Archive for the ‘Regulation’ Category

Bartlett Naylor co-authored this blog post with Amit Narang.

After two years of studying the proposed Volcker Rule, with 20,000 comments from bankers and the public, hundreds of meetings with Wall Street lobbyists, and 18 months past the rule’s congressionally mandated deadline for enactment, we’re now being told by the American Action Forum (AAF) — a self-described “center right policy institute” — that this was a rush job.

The Volcker Rule figures as a hallmark in the 2010 Dodd-Frank Wall Street Reform Act. It prohibits proprietary trading — gambling — by federally insured financial institutions.

The Volcker rule is about the worst example AAF could have come up with of a so-called rushed rulemaking. The simple and demonstrable truth is that our current regulatory process is far too slow and unwieldy to work effectively for the American public, and the Volcker Rule is the case in point.

Financial agencies missed deadline after deadline as they crafted the Volcker rule. Part of the delay was that they faced an unprecedented lobbying barrage from Wall Street to weaken the rule with loopholes or block it completely. So it is pretty incredible to see AAF try to re-write history and trick the public into believing that the regulators rushed this rule. AAF can distort the record and cherry-pick facts, but it doesn’t change the fact that, although the public and our economy are both far better off with the Volcker rule now in place, it took far too long.

The AAF adds that a new “administration” study reveals “annual” costs could approach $4.3 billion, proof that the regulators didn’t appreciate the ramifications of what they approved.

That $4.3 billion “annual” cost detailed in the administration study largely stems from the high end of losses the biggest banks might suffer shedding some of their high-risk assets, largely hedge funds. It is, in fact, a one-time cost, and the Office of the Comptroller of the Currency (OCC) estimates the cost in a range of $0 to $3.6 billion. The high end of the compliance estimate makes up the balance of the $4.3 billion.

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Yesterday we joined with our friends The Utility Reform Network and the National Consumer Law Center to protest a motion by a group of power plant owners and Shell Oil to increase household electric utility bills by millions of dollars in California. Here’s the deal: just as Public Citizen predicted, the fracking boom does not guarantee cheap natural gas, as prices skyrocketed from December to February with the cold weather snap. Because natural gas fuels 27% of electricity production, that means some generators saw their costs increase. Under complex reliability rules, some of these generators and power marketers claim they haven’t been able to recover all of their costs in the marketplace, and petitioned the Federal Energy Regulatory Commission for an emergency waiver from market rules to allow them to recover 100% of their rising natural gas costs.Shell As we point out, this proposal shifts all the risk away from the owners of power plants an onto household consumers, while at the same time allowing these same generators to pocket excess profits should gas prices fall. But the really outrageous component of this brazen plan is that one of the petitioners is Shell Energy, a major seller of electricity in the marketplace. We write: “Shell Energy’s inclusion as one of the suppliers seeking the emergency waiver is particularly egregious because of Shell’s unique role as a global leader in natural gas production. Shell Energy’s parent company, Royal Dutch Shell plc, is one of the largest natural gas producers in the world and in the U.S. It is outrageous that an affiliate of such a major natural gas producer seeks relief from perceived high natural gas prices—particularly when affiliates of Shell Energy are enjoying stronger profits from the increased natural gas prices from sales of gas produced from thousands of Shell’s drilling wells.” In addition, affiliates of other suppliers requesting the emergency waiver are also sophisticated energy price hedgers, with companies like NRG and Dynegy veterans of dealing with natural gas fuel price volatility through the years, including the 2000s. And some of the owners of La Paloma, notably the investment banks Morgan Stanley & Credit Suisse, are among the most erudite proprietary financial traders of natural gas contracts in the world, and should therefore be quite capable of managing commodity price risk. We demand that FERC reject this outrageous request to shift big energy company’s risks onto working families utility bills.

Tyson Slocum is Director of Public Citizen’s Energy Program. Follow him on Twitter @TysonSlocum

We just filed a protest at the Federal Energy Regulatory Commission challenging a group of financial institutions’ efforts to create a new loophole. First, a little background:

On February 27, a group of private equity and investment bank lien holders of a collection of US power plants called MACH Gen filed for permission to restructure. The lien holders are the private equity firms Angelo Gordon (through its control of Silver Oak); Cayman Islands-based Solus, and Deutsche Bank.

Deutsche entered into a Total Return Swap with the private equity firm Energy Capital Partners which, among other things, gives Energy Capital Partners the ability to direct and control the way Deutsche’s MACH Gen board member votes. In their own words: “The Applicants do not concede that the indirect interest of ECP Polaris through the TRS equates to ownership or control of the voting securities of a public utility for the purposes of the Commission’s consideration of this . . . Application.”

So Energy Capital Partners, which will in fact control a board seat through its Total Return Swap with Deutsche Bank, is claiming at FERC that this Total Return Swap does not in fact constitute control.

Similarly, Citigroup, through an affiliate it created SOL, entered into a total return swap with Solus, providing Citi with 5.8% of the equity in MACH Gen. But this total return swap does NOT convey control over a board seat.

Determination that a Total Return Swap conveys control of a public utility is important, in part, because the U.S. Executive Branch, the Federal Reserve and Congress are actively engaged in a robust debate about defining and limiting control that certain financial institutions have over energy commodity assets. I first testified before Congress in 2008 about the dangers of financial institutions controlling energy assets, and testified again before the Senate in 2011.  The U.S. Senate Banking Committee held a January 2014 hearing, “Regulating Financial Holding Companies and Physical Commodities,” which included testimony by the Federal Reserve, FERC and the U.S. Commodity Futures Trading Commission.  The U.S. Federal Reserve in January 2014 announced an Advanced Notice of Rulemaking concerning its authority allowing certain financial institutions to control physical energy assets.

If FERC allows this Total Return Swap loophole to stand, Public Citizen predicts expanded use of such financial agreements to undermine various federal government efforts to regulate control over energy assets. Allowing this loophole will establish a dangerous precedent that will harm the public interest.

Tyson Slocum is Director of Public Citizen’s Energy Program. Follow him on Twitter @TysonSlocum

TysonRTfrackingI did an interview with RT discussing the growing problems that chemicals used in fracking oil & natural gas pose to the environment and public safety. First, the Associated Press reports that there have been hundreds of complaints of water pollution from fracking, most from methane but some from the chemicals used in fracking. But this AP report only tells half the story, as it simply documents the different ways in which states handle and record complaints when folks call in to a hotline or send an email. That’s good info, but not nearly as important as sending scientists to investigate the complaint. And there’s the rub: when confirmed fracking pollution occurs, oil & gas companies quickly settle with the affected landowners, and, in return for providing cash and drinking water supplies, force families to sign non-disclosure agreements, forbidding them from even acknowledging that fracking pollution ocurred, or in some cases, requiring families to sign statements proclaiming that pollution didn’t occur. We challenged Jack Gerard on this point when he spoke at our offices earlier this year, and he denied knowing anything about these common non-disclosure agreements. In one famous case, the natural gas company forced parents to guarantee that their two young children would never speak about fracking pollution on their farm for the rest of their lives. The proliferation of these non-disclosure agreements distorts the policy debate because they interfere with the collection of data needed to draw conclusions about the saftety of fracking. It is unacceptable for the industry to continue to say “Fracking is safe, evidenced by the lack of water contamination proof!” at the same time they’re forcing familes to give up their right to talk about pollution (or in same cases, forcing the families to lie in order to qualify for the financial compensation). A simple solution is to disallow non-disclosure agreements that mask information on drilling contamination.

A second issue involves transportation hazards posed by fracking chemicals. On December 30, Warren Buffet’s BNSF line was hauling 78,000 barrels of oil on 104 rail cars from the Bakken Shale to a refinery in Missouri when it was hit by another BNSF train carrying soybeans headed in the opposite direction, derailed, and started a massive fire. I spoke to ABC World News Tonight about this tragedy, and, as my friend Steve Horn reports, the crude oil was more volatile and dangerous because it was laced with fracking chemicals absorbed by the oil during the production process. Indeed, the Pipeline & Hazardous Materials Safety Administration just issued a warning that fracked oil is more chemically explosive. And corrosive agents used in fracking that are then absorbed by the oil, such as hydrochloric acid, “which federal investigators suspect could be corroding the inside of rail tank cars, weakening them.” This means that moving fracked oil by pipelines won’t be safer, since the caustic oil could corrode pipelines as well. Big oil is opposing federal efforts to retrofit the safety of rail cars hauling crude oil.

railAs I’ve written before, the fracking boom is failing to deliver affordable, safe or sustainable energy for America.

Tyson Slocum is Director of Public Citizen’s Energy Program. Follow him on Twitter @TysonSlocum

By Scott Michelman, Public Citizen Litigation Group.

Cross-posted from Consumer Law & Policy Blog.

In September, a group of auto safety advocates and parents represented by Public Citizen sued the Department of Transportation over its failure to issue a congressionally-mandated regulation to address the problem of backover crashes, that is, collisions in which a vehicle moving backwards strikes a person (or object) behind the vehicle. Each year on average, according to the Department of Transportation (DOT), backovers kill 292 people and injure 18,000 more — most of whom are children under the age of five, senior citizens over the age of seventy-five, or persons with disabilities.

In November, the court ordered DOT to respond to our petition, which it did two weeks ago. DOT also did something else that the court had not ordered: as the Detroit News reported yesterday, DOT sent a proposed final rule back to the Office of Management and Budget for final review (a step required by executive order before a rule is issued). This means that the regulatory process is moving again, and sooner than expected — six months after DOT withdrew the rule from OMB, now it’s back, and that’s not a very long time to overhaul the proposal (but, to be clear, we don’t know what rule the agency is now proposing). We’re pleased the administration appears to be moving forward in response to our lawsuit.

But before getting too excited, remember that we’ve reached this stage before — DOT sent a proposed rule to OMB back in November 2011, only to have it languish for 19 months before being withdrawn. So progress is not enough: we need the administration to finish the job.

Meanwhile, our lawsuit is still pending. If the administration doesn’t follow through and issue the final rule this time, hopefully the court will order it to do so.

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