After a 20-hour mark-up that concluded at approximately 6 am on June 25, the financial reform conference committee approved financial reform legislation by a party-line 27-16 vote.  The bill, entitled the Wall Street Reform and Consumer Protection Act of 2009, would impose new rules on the financial system and establish a new consumer protection agency.  The bill also would also establish new rules on the trading of derivatives.  It was this section of the legislation that was a primary focus of APGA.  APGA had successfully worked with other energy end-users in pushing back against efforts to require all end-users to clear their transactions.  The mandated clearing of all OTC transactions would require public gas systems to post initial margin and to meet potential margin calls whenever required and on little notice.  APGA has argued in testimony before Congress that requiring a public gas system to clear its transactions would significantly impair that system’s hedging strategy and place an increased financial and operational burden on the communities and consumers they serve.

APGA had also worked to replace language in the bill that would place a fiduciary duty on a swap dealer when entering into swaps with all state and local governments and instrumentalities.  APGA was extremely concerned that swap dealers will be less inclined to make a deal with public gas systems if they have to act as their fiduciary.  This language was replaced in conference committee with language from the House conferees that established, among other things, additional requirements on a swap dealer when they enter into transactions with a state or local government.  One concern APGA has expressed with this new language relates to a requirement that calls for a municipality, including a public gas system, to have in place an “independent representative” that evaluates swap transactions the entity is involved in. APGA has communicated to Congress that in some cases a utility already has an employee in place whose job is to handle the day-to-day hedging operations of the system and it is unlikely that a third party would have the knowledge of the in-house employee.  In addition, the significant additional costs of hiring a third-party will be passed directly onto consumers.  APGA is working to get a clarification from Congress that an “independent representative” only has to be independent of the swap dealer or major swap participant and an in-house employee can be used to fill this role.

A copy of the derivatives section of the bill is available on the APGA website at www.apga.org.  On June 30, the House passed the final conference report by a vote of 237-192.  The Senate plans to take up the conference report the week of July 12. If you have any questions on this article, please contact Dave Schryver of APGA’s staff by phone at 202-464-2742 or by email at dschryver@apga.org. 

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