In a major victory for energy traders, Sen. Dianne Feinstein (D-CA) last week withdrew her controversial amendment to re-regulate the trading of over-the-counter (OTC) energy and metals derivatives after the Senate defeated a cloture motion to end debate on the measure.

The measure, which Feinstein had offered in response to the financial collapse of Enron Corp., faced widespread opposition from Senate Republicans, who narrowly (50 to 48) blocked Democrat efforts to bring it up for a vote.

But it might be premature to declare the Feinstein initiative completely dead. “I intend to approach [Sen.] Feinstein” to work out some kind of a compromise, said Sen. Phil Gramm (R-TX), within hours after Feinstein pulled her amendment from consideration in the Senate. Gramm, a leading opponent of the derivatives’ initiative, had tried previously to negotiate an agreement with Feinstein, but was unsuccessful.

“I didn’t encourage her to do it,” Gramm noted, referring to Feinstein’s move to withdraw her amendment. Feinstein took this action “because she felt she had taken up enough of the Senate’s time,” countered Senate Majority Whip Harry Reid (D-NV). Her proposal, which had been offered as part of the omnibus energy bill (S. 517), had been the subject of heated debate on the floor for nearly a month.

The Senate vote was a key victory for companies like Dynegy Corp. and IntercontinentalExchange (ICE) that operate on-line trading platforms over which energy derivatives are traded, while it was a setback for consumer groups that favored closer oversight of OTC derivatives.

The defeat of Feinstein’s proposal “helps ensure the continued certainty in competitive energy markets,” said Dynegy spokesman David Byford. “We were very concerned. If the vote had gone the other way, it could have discouraged companies from using hedges to temper price volatility,” he noted, adding that price increases would have been passed on to energy consumers. Moreover, it could have stepped up the migration of energy markets overseas, he said.

With the defeat of the OTC derivatives measure, Ed Mierzwinski of the U.S. Public Interest Research Group (PIRG) said the Senate “failed its first test on Enron reform.”

“We are deeply disappointed the Senate chose not to deal with this important issue,” noted Adam Goldberg, policy analyst with Washington, DC-based Consumers Union, the non-profit publisher of Consumer Reports Magazine. Feinstein’s proposal “would have addressed a serious problem that became evident with the Enron collapse, and it would have been prudent in an energy bill to deal with such a great problem,” he told NGI. “Investors have a right to know what they are investing in. Enron deliberately made their transactions murky.”

Randall Dodd, director of the Washington-based Derivatives Study Center, said Senate support for Feinstein’s proposal had dropped over the past couple of weeks. “Wall Street lobbyists [had] gotten to quite a few senators” since then, he noted. He specifically cited J.P. Morgan Chase, Citigroup, Bank of America, Merrill Lynch and the International Swaps & Derivatives Association as the leading opponents to the measure.

Feinstein’s measure sought to bring OTC energy/metals derivatives under the regulatory umbrella of the Commodity Futures Trading Commission (CFTC). Specifically, it would have subjected online trading exchanges to the reporting and capital requirements that already are imposed on other established exchanges, such as the New York Mercantile Exchange, the Chicago Board of Trade and Chicago Mercantile Exchange.

Feinstein believed that the largely unregulated online trading platforms, such as EnronOnline (now owned by UBS Warburg), were to blame for the high natural gas and electricity prices in California during 2000 and 2001.

Meanwhile, the Democrat leadership continued to express its frustration last week over the failure of Sen. Frank Murkowski (R-AK) to offer his much-awaited proposal to open the Arctic National Wildlife Refuge (ANWR) to oil and natural gas drilling. Last Thursday, Murkowski said the amendment, which promises to be controversial, “hopefully” will make it to the Senate floor by Tuesday.

“We have done everything but beg” for an ANWR proposal from the Republicans, Reid said. “I don’t understand why we have yet to take up ANWR…We’ve been told for months, if not years, …how critical ANWR is,” said a very frustrated Majority Leader Tom Daschle (D-SD).

The Democratic criticism over the delay with an ANWR amendment is “valid,” agreed Gramm, but he noted Republicans want a straight up-or-down vote on the issue. As it stands, Murkowski and other ANWR proponents will need the support of 60 senators just to bring the ANWR amendment to the Senate floor for a vote by the entire chamber.

At a press briefing last Wednesday, Daschle cited a news article that estimated 50 senators were opposed to opening ANWR to exploration and production. This is a “remarkable illustration of how little support there is for ANWR,” he said.

The energy bill is “so far from closure…I want to complete it,” said Daschle, but he noted that there still were a number of amendments pending after more than two weeks of debate. He called for more cooperation from Senate Republicans on key issues.

By the end of the week, both the Senate Republicans and Democrats appeared to have whittled down the number of amendments still to be offered. The latest count was “10 to 14” amendments on the GOP side, said Murkowski. Senate Energy Committee Chairman Jeff Bingaman (D-NM) estimated there were slightly more on the Democrat side, but added that it was making “good progress.”

In other action on the energy bill, the Senate fought off an attempt by Sen. Larry Craig (R-ID) to strike the entire electricity title from the legislation. Citing the complexity of the electricity title, Craig supported sending that portion of the bill to the Senate Energy and Natural Resources Committee for review before being voted on by the full Senate. “The Senate owes the electric utility industry and ratepayers nothing less,” he said on the floor.

The electricity title originally sought to expand FERC’s authority in a number of areas, including mergers and transmission siting, and also to augment its market-based rate authority and ability to remedy unjust electric rates. But a series of amendments offered by Sen. Craig Thomas (R-WY), which were approved by the Senate in March, scaled back these attempts. In addition, the bill would repeal the Public Utility Holding Company Act and the Public Utility Regulatory Policies Act of 1978.

The Senate also adopted an amendment last Thursday to create a bipartisan, 11-member consumer energy commission that will study recent price spikes in the domestic energy markets, including natural gas, from a consumer perspective and make recommendations to Congress.

The measure, offered by Sen. Richard Durbin (D-IL) as part of the Senate omnibus energy bill (S. 517), calls for commission members to be drawn from consumer groups, the energy industry and government. The panel would focus on the causes of past price spikes, including supply and demand, processing, inventory, infrastructure, regulatory failure, distribution and market-power abuses. The group would recommend potential legislative and administrative action to avert future spikes in energy prices.

The commission would be of “limited duration” and “limited expense,” Durbin noted. It would last approximately 270 days, during which time it would choose members, have its first meeting and make a report to Congress, a Durbin spokesman said. The cost would be limited to $400,000.

Of the 11 commission members, the Democratic and Republican congressional leadership each will nominate four, equally divided between consumer and industry representatives. The Bush administration will appoint one member from the energy industry, one from a consumer group and a representative from the Department of Energy (DOE).

The commission also would consult with the Federal Energy Regulatory Commission, the Federal Trade Commission and other agencies.

“It is time for us to invite consumers across America to be part of this conversation about America’s energy future,” Durbin said Thursday. “The commission really is an effort…to try to invite that conversation so that consumers and small business and family farmers will be part of our national [energy] strategy.”

He noted that American energy consumers have been on an “endless roller coaster ride” with respect to energy prices. “Opening a natural gas bill or pulling up to the pump can be a jolting and unexpectedly painful experience. It’s time to stop subjecting hardworking families to these price spikes.”

In another development, the Senate passed an amendment that calls for the Department of Energy to study the effects of gas pipeline construction on the Great Lakes’ states. The sponsors, Sens. Carl Levin (D-MI) and Michael DeWine (R-OH), are “very aware of the large amount of gas-fired power plants that are scheduled to go on line in the Northeast in the next few years,” and believe it would be “prudent now” to do an assessment of which would be the best (as well as worst) corridors within the Great Lakes’ region to build pipelines to serve those facilities, said a Capitol Hill spokesman.

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