By the OGJ Online Staff
WASHINGTON, DC, Feb. 14 --U.S. Sens. Dianne Feinstein (D-Calif.) and Maria Cantwell (D-Wash.) Thursday are introducing legislation to increase regulation of over-the-counter (OTC) energy derivatives.
The legislation is the latest in a series of pending congressional proposals born from allegations the giant energy marketer Enron Corp.'s misled stockholders about bad investments.
In the House, Rep. Peter DeFazio (D-Ore.) is drafting a bill that creates a federal commission that regulates securities and futures transactions. The legislation also seeks tighter controls over the kind of online energy futures markets Enron favored to hedge risk (OGJ Online, Feb. 7, 2002).
Feinstein said her legislation gives regulatory oversight authority to the Commodity Futures Trading Commission over futures trades (without delivery) of energy commodities in multi-lateral markets and electronic trading platforms. Her goal is to ensure energy transactions are transparent to both the public and regulators. Right now, there is too much ambiguity, a "regulatory black hole," according to her counterpart in the House, Rep. Ed Markey (D-Mass.), another frequent industry critic.
Under Feinstein's bill, FERC also gains authority to require just and reasonable rates in forward markets. Feinstein's legislation allows FERC to retain authority over all futures transactions (energy deliveries) not regulated by the CFTC and gives the agency the power to regulate bilateral energy transactions and all other energy transaction that the CFTC does not now monitor. Under current law, CFTC cannot regulate trading of energy products on spot (cash) markets or forward markets.
Last month the New York Mercantile Exchange asked lawmakers to undo the exemptions used by EnronOnline through the recently enacted Commodity Futures Modernization Act. That law allows internet-based trading platforms like Intercontinental Exchange to avoid the same reporting requirements NYMEX follows. CFTC still has the power to punish an electronic platform but only if fraud is discovered.
Those who support the exemption, including the CFTC, say it does not discriminate against the exchange because NYMEX could establish its own competing electronic trading system instead of, or in addition to, its traditional "open cry" system. But NYMEX and some producers, say shielding energy products from the same disclosure requirements as a traditional open cry system may lead to "rogue" trades that left unmonitored, could damage energy markets.
Online trading platforms, which operate outside the longstanding framework that regulates commodities exchanges, provide their owners with vast information about the trading positions of other market players which can be used to manipulate the market, said Raymond Plank, Chairman of Apache Corp.
"These online platforms are exchanges; they should be subject to similar regulation to ensure fair treatment of all parties," he told a House Energy and Commerce subcommittee Wednesday.
The administration, for now anyway, does not agree with Feinstein or NYMEX that tighter energy derivative regulation is needed.
CFTC Chairman James Newsome said in testimony before House and Senate committees that Enron's problems appear to be isolated and do not necessarily mean changes are needed. "I was a supporter of the CFMA," he told the Senate Committee on Energy and Natural Resources. "At this time, we have no indication that manipulation of any on-exchange futures market was attempted by Enron (OGJ Online, Jan. 29, 2002)."
Feinstein, and most likely other Democrats from large energy-consuming states, are undeterred by the administration's lack of interest. Her bill specifically eliminates the OTC energy exemptions granted under CFMA that she says allows energy companies, including Enron to operate without regulatory oversight.
Meanwhile House Republican leaders such as Billy Tauzin (R-La.), the chairman of the Energy and Commerce Committee, and Joe Barton (R-Tex.), chairman of the subcommittee on energy and air quality say there is still not enough evidence to justify big changes to energy markets. "Now is not the time to re-regulate energy markets," said Barton Thursday. "But now is the time to learn what we can learn from Enron and make energy markets better." But neither Barton nor Tauzin will rule out legislation either.
Tauzin endorsed the recent Federal Energy Regulatory Commission action to investigate wholesale gas and electric markets nationwide. And the lawmaker said Congress may want to give FERC more authority when it considers a proposal by Barton to restructure wholesale electric markets.
"If there indeed turns out to be a need for additional disclosure or transparency in electricity markets, this subcommittee will be ready to address that legislatively in Chairman Barton's electricity bill," Tauzin said.
