Senators Feinstein, Cantwell and Wyden Introduce
Legislation to Regulate Energy Trading
February 14, 2002

Washington, DC - U.S. Senators Dianne Feinstein (D-Calif.), Maria Cantwell (D-Wash.) and Ron Wyden (D-Ore.) introduced legislation today to regulate and give transparency to all energy transactions.

"With passage of this legislation, we can reinstate regulatory oversight to the marketplace and help ensure there is not a repeat of the energy crisis that had such a devastating impact on California and the West," Senator Feinstein said.

The bill would provide regulatory oversight to the Commodity Futures Trading Commission (CFTC) over derivative transactions (transactions where there is generally no delivery) of energy commodities on multilateral markets and over electronic trading platforms and ensure that all energy transactions are transparent.

The Federal Energy Regulatory Commission (FERC) retains authority over all derivatives transactions (energy deliveries) not regulated by the CFTC and is given additional authority to regulate bilateral energy transactions and all other energy transactions that the CFTC cannot regulate. For these transactions, the CFTC also retains anti-manipulation oversight authority.

"The Enron bankruptcy has uncovered many gaping holes in our regulatory structure, everything from accounting and investment practices to on-line energy transactions. Congress must take a look at all of this. The bill we are introducing today is a first step," Senator Feinstein said.

"Let me give you an example of what that lack of transparency meant to California: On December 12, 2000 the price of natural gas on the spot market was $59 in Southern California while it was $10 in nearby San Juan, New Mexico," Senator Feinstein said.

"We know it costs less than $1 to transport gas from New Mexico to California because this was the cost when these transportation routes were transparent and regulated. So there was $48 unaccounted for that undoubtedly found its way into someone's pocket. This problem lasted from November, 2000- April, 2001 and all this time no one knew where all this money was going," Senator Feinstein continued.

"The Senate Energy Committee looked at this issue last year but was not able to piece together all of what happened. In the wake of Enron's bankruptcy, however, we are beginning to learn a lot more.

By controlling a significant number of energy transactions affecting California - some traders estimate that Enron controlled up to 50-70% of the natural gas transactions into Southern California - and by trading in secret, Enron had the ability to manipulate prices.

And the consumers, particularly those in California, ultimately bore the brunt of the costs. In fact, through the course of the crisis in California, the total cost of electricity soared from $7 billion in 1999 to $27 billion in 2000 and $26.7 billion in 2001.

A market does not function properly without transparency. Additionally, regulators need the authority and the tools to step in and do their jobs when markets have gone awry. This bill, then, is intended to close the regulatory loopholes that allowed Enron OnLine to operate unregulated trading markets in secret."

Specifically, the bill:

1) Repeals exemptions and exclusions for bilateral derivatives as well as bilateral multi-lateral electronic markets in energy commodities. All would again be subject to the CFTC's direct oversight;

2) Ensures that energy dealers in derivatives markets (such as EnronOnline) cannot avoid full price transparency and escape regulatory oversight;

3) Subjects all multilateral markets and dealer markets in energy commodities to registration, transparency, disclosure and reporting obligations. Additionally all bilateral transactions not regulated by the CFTC are subject to the CFTC's anti-manipulation authorities. FERC is given direct oversight over these bilateral transactions not subject to full CFTC oversight;

4) Ensures that entities running on-line trading forums must maintain sufficient capital to carry out their operations and maintain open books and records for investigation and enforcement purposes;

5) Expands FERC jurisdiction to include derivatives transactions which are defined to include transactions based on the cost of electricity or natural gas and includes futures, options, forwards and swaps unless such a transaction is under the jurisdiction of the CFTC or the State; and

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