Legislative language that would have given the Commodity Futures Trading Commission (CFTC) greater oversight over wholesale natural gas prices was stricken from a broad amendment on electricity that was unveiled last Wednesday by the Senate Energy and Natural Resources Committee, as the full Senate prepared to return to debate on the energy bill this week.

The amendment, unveiled by Committee Chairman Pete Domenici (R-NM), calls on the Federal Energy Regulatory Commission — not the CFTC — to issue rules to set up an electronic information system to provide regulators and the public with access to wholesale electricity prices and data on transmission capacity availability. There is no mention of gas price oversight, but the amendment makes clear that attempts to manipulate gas or electric prices, through price reporting or other means, is illegal.

The proposal, which seeks to shore up regulation of power markets, will be offered as part of a substitute to the existing electricity title in the Senate omnibus energy bill (S. 14), possibly on Monday (July 28). Debate on the bill began last Thursday night, but no votes were expected until late Monday. Senate Majority Leader Bill Frist (R-TN) has vowed to keep the Senate in session — even into the August recess period — until the energy bill is completed.

“We’ve been told [the] recess days will not commence until we finish this bill,” said Domenici on the floor Friday. “The time is here; the time has come” for energy legislation. “We will try to push that as nicely and calmly, but as rigorously as we can for the next five or six days in an effort to complete this bill.”

A number of other amendments are scheduled to come up for a vote this week, but the electricity proposal will likely be the most contentious. Domenici, the energy bill’s floor manager, said last week he had a “bipartisan agreement” on the Republican-sponsored substitute electricity amendment, but key Democrats complained last week that the measure lacked their imprint.

The substitute electricity amendment “is in the hands of all the senators…Because it is so important, it is in the hands of hundreds of experts and lobbyists and companies across this country. And by Monday, everybody should know what they want to do with it, to it and for it,” Domenici noted.

The amendment’s proposal for an electronic information system for wholesale power markets, which would be established within six months of an energy bill being enacted into law, would make price and market information available to federal and state regulators, buyers and sellers of wholesale electricity, users of transmission services and the public, according to the Domenici amendment.

The measure would give FERC the authority to bar the disclosure of any information that could be “detrimental to the operation of an effective market or jeopardize system security,” which appears to be an exemption from the Freedom of Information Act and a directive to clamp down on the indiscriminant release of confidential information. In deciding which information should be posted, the Commission should try to “ensure that consumers and competitive markets are protected from the adverse effects of potential collusion or other anticompetitive behaviors that can be facilitated by untimely disclosure of transaction-specific information,” the amendment said.

It further would make it illegal for parties to “knowingly and willfully” report false information on the price of electricity sold at wholesale and on the availability of transmission capacity. It specifically prohibits parties from “knowingly and willfully” participating in round-trip trading of electricity, a practice that a number of energy traders engaged in to boost their trading volumes.

An anti-manipulation price reporting provision applies to both gas and electricity. It specifies that parties would be in violation of the Commodity Exchange Act if they “knowingly and willfully” reported or manipulated information on the “price, quantity, sale or purchase, and counterparty of any agreement, contract or transaction related to natural gas or electricity in interstate commerce, which the person or entity knew to be false at the time of reporting to any governmental entity or any person or entity engaged in the business of collecting and disseminating information.” Violators would be subject to potential “administrative or civil action” by the CFTC.

This “strengthens the [CFTC’s] authority to investigate and punish fraud and manipulation in the reporting of electric and natural gas prices. The CFTC’s anti-fraud authority is also clarified to apply to all principal-to-principal transactions, thereby closing the so-called Enron loophole,” Domenici said.

The measure would amend the Federal Power Act to boost FERC criminal penalties against violators to $1 million, and potential prison terms to five years. FERC’s civil penalty authority would increase to $1 million as well. The proposal would amend the Natural Gas Act to make violators subject to fines of up to $1 million and five years in prison.

It also would move up the date for electricity refunds to take effect. Currently the earliest date for refunds to take effect is 60 days after a complaint has been filed at FERC. The amendment seeks to eliminate the 60-day waiting period, thus making the earliest effective date for refunds on “the date of the filing of such complaint.”

The requirement for strict CFTC oversight of gas prices by regulating the publications which collect the prices — part of an draft which suddenly surfaced early last week — were removed at the eleventh hour. The provision would have required the publications to follow standards set up by the CFTC and regularly report to the agency, making the publications de facto self-regulating organizations. It was opposed by McGraw-Hill, which publishes Platts, and Intelligence Press, which publishes the Natural Gas Intelligence (NGI) newsletters, as contrary to their function as members of the free press.

Capitol Hill observers said last week’s FERC report and the CFTC endorsement of that report, which found no market manipulation involved in the February natural gas price spikes, plus the joint agency issuance of a safe harbor provision and encouragement to the industry (See related stories), helped to head off onerous requirements for natural gas price reporting. They also cited almost around-the-clock lobbying, aimed at preserving a functioning gas market and keeping FERC in the picture, by a number of those involved over the past few days.

A significant feature of the Domenici amendment, as currently written, has FERC issuing rules to set up the electronic system for power price reporting, not the CFTC. Some Wall Street firms have sought to give more authority for gas and power price oversight to the CFTC, saying FERC does not have the necessary expertise in markets. Opponents have noted that FERC has been fast acquiring that expertise and that the CFTC only deals in paper and has no knowledge of where and how gas flows, which is a key ingredient in physical prices.

There still may be a battle on the Senate floor over price transparency when the Democrats weigh in, and there is a provision authorizing FERC to set up a gas price reporting system in the House version of the energy bill (see Daily GPI, April 7). The House provision, however, was not part of the original legislation crafted by the committee leaders, and they would not be expected to push the point in a conference committee.

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