Republican and Democratic senators Tuesday drew lines in the sand over key amendments to strike a federal mandate for renewable energy from the omnibus energy bill (S. 517), and to regulate trading of over-the-counter (OTC) energy derivatives.

Sen. Jon Kyl (R-AZ) offered a proposal to eliminate a Democrat-backed federal requirement that utilities generate 10% of their electricity using renewable energy fuels, such as solar energy, biomass and wind. Instead, he proposed that the decision to mandate renewable fuels for power production be left to individual states.

Republicans argued that the Democrat federal standard, which was proposed by Sen. Jeff Bingaman (D-NM), would mandate an “unrealistic level” for use of renewable fuels to generate electricity. This is a “modest requirement,” countered Bingaman, who said it was “very doable.” This does not seek to preempt states, but rather is an attempt to “move them along the road,” he noted.

A vote on the Kyl amendment will occur when the Senate resumes debate on the energy bill Wednesday, said Majority Leader Tom Daschle (D-SD).

After failing to reach a compromise with Sen. Dianne Feinstein (D-CA), Sen. Phil Gramm (R-TX) led Republicans Tuesday in opposition to a controversial “modified” amendment that would bring trading of energy and metals derivatives under the regulatory umbrella of the Commodity Futures Trading Commission (CFTC). Gramm argued that many of the reforms that Feinstein and other western Democrats are seeking already are law.

“…[E]verything that the proponents of this amendment claim that they’re for is part of current law,” he said, referring to the 2000 re-authorization of the Commodity Futures Trading Commission Act. That “provided specific anti-fraud authority for the CFTC in exactly the areas that the senator from California calls for,” as well as authorizes the CFTC to intervene in the case of price manipulation, Gramm noted.

He noted that Federal Reserve Chairman Alan Greenspan is concerned about the amendment’s “unintended consequences” on the overall economy. Other notable opponents include Treasury Secretary Paul O’Neill, Securities and Exchange Commission Chairman Harvey Pitt and CFTC Chairman James Newsome — “the very commission that would be empowered by this amendment.” In addition, the Chamber of Commerce is worried about the “harmful effect” of the proposal on markets outside of energy.

Feinstein contends that her bill would eliminate a “giant loophole” created by the Commodity Futures Modernization Act (CFMA) of 2000, which she said exempted energy and metals derivatives from CFTC oversight. But Gramm said Feinstein’s belief that the 2000 bill exempted derivatives from regulation was “totally false, totally inaccurate.”

These “very complicated, tailored instruments” have never been regulated, according to Gramm.

The $75 trillion derivatives industry “is the envy of the world,” he said, and should be left alone by the Senate. If anything, he suggested that the Senate post a “little sign up” on derivatives trades that says, “Danger. High Voltage. Don’t be fooling around in here if you don’t know what you’re doing.”

Feinstein’s modified amendment would strengthen CFTC oversight in the energy derivatives market, subjecting on-line trading exchanges — such as those operated by Enron and Dynegy — 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 the Chicago Mercantile Exchange.

Feinstein noted that 90% of all energy trades represent “purely financial transactions,” and are not currently regulated by either the Federal Energy Regulatory Commission or the CFTC.

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