During the first few months of the 112th Congress, newly-empowered House Republicans and their increased numbers in the Senate have been after what they perceive as overactive federal regulators. House committee chairmen have chased, administrators and chairmen of regulatory agencies up to Capitol Hill oversight hearings over what they deem as excesses of the Dodd-Frank Wall Street Reform and Consumer Protection Act and health care reform rulemaking, plus agency administration actions in the area of greenhouse gas emissions (CHG) and Internet access rules of the road.
The House Energy & Commerce Committee and the Financial Services Committee have focused their first hearings on business complaints about the Obama administration's regulatory agenda. In addition, the House Oversight Committee, chaired by Rep. Darrell Issa (R-Calif.)--regarded as one of the most influential committees on Capitol Hill--is planning a broad review of all federal agencies with an eye toward making significant budget and spending cuts, including those agencies charged with financial regulation.
"I have tasked our committee members to track down burdensome regulations that choke investment and destroy jobs," says Rep. Fred Upton (R-Mich.), House Energy & Commerce chair. "We will identify these regulations, shine a light on them and then seek repeal."
Upton started to make good on that promise when his committee passed the Energy Tax Prevention Act of 2011 on March 15. It prohibits the Environmental Protection Agency from regulating GHGs under the Clean Air Act.
Complaints about regulatory overreaching, expressed strongly by business groups of all stripes, have apparently prompted President Barack Obama to issue an executive order in January requiring federal agencies to examine rules now on the books, whose costs may exceed their benefits. The administration wants to reduce duplication and programs that do not bring real value to regulatory oversight. But the executive order won't affect the major rules going into effect this year, with which business groups express greatest concern.
"The president's executive order ... will not affect regulations being written to implement health care reform or financial reform, arguably the two largest sources of regulatory uncertainty in the current economy," says Rep. Spencer Bachus (R-Ala), chairman of the House Financial Services Committee." So, he adds, "it is hard not to conclude that this latest initiative is more about politics than real regulatory reform."
For corporate financial executives, regulations growing out of the Dodd-Frank Act pose the biggest threat, while the president regards Dodd-Frank as the key to insulating the nation from problems that caused the financial crisis. The law firm of Davis Polk & Wardwell estimates Dodd-Frank requires no fewer than 243 new rules by 11 agencies over 12 years. Compare that to Sarbanes-Oxley, passed in the wake of the Enron Inc. meltdown, which led to 16 rulemakings, most from the U.S. Securities and Exchange Commission.
Clarity Absent from Regulation Language
Only one Dodd-Frank rule directly affects all financial executives across industrial, manufacturing and financial sectors. It requires companies that use swaps and derivatives for financial trading purposes to clear those derivatives through clearinghouses, which will be new, nonprofit organizations.
Industrial and manufacturing companies argued that they were not abusers of derivatives, so they should not have to clear their risk-hedging trades, given the added costs that clearing will impose.
Congress agreed, and provided an end-user exemption from clearing for companies that use derivatives for the purpose of hedging or mitigating commercial risk. The SEC and Commodity Futures Trading Commission (CFTC) put out proposed rules on Dec. 23, 2010 that provided their thinking on the exemption.
However, a number of critics have raised concern about the wording of the proposed regulation. For example, would utilizing an interest-rate swap to convert a fixed-rate financing to LIBOR to take advantage of the current low interest rate environment--currently a common strategy for some companies--qualify as hedging or mitigating commercial risk? It's not clear it would qualify for the exemption, according to Bruce C. Bennett, a partner at the law firm Covington & Burling.
Another unclear issue involves margin costs. Commercial end-users of swaps that take advantage of the exemption will not have to pay margin costs themselves. That much is clear. However, say a company buys a swap from a swap dealer. That would be an investment bank such as J.P. Morgan Chase Inc., just to take one example. That swap dealer may well have to pay margin costs on an "uncleared" swap. The question still unanswered, according to Allison Lurton, another Covington & Burling attorney and recent CFTC staffer, is whether the swap dealer can pass along margin costs to the end user.
Business groups already lost one regulatory battle with the SEC over one of the few Dodd-Frank provisions that affect corporate reporting. Corporate types such as Brenda C. Karickhoff, senior vice president and deputy general counsel at Time-Warner Inc., had argued that the SEC's intention to require companies to disclose in their Compensation Discussion & Analysis (CD&A) whether advisory votes resulted in corporate compensation decisions went beyond what Dodd-Frank required. Karickhoff says companies should have to disclose those actions only if they are material.
When the SEC published its final rule on Jan. 25, it stuck with the wording from its proposed rule, to which Karickhoff and others objected. "The requirement to include, as a mandatory topic in the CD&A, whether and how a company considered the results of previous shareholder 'say on pay' votes in determining compensation policies and decisions has been included in the final rule," says Scott Olsen, of PwC. "The final rule is mandatory and not based on any materiality threshold."
A case can be made that business has been losing even more battles at EPA. Using a federal court ruling as justification, EPA issued a final rule that went into effect on Jan. 2. The rule affects all big industrial and manufacturing plants that are newly built going forward, and existing plants that make significant modifications. If that modification results in total air emissions exceeding a threshold because of the addition of GHG emissions, the plant must obtain a permit from the state that must be approved by the agency.
The permit will require the company to install "best available control technology (BACT)." EPA has established some guidance to assist states, which has flexibility in order to determine what constitutes BACT for different plants in different industries. Some states could require carbon capture, control and storage technology, a very expensive solution. "This is creating a business uncertainty that business abhors," says Howard Feldman, director of regulatory and scientific affairs for the American Petroleum Institute.
Going beyond GHG regulation, EPA in late February, issued a new air emissions rule affecting companies that use industrial boilers and process heaters. That rule requires "major sources"--large emitters in the auto, chemical, metal-working and many other industries--to install maximum achievable control technology (MACT), which is the equivalent of controls used by the top 12 percent performing plants.
EPA did back down from the proposed rule in a couple of instances, for example, by allowing companies to meet a more modest "work practice" standard for all new and existing natural gas- and refinery gas-fired units with a heat input capacity less than 10 million British thermal units per hour.
Nonetheless, National Association of Manufacturers Senior Vice President for Policy and Government Relations Aric Newhouse said, "The new boiler MACT rule will have an immediate, negative impact on manufacturers' bottom lines at a time when they are trying to rebound economically and create jobs."
And it is not just the boiler MACT that has brought business tempers to a boil, Six months before it issued the proposed MACT rule in the summer of 2010, the agency issued a proposed rule tightening national ambient air quality standards for ground-level ozone.
Ground-level ozone is a primary component of smog. The agency wants to lower the standards issued during the administration of George W. Bush of 75 parts per billion to between 60-70 parts per billion. A lower standard would affect virtually the entire country, even a place such as Yellowstone National Park, whose ground level ozone has reached 67 parts per billion. "EPA is trying to do too much now," Feldman claims.
Costs of Compliance
Business compliance costs also explain why corporations want a rollback of some of the provisions in some of the interim final regulations issued under the Patient Protection and Affordable Care Act (PPACA), the health care bill passed by Congress last year. Here the questions have to do with a company's ability to control costs in existing group health plans.
Two examples are PPACA's definition of "grandfathered" health plans and of preventive services, which must be provided to employees in non-grandfathered companies. Companies whose employee health insurance plans were in effect on March 23, 2010 are "grandfathered"--meaning they do not have to provide some of the PPACA's minimum services--unless they change the contours of that grandfathered plan.
One of those minimum requirements starting in 2011 is that a non-grandfathered plan must provide preventive services without imposing cost-sharing on the employee.
The three agencies involved in health reform implementation--the Department of Health and Human Services, the Department of Labor and the Internal Revenue Service--proposed interim final rules (IFRs) last summer on grandfathered plans and preventive services. Final rules have not been issued in either case yet, and business groups have been lobbying for changes in the interim language.
Joe Trauger, vice president of human resources policy for NAM, says the interim final rule on grandfathered plans means that if employers "make even modest changes" in group plans to stem cost and premium increases they would lose their grandfathered status.
Controlling costs, he says, is essential to manufacturers and "implementation of the rule as written will force employers to choose between increased costs as they lose grandfathered status and comply with additional reforms or increased costs as they absorb more of the burden of skyrocketing medical inflation."
If the interpretation of what constitutes a grandfathered plan, laid out in the IFR, becomes permanent, many corporate health plans will lose grandfathered status. So they will have to provide preventive services that do not share costs. There, group health plans must provide preventive care benefits without cost-sharing for evidence-based items or services that have in effect a rating of A or B in the current recommendations of the U.S. Preventive Services Task Force.
Gretchen Young, senior vice president of health policy of the ERISA Industry Committee, says, "In a number of cases, it is not clear which specific diagnostic and imaging tests are preventive and which would fall under the category of treatment."
Where interim health care reform regulations are still hanging fire, the final Federal Communications Commission order on net neutrality is creating waves. Issued on Dec. 21, 2010, the rules prevent Internet service providers from discriminating against content and applications, subject to reasonable network management.
After Verizon Communications Inc. announced a lawsuit against the FCC in January Upton praised the legal assault on the FCC net neutrality rule. "At stake is not just innovation and economic growth, although those concerns are vital," he said. "Equally important is putting a check on an FCC that is acting beyond the authority granted to it by Congress."
Some federal agencies, such as the Occupational Safety and Health Administration, have already backpedaled in the face of protests from Republican and business, using the Obama executive order as a rationale. But the president has underlined that he is willing to retreat only so far. So it remains for Republicans in Congress to prove what is worse: their bark or their bite.
Stephen Barlas (sbarlas@verizon.net) is a freelance writer who has covered Washington, D.C., since 1981 and frequently writes for Financial Executive.
Комментариев нет:
Отправить комментарий