New financial rules complicate picture for electricity providers

Economists often talk about the complex web that ties together different parts of the economy, and how often laws can have unwanted side effects.

In a perfect example, The Hill notes how a growing number of energy companies and retail electricity providers have actually spoken out harshly against the financial regulations put in place after the recent crisis.

After the collapse that began in 2008, legislators put in place some new laws to restrict the use of derivatives, financial products with a value tied to some other factor.

But while legistors were reasonably concerned about regulating this market, energy companies have pointed out that these tools are actually crucial to maintaining lower electricity rates. Electricity companies and utilities can purchase derivatives to help control changes in the price of fuel and changes in demand, allowing them to charge lower rates.

Under the current rule, many companies are concerned that electricity companies would be treated the same as banks, forcing them to hold a substantial amount of money in reserve to reduce the risks of them using derivatives.

In that case, these companies would need to raise electricity prices to cover the costs of the derivatives or the fluctuations in the energy market.