As we've expressed on more than one occasion, there is serious concern among energy "end-users" that Dodd-Frank will be implemented in a way, which is beyond the intent of the regulations, could cause serious problems for end-users, as it relates hedging.  To clarify, end-users in this case doesn't simply mean energy consumers but also producers, marketers, refiners, processors, etc. 

Last week, the American Gas Association, American Public Power Association, Edison Electric Institute, Electric Power Supply Association, Independent Petroleum Association of America, Large Public Power Council, National Rural Electric Cooperative Association and Natural Gas Supply Association voiced their concern as well in a letter to the House of Representatives. 

In their letter the group stated, "We are concerned that the swap dealer definition and de minimis exception under the [CFTC's] proposed 'entity definition' rules are overly restrictive, and would result in commercial end-users, who use swaps for hedging purposes, being misclassified as swap dealers, as well as imposing other unnecessary burdens and costs on end-users." 

In addition, the letter noted the associations support of two pending bills, H.R. 2682 and H.R. 3257.  H.R. 2682 is mean to "ensure commercial end-users are exempt from margining requirements. Regarding this bill, the group's letter said, "The rules proposed by the various financial regulators (including the CFTC and the prudential or banking regulators) on margin requirements are inconsistent, work at cross-purposes with Congressional intent, and have caused much uncertainty for commercial end-users." While the full text of H.R. 3257 has yet to be released, it's sponsor, Randy Hultgren (R-Ill.), has said that the bill "narrows the Dodd-Frank definition of a 'swap dealer' to ensure that Congressional intent is realized and that costly and burdensome regulations intended for the largest financial institutions are not imposed on hundreds of end-users."  Both bills are reported to have strong bi-partisan support but, as we all know, that doesn't necessarily mean much until the ink is dry.

In a related development, two weeks ago the International Swaps and Derivatives Association (ISDA) and the Securities Industry and Financial Markets Association (SIFMA) filed a lawsuit against the CFTC regarding a measure which would impose position limits on 28 commodities and would not only include futures but also OTC swaps and options.  ISDA and SIFMA's argument is that the CFTC has not proven that the new rules on position limits are necessary.  As an aside, for those of you who have a genuine interest in the debate regarding whether speculators drive energy prices, see Craig Pirrong's paper titled "No Theory? No Evidence? No Problem!" It's arguably the best paper, to date, on the subject.

Last but not least, the CFTC continues to delay their mandate to define what is and what isn't a swap and until this decision is made and it becomes official, many of the other aspects of Dodd-Frank, at least as it relates to commodities, are delayed as well. 

In summary, it's still impossible to say how, when and to what extent, Dodd-Frank will impact energy "end-users" and, despite all of the above, it's probably safe to say that whatever appears to be likely today, will not be the case when all is said and done.