As the debates and hearings regarding the implementation of Dodd-Frank continue in Washington, we wanted to pass along a few updates, especially as they relate to energy "end-users" which not only includes commercial and industrial consumers but also producers and marketers.

According to numerous reports, including this article from The New York Times, energy "end-users" should remain exempt from clearing and margin requirements...

Gary Gensler, chairman of the Commodity Futures Trading Commission, reassured the committee that his agency’s rules would “focus only on transactions between financial entities.” Mr. Gensler said the rules should not apply to nonfinancial companies, or so-called end users, that buy derivatives not to speculate but to hedge their costs."

Requiring end users “to post margin to its counterparties would have a serious impact on our ability to invest in and grow our businesses,” Craig Reiners, the director of commodity risk management for the brewer MillerCoors, said in prepared testimony before the committee. “The prudent use of derivatives by end-user companies, such as MillerCoors, does not generate risk or instability in the financial marketplace and played no role in the financial crisis.”

Mr. Gensler heeded Mr. Reiners’ warning. “We’re aware and focused on the cost of a six-pack” of beer, Mr. Gensler said at the hearing, adding that lawmakers need not write new legislation to clarify the end-user exemption. “We’ll get this margin thing right. We understand Congressional intent.”

Yesterday, the House Agriculture Committee's Subcommittee on General Farm Commodities and Risk Management (see this link for more information) also explored the issues regarding the implications of Dodd-Frank on end-users and it appears that they too share a similar view:

"In regulating over-the-counter derivatives, Congress has made certain exceptions for end-users who utilize swaps to hedge risk and keep their businesses stable, and I believe it is imperative that the regulations implemented reflect the true intent of Congress,” said Ranking Member Leonard L. Boswell. “I hope today’s hearing underscores the need to not punish these end-users who, like consumers, were victims in the financial crisis..."

Also, Chatham Financial recently released an informative guide titled, "Frequently Asked Questions about Derivatives and End Users," which provides a good overview on the various issues at hand.

Last but not least, yesterday, Mayer Brown published an update titled, "US Commodity Futures Trading Commission Issues Proposed Rules Regarding Swap Trading Relationship Documentation," which addresses the legal implications of documentation and reporting requirements regarding OTC swaps.

In conclusion, it appears that Washington is strongly leaning towards "allowing" end-user exemptions for both clearing and margin requirements, as was intended by Congress, but it's still too early to be certain that that will be indeed be the case when all is said and done.