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10 15, 2012 by SNL
A BP Energy Co. official said companies need to prepare for the requirements of the Dodd-Frank Act, even though some of its rules have been challenged.
BP Energy Senior Vice President Mark Stultz said companies might be tempted to put off confronting the impacts of the rule because a federal district court vacated the position limits rule or because energy industry associations requested at least a one-year extension of compliance deadlines on the grounds that the rules are in flux. A coalition of business groups, including the American Petroleum Institute, announced Oct. 10 it had sued the U.S. Securities and Exchange Commission in federal court over implementation of the act.
"Don't be complacent," Stultz warned the audience Oct. 9 at the LDC Gas Forums Rockies and West conference in Los Angeles. Just because there is uncertainty surrounding the rules, "don't think that there are things that are just going to go away and won't impact you on Oct. 12." That is the date almost a dozen contingent rules go into effect.
Dodd-Frank will bring new record keeping and reporting requirements, mandatory central clearing, margin requirements and eventually expanded position limits. It will also enhance the enforcement authorities of the U.S. Commodity Futures Trading Commission and the SEC. Dodd-Frank is so complex that no speaker can provide enough guidance to assure utilities and other affected energy companies that they are ready to meet the requirements, said Stultz, who is in charge of regulatory policy and communications for BP plc's North American gas and power businesses. The companies should enlist compliance experts and perform a thorough review of how the rule affects them.
Potential political changes brought about by the outcome of the U.S. presidential race could affect implementation of the rule, but the changes would probably not be drastic, Stultz said. Even if Republican candidate Mitt Romney wins, "I don't think we're going to see a wholesale push to rescind all of Dodd-Frank," he said, and if it were attempted, the push probably would not have sufficient Senate votes to survive.
Stultz looked ahead to how Dodd-Frank will continue to affect the industry. Final rulemakings will continue at the CFTC through 2012, he said. An important one will cover capital and margin requirements. There will be lots of clarification, potential court challenges and efforts to harmonize the rule with markets in the rest of the world, he said.
Stultz said part of the Dodd-Frank swaps rule could affect pipeline and storage capacity agreements. "In theory, any pipeline capacity you take out or resell in the marketplace could be capacity you would have to report, that you would have to count toward the de minimis threshold moving forward," he said.
Stultz credited ConocoPhillips with calling the CFTC's attention to this issue and observed industry associations had joined the company to "beat the drum on this."
"The commission staff said it was unintended and almost an accident — that it remains in the rule from an earlier draft — but so far there has been no action to try and fix it," Stultz said. He expected the gas pipeline group Interstate Natural Gas Association of America and the International Swaps and Derivatives Association, or ISDA, to address this problem, and he asked the audience to bring it up with their associations.
Throughout the LDC Gas Forums conference, members of the natural gas industry were interested in what other companies are doing to get ready for Dodd-Frank. Stultz said BP Energy is preparing by updating its ISDA agreements, installing new ISDA protocols, making changes to its trading and information technology systems and getting its staff and structures up to speed with compliance requirements.
Speaking on the same panel as Stultz, Shahrokh Hessami, director of credit and emerging risk management for Pacific Gas and Electric Co., said his company also is gearing up for Dodd-Frank. PG&E brought together leaders from its relevant departments and hired outside counsel. Hessami said it is important for companies to figure out their entity designation — swap dealer, swap participant or end user — in order to understand their compliance obligations.
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