public power utilities to hedge commercial-operations risks 
     on an even playing field with other end users in the power 
     and natural gas utility sector. This means continued reliable 
     power at affordable--and predictable--prices to customers.
       H.R. 4413 would take other important steps to improve 
     protections for consumers and commercial end users. By 
     addressing issues related to margin requirements for non-
     financial end-users, the definition of ``bona fide hedging,'' 
     swap reporting in illiquid markets, and forward contracts 
     with volumetric optionality, the bill improves the CEA to 
     better reflect the needs of end users.
       Finally, we praise the clarity provided as to the intent of 
     the legislation in the accompanying committee report and the 
     changes made to the bill in response to legitimate concerns 
     raised by other stakeholder groups. We understand that 
     concerns remain and hope that you will continue to work 
     toward consensus. We stand ready to assist if we can.
       Thank for your continued efforts.
           Sincerely,
                                                   Susan N. Kelly,
                                                  President & CEO.
                                  ____
                                  


                                     American Gas Association,

                                   Washington, DC, March 26, 2014.
     Hon. Frank D. Lucas,
     Chairman, House Committee on Agriculture,
     Washington, DC.
     Hon. Collin C. Peterson,
     Ranking Member, House Committee on Agriculture, Washington, 
         DC.
       Dear Chairman Lucas and Ranking Member Peterson: The 
     American Gas Association appreciates the opportunity to 
     support the Committee in its efforts to review the Commodity 
     Exchange Act (CEA) and reauthorize the Commodity Futures 
     Trading Commission (CFTC). AGA supports H.R. 4267, a bill to 
     amend the CEA to provide relief for end-users that use 
     physical contracts with volumetric optionality, as providing 
     necessary regulatory clarity to energy end-users. In 
     particular, AGA believes H.R. 4267 will protect natural gas 
     utilities' ability to mitigate commercial risk and restore 
     the contractual innovation and liquidity in physical natural 
     gas markets that gas utilities rely on to deliver affordable, 
     reliable natural gas to America's energy consumers.
       The American Gas Association (AGA), founded in 1918, 
     represents more than 200 local energy companies that deliver 
     clean natural gas throughout the United States. There are 
     more than 71 million residential, commercial and industrial 
     natural gas customers in the U.S., of which 94 percent--over 
     68 million customers--receive their gas from AGA members. AGA 
     is an advocate for natural gas utility companies and their 
     customers and provides a broad range of programs and services 
     for member natural gas

[[Page E1102]]

     pipelines, marketers, gatherers, international natural gas 
     companies and industry associates. Today, natural gas meets 
     more than one-fourth of the United States energy needs.
       AGA members are regulated energy utilities that have an 
     obligation to serve their customers. They must stand ready to 
     meet their customers' needs at all times, under just and 
     reasonable rates, under terms and conditions set by state 
     regulatory authorities. To meet these physical delivery 
     obligations, AGA members use non-financial, physical 
     commodity contracts with volumetric optionality to secure 
     reliable gas supplies at the lowest reasonable cost to 
     customers, while managing commercial and operational 
     conditions that may cause unexpected constraints on their 
     delivery systems. AGA members require regulatory certainty to 
     incorporate compliance into their contractual planning, 
     including certainty as to the rules implementing the Dodd-
     Frank Wall Street Reform and Consumer Protection Act (Dodd-
     Frank Act).
       In implementing the Dodd-Frank Act, the CFTC has defined 
     ``swap'' and ``commodity option'' broadly, such that 
     significant physical natural gas contracts that contain 
     flexible delivery terms or ``optionality'' are being viewed 
     as subject to CFTC regulation as ``swaps.'' AGA and other gas 
     industry participants have asked the CFTC to clarify that 
     physical natural gas contracts containing delivery 
     flexibility do not constitute ``swaps,'' however, these 
     requests remain pending.
       The resulting regulatory uncertainty is creating tremendous 
     confusion and disagreement in the natural gas industry and 
     disrupting contracting practices, reducing liquidity in the 
     physical natural gas commodity markets, and drying up the 
     innovative contracting practices which have supported 
     affordable prices for American natural gas consumers. AGA 
     members are seeing a decrease in the kinds of offerings 
     commercial counterparties are willing to make because 
     counterparties are concerned that their offerings will be 
     less competitive and desirable if they contain provisions for 
     ``optional'' delivery that might trigger compliance with CFTC 
     requirements. AGA members are also experiencing a decrease in 
     the number of commercial counterparties willing to enter into 
     flexible gas supply arrangements.
       Given these trends, AGA is very concerned that the 
     implementation of the Dodd-Frank Act is having the unintended 
     consequence of reducing physical commodity market liquidity 
     with fewer opportunities to take advantage of the flexible 
     and reliable services that are available under physical 
     contracts with volumetric optionality. In turn, these market 
     constraints can lead to increased natural gas procurement 
     costs, particularly in periods of unexpected customer demand, 
     severe weather or unexpected operational constraints. As gas 
     utilities are regulated entities that pass through commodity 
     costs in customer rates, increased gas costs borne by 
     utilities will also lead to higher natural gas prices paid by 
     American energy consumers.
       AGA therefore supports H.R. 4267, to clarify that CEA 
     Section 1(a)(47)(B)(ii) excludes from the definition of 
     ``swap'' normal commercial merchandizing transactions used to 
     buy and sell energy for ultimate delivery to end-users, 
     including transactions that contain stand-alone or embedded 
     options, so long as the transaction is intended to be 
     physically settled. By passing this legislation, Congress can 
     resolve significant natural gas market confusion and restore 
     regulatory certainty as to the treatment of ordinary physical 
     merchandizing transactions.
       AGA believes that Congress did not intend the Dodd-Frank 
     Act to constrain the physical commodity markets, create 
     business-changing impacts on regulated natural gas utilities, 
     or ultimately increase the costs of reliable service for 
     natural gas consumers. As such, AGA supports the passage of 
     H.R. 4267 to clarify Congressional intent, and to require 
     that the CFTC redirect its resources to comprehensive 
     regulation of financial entities, oversight of financial 
     commodity markets, and protection of end-users' ability to 
     hedge and mitigate commercial risk in these markets. H.R. 
     4267 provides natural gas utilities the regulatory confidence 
     they need to continue procuring natural gas supplies at 
     lowest reasonable costs for the benefit of American energy 
     consumers.
           Sincerely,
     Dave McCurdy.
                                  ____

                                                    June 18, 2014.
     House of Representatives.
       Dear Representative: The National Association of 
     Manufacturers (NAM)--the nation's largest industrial trade 
     association--supports provisions in the Customer Protection 
     and End User Relief Act (H.R. 4413), to clarify that non-
     financial companies, like manufacturers, that use derivatives 
     to manage business risk, will not be subject to onerous and 
     harmful margin and clearing requirements.
       Manufacturers use derivatives to manage and mitigate 
     against fluctuations in commodity prices and currency and 
     interest rates. The NAM worked to include provisions in the 
     Dodd-Frank Wall Street Reform and Consumer Protection Act 
     (P.L. 111-203) to protect manufacturers' use of over-the-
     counter derivatives. We continue to work to ensure that, as 
     Dodd-Frank is implemented, end-users do not face undue 
     burdens. Imposing unnecessary regulation on end-users would 
     limit their ability to use these important risk management 
     tools, increasing costs and negatively impacting business 
     investment, U.S. competitiveness and job growth.
       Provisions included in H.R. 4413 would ensure that 
     regulators do not impose margin requirements on non-financial 
     end-users and that end-users trading through a centralized 
     treasury unit (``CTU'') are covered by the end-user clearing 
     exemption. These two issues also are addressed in legislation 
     (H.R. 634 and H.R. 677) approved by the House Agriculture and 
     Financial Services Committees with bipartisan support. Based 
     on a survey by the Coalition for Derivatives End-Users, 
     absent clarification on margin requirements, manufacturers 
     and other end-users that use derivatives to manage risk may 
     be forced to sideline a median of $125 million away from 
     business investment, R&D and job creation. Similarly, without 
     the clarification on CTUs, non-financial end-users may be 
     swept into costly clearing requirements meant for financial 
     entities, simply because they use a CTU to manage internal 
     and external trading to mitigate risk within a corporate 
     entity--an industry ``best practice''.
       The CFTC reauthorization also includes an NAM-supported 
     provision from H.R. 3814 that requires the CFTC to take an 
     affirmative action before lowering the swap dealer de minimis 
     threshold. Without this provision, the de minimis level of 
     swap dealing automatically drops from the $8 billion to $3 
     billion in a few years.
       Almost four years after the enactment of Dodd-Frank, 
     implementation of the Act is well underway and deadlines for 
     compliance with various regulations are looming. End-users 
     remain extremely concerned about final regulations on margin, 
     the lack of clarity on the CTU issue, and the automatic drop 
     in the de minimis threshold for swap dealing. Thank you in 
     advance for supporting provisions in H.R. 4413 to ensure that 
     derivatives regulation is focused on needed areas and not on 
     imposing unnecessary regulatory burdens on manufacturers.
           Sincerely,

                                              Dorothy Coleman,

                                           Vice President--Tax and
     Domestic Economic Policy.
                                  ____

                                                    April 8, 2014.
     Hon. Frank Lucas,
     Chairman, House Committee on Agriculture, Washington, DC.
     Hon. Collin Peterson,
     Ranking Member, House Committee on Agriculture, Washington, 
         DC.
       Dear Chairman Frank Lucas and Ranking Member Collin 
     Peterson: The National Rural Electric Cooperative Association 
     (NRECA) supports H.R. 4413, the Customer Protection and End-
     User Relief Act, legislation to reauthorize the Commodity 
     Futures Trading Commission (CFTC) to be considered by the 
     House Committee on Agriculture on April 9, 2014.
       NRECA is the national service organization for more than 
     nine hundred rural electric utilities and public power 
     districts that provide electric energy to approximately 
     forty-two million consumers in forty-seven states or twelve 
     percent of the nation's population. Kilowatt-hour sales by 
     rural electric cooperatives account for approximately eleven 
     percent of all electric energy sold in the United States. 
     Cooperatives operate on a not-for-profit basis and all the 
     costs of the cooperative are directly borne by their 
     consumer-members.
       Importantly, H.R. 4413 includes language that protects the 
     National Rural Utilities Cooperative Finance Corporation 
     (CFC), a non-profit cooperative lender owned by the rural 
     electric cooperatives, from the potentially significant costs 
     of margin requirements under the Dodd-Frank Wall Street 
     Reform and Consumer Protection Act of 2010.
       The CFTC reauthorization legislation also amends the 
     Commodity Exchange Act (CEA) in a very narrow but important 
     way: to clarify Congressional intent that CFTC shall not 
     regulate as ``swaps,'' contracts relating to nonfinancial 
     commodities, where the parties intend physical settlement of 
     their contract obligations. These nonfinancial, physical 
     commodity contracts with optionality are necessary for 
     electric cooperatives to secure adequate power supplies and 
     hedge their fuel risks.
       On behalf of rural electric cooperatives across the 
     country, NRECA would like to thank the leaders of the House 
     Agriculture Committee for seeking to clarify in statute that 
     not-for-profit cooperatives do not pose risk to our financial 
     system, and need not be regulated in the same way as a Wall 
     Street bank.
       We would like to urge all members of the House Committee on 
     Agriculture to vote in support of H.R. 4413.
           Sincerely,
                                                   Jo Ann Emerson,
     CEO, NRECA.

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