Utilities oppose CFTC oversight of power contracts

WASHINGTON Oct 22 (Reuters) - The trade group representing investor-owned electric utilities told U.S. federal market regulators on Thursday it opposes bringing certain electricity contracts traded on the IntercontinentalExchange (ICE.N) under more government oversight.

The Commodity Futures Trading Commission proposed earlier this month increasing its oversight of contracts listed on ICE that reflect the value of prices in the Pacific Northwest and California electricity markets because they play an important role in setting prices for electricity.

The CFTC is using new authority provided by Congress that gives the agency more oversight over contracts listed on exempt commercial markets that perform "significant" price discovery functions.

However, the Edison Electric Institute is against the CFTC's plan,

The trade group said it does not believe the ICE's electricity contracts meet any of the agency's "significant price discovery contract" (SPDC) criteria and that the costs and risks associated with putting the contracts under more CFTC oversight "significantly outweigh" any potential benefits.

"We believe that none of these contracts meet any of the SPDC determination criteria set forth in the commission's regulations, which require the commission to consider factors such as price linkage, arbitrage, material price reference and material liquidity in making its determination," the EEI said in a letter to the agency.

The EEI said its member utilities have a stake in the CFTC actions because they use the ICE contracts to hedge against wild swings in power prices.

"The ability of EEI members to hedge against price volatility by purchasing and selling the ICE Contracts helps reduce price volatility in the wholesale markets and, thereby, promotes a reliable flow of electricity to retail customers at more stable prices," the group said.

The EEI told the CFTC it needs more time to get feedback from its members on the agency's proposal and that the commission needs to conduct a thorough analysis on the possible impact of regulating the contracts because the agency makes its decision.

The trade group asked the CFTC to extend the public comment on its proposal for 30 days or establish procedures for providing further opportunity to comment.

Meanwhile, the CFTC on Thursday proposed increasing oversight of the ICE's NWP Rockies Financial Basis natural gas contract because it also helps set prices.

The CFTC said it would take public comment on its proposal through Nov. 6. (Reporting by Tom Doggett; Editing by Marguerita Choy)