The head of the National Association of Manufacturers (NAM) called on Congress last Wednesday to do a study to determine “the extent to which pure speculation and market manipulation” were responsible for the run-up in natural gas prices over the past summer, while a representative of the consumer advocate group, Public Citizen, endorsed more government regulation and oversight to tame gas prices and the markets.

“For the first time in our history, the natural gas prices [were] higher this summer than last winter,” said Gary Huss, president of NAM and president of a metal treating company in Wisconsin, during a hearing by a subcommittee of the Senate Commerce Committee on natural gas prices and supply for the upcoming winter season.

Escalating gas prices were responsible for approximately 13% of the profit loss his company has suffered, he told subcommittee Chairman Gordon Smith (R-OR). A recent NAM study found that domestic manufacturers face at least a 22% price disadvantage with foreign counterparts because of higher energy, health and pension costs, and a “wildly out of control legal system,” Huss said.

He urged Congress to pass a comprehensive energy bill that would open the door to more domestic gas drilling, an Alaska gas pipeline, improved pipeline infrastructure in the Lower 48 states and more liquefied natural gas (LNG) facilities.

“Please do so because I would like to continue providing value to my customers and a quality of life to my workers here in the United States,” Huss said

Wenonah Hauter, director of Public Citizen’s energy program, mostly blamed lax regulation and the gas industry for the skyrocketing prices. She noted that gas prices increased 245% from 1999 to 2001. This “[was] not justified by the underlying market conditions,” but rather was the result of abuses, she charged.

Hauter told Senate lawmakers that federal agencies and the state of California have authorized $2 billion in fines, penalties, refunds and other enforcement actions against natural gas companies for manipulation of domestic markets in the past two years.

Hauter called for five reforms to the gas market. First, she said the Commodity Futures Trading Commission needs to step up its oversight of transactions on over-the-counter (OTC) exchanges. She noted that traders on the under-regulated OTC exchange currently aren’t required to disclose information about their trades to a government entity, “allowing energy companies, investment banks and hedge funds to escape federal oversight.”

Public Citizen “[has] identified over 200 hedge funds with significant positions in natural gas trading markets,” Hauter said. Given the “sheer size of these funds…they need to be regulated. The government needs to be able to track shenanigans going on by having access to information. Companies engaging in futures trading [on OTC exchanges] should be required to report the details of their contracts, their prices and who they are dealing with.”

Secondly, Hauter also proposed reforming the New York Mercantile Exchange’s natural gas trading price limits. She noted that the Nymex will suspend trading of gas futures for only five minutes if there is a price change of $3/MMBtu during a daily session. “This $3 limit is roughly half the current price of natural gas.” But with other commodities, the price limits are much more stringent, and trading is halted for a day. Nymex needs to have much stricter price limits, according to Hauter.

Thirdly, she said the Federal Energy Regulatory Commission should have a legal mandate to ensure “just and reasonable” prices for natural gas, just as it now has for electricity. “We need a similar standard for natural gas.”

Moreover, “We need a federally controlled and regulated natural gas storage system to make sure demand can be met at a reasonable price,” she said. Hauter went as far as to propose the creation of a “Strategic Natural Gas Reserve,” modeled after the Strategic Petroleum Reserve.

And lastly, Hauter believes there should be more state and local control over LNG facilities. “Even assuming the need for…LNG facilities, the Senate Commerce Committee should make sure that such as expansion contains new protections for states to have adequate jurisdiction over safety, environmental and consumer protections,” she said.

“Given the concerns raised by state officials and at least 20 U.S. senators regarding improper FERC assertion of jurisdiction over traditional state domains on electricity markets, it would seem that Congressional action asserting the rights of states on LNG siting may be required.”

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