Page 6 - Oil and Energy-February 2013
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6 • OIL
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ENERGY
NEFI Supports Post-MF Global
Rules To Protect Hedgers
NEFI has sent a letter to the Commodity Futures Trading
Commission (CFTC) in support of a proposed rule to strengthen
consumer protections for small commodity hedgers. The rule comes
more than a year after the MF Global bankruptcy, which affected
several NEFI members, freezing their accounts and jeopardizing their
hedging positions.NEFI has called for new rules for commodity brokers
and greater protections for their clients since the start of the crisis. The
Petroleum Marketers Association of America (PMAA) joined NEFI in this
comment letter. Many small-to-mid-sized NEFI and PMAA member
companies utilize the services of brokers like MF Global to manage
their hedging needs. “These companies put their faith in their brokers
and commodity market regulators to ensure that their money is
properly managed, insured and protected and that it is segregated
from risky trading activities that are unaffiliated with the direct needs
of the customer,” they said.
NEFI and PMAA commended CFTC efforts to strengthen
requirements on Futures Commission Merchants (FCMs) and to
protect their clients. The CFTC has already approved rules to
strengthen segregation requirements to prohibit customer funds from
being used for in-house lending operations known as “repurchase
agreements” and to protect customer funds for swaps. It has also
enhanced clearinghouse rules and FCM surveillance.
The newly proposed rule would require greater FCM
collateralization and audit requirements, increase the ability of
regulators to monitor protected customer accounts, require disclosure
to customers on the risks associated with commodity trading and
using an FCM, and create an early warning system in the event that an
FCM becomes financially distressed or unable to meet certain financial
obligations.
The letter recommends the following improvements to the
proposed rule:
• The CFTC, not the futures industry, must set minimum standards for
customer disclosures that go beyond just providing information on
potential risks and that include detailed information on customer
protections to improve trust and confidence in the FCM and the
regulatory system;
• FCMs must be prohibited from (1) engaging in cross-border
transactions with customer funds, and (2) transferring customer
funds to off-shore subsidiaries without the knowledge of the
customer – especially when such transactions are meant to evade
U.S. regulations; and
• Regulators should avoid inadvertently requiring customers to
increase their cash holdings with a broker as a result of new
requirements for pre-funded and intra-day margin calls.
They also urged new bankruptcy protections for hedgers, similar to
federal insurance programs that already protect depositors (FDIC) and
securities investors (SPIC). However, this would require legislative
action in Congress. It is expected that federal insurance protections for
hedgers may come up as part of the CFTC reauthorization debate in
the newly elected 113th Congress. “We will continue to appeal to
federal lawmakers on this matter,” NEFI and PMAA said.
NEFI Challenges NEC on Fuel Choices
NEFI President and CEO Michael C. Trunzo has communicated
NEFI’s concerns about a recent report published by the New England
Council (NEC). The report, entitled
Smart Infrastructure in New
England: An Investment for Growth and Prosperity,
recommends that
New England reduce its reliance on heating oil. Below is partial text of
a letter that Trunzo sent on Dec. 7, 2012 to NEC President & CEO James
T. Brett and Vice President for Policy David O’Donnell.
What concerns NEFI, its affiliated state associations and heating oil
members, is the recommendation in the report which states it would
be in the best economic interest of the region to decrease its
dependence on heating oil and encourage residential conversions to
natural gas. We disagree strongly with this policy proposal. We are also
concerned that the NEC means to insert itself into the competition
between heating oil providers and natural gas companies/utilities,
both of which are members of the organization.
We would like to raise the following points to NEC for its consideration
as it develops policy positions in the area of home heating:
• Proposals for fuel switching will have dire economic impact on the
region as there are over 1,900 oilheat businesses in New England
that employ 19,000 people. The proposal does not contemplate
the impact of oilheat companies going out of business and their
employees losing their jobs.
• A review of home heating fuel prices over the past twenty years
shows that in all but three years heating oil prices have been lower
than natural gas.
• No one can guarantee the future pricing of any fuel. However, the
impacts of declining gas extraction as a result of new regulations
and the unprecedented low prices, the predicted surge in natural
gas use in power generation and as a transportation fuel, and an
increase in natural gas exports
to a global market thirsty for
the commodity could all
introduce new upward price
pressures on natural gas.
• U.S. crude oil production is at
the highest volume in nearly
15 years (since 1998) and many
energy analysts are predicting
that crude oil prices will drop
to as low as $50 per barrel in
the near future, which would
of course translate into lower
prices for heating oil and other
refined petroleum products.
• The Obama Administration and
Members of Congress are
focused on a national energy
policy that embraces an
all-of-the above strategy that includes both fossil fuels – such as
natural gas, oil and coal – as well as clean and renewable fuels such
as biofuels, wind and solar energy.
• The report fails to explore other alternatives for decreasing reliance
on petroleum-based home heating fuels, including increased
reliance on biofuels, liquid fuels derived from unconventional
sources such as natural gas and wood (biomass), the introduction
of more efficient appliances thanks to a transition to ultra-low sulfur
fuel, and cost savings that could be realized through consumer
conservation and weatherization.
CONTACTS:
Michael Trunzo, President & CEO: michael
Jim Collura, NEFI Vice President for Government Affairs: jim
Mark S. Morgan, Esq., New England Fuel Institute Regulatory Counsel:
Continued …
