Sen. Carl Levin (D-MI) last Monday said he and several other senators are drafting legislation to be debated in the fall that would subject unregulated electronic energy trading platforms, such as Atlanta-based IntercontinentalExchange (ICE), to the oversight of the Commodity Futures Trading Commission (CFTC). The CFTC also announced that it will hold a September hearing to review its level of regulation in energy markets.
The legislation would eliminate the so-called Enron loophole to the Commodity Exchange Act, which excludes electronic energy trading platforms from CFTC regulation, said Levin, chairman of the Senate Permanent Subcommittee on Investigations (PSI), which has spent the last year investigating “excessive speculation” in the natural gas futures markets. The loophole is a “recipe for mischief,” he told reporters during a Platts Energy Podium in Washington, DC.
The measure would bring ICE and others under the same regulation as the New York Mercantile Exchange (Nymex), he said. Levin noted that he is working with Sen. Dianne Feinstein (D-CA), who has advocated closing the Enron loophole for years, and Sens. Olympia Snowe (R-ME) and Jeff Bingaman (D-NM), chairman of the Senate Energy and Natural Resources Committee. The lawmakers will seek to close the loophole in separate, stand-alone legislation or as an amendment to another bill, he said.
Since “you can’t get [into] every bilateral trade,” Levin said the bill probably would only require that bilateral energy trades that are cleared through electronic trading exchanges be regulated by the CFTC. “That seems to be a logical place to draw the line.” Levin further noted that the bill would cover all energy, not just natural gas.
Past efforts in Congress to eliminate the Enron loophole have been defeated, but Levin thinks the tide may be shifting. “Suddenly you got a major business force on our side” — Nymex and “probably” ICE, he said.
At a hearing last month before Levin’s subcommittee, ICE Chairman and CEO Jeffrey C. Sprecher signaled his support for legislation that would eliminate excessive speculation in natural gas trading markets and establish limits on the positions that energy traders could hold on electronic trading exchanges (see NGI, July 16).
“We were caught pleasantly [by surprise] by ICE and also by Nymex” during the hearing, Levin said.
As for the enforcement actions taken by the CFTC and Federal Energy Regulatory Commission in late July against failed hedge fund Amaranth Advisors LLC (see NGI, July 30), he said “obviously there was some sense of satisfaction that we triggered” the two agencies into action. But he stressed that the PSI’s hearings and year-long investigation into speculation in the natural gas futures markets, which focused exclusively on Amaranth, was entirely different from the focus of the regulators’ enforcement actions, which was manipulation of the gas markets.
“We did not look at the manipulation piece,” he said during the press briefing. The CFTC and FERC were interested in “punishing” people who allegedly manipulated the market, which Levin said he and his subcommittee supported.
In a related development, the CFTC last Thursday said it will hold a hearing on Sept. 18 at its headquarters in Washington, DC, to examine the oversight of energy trading on regulated exchanges and exempt commercial markets (ECMs).
The agency said it intends to present findings and make recommendations based on the public proceeding to help inform the debate when Congress takes up CFTC reauthorization.
“The evolution of these energy markets in recent years requires our agency to address whether the level of regulatory oversight is proper given the importance of energy prices to all Americans,” said CFTC Acting Chairman Walter L. Lukken. “Through our regulatory and enforcement efforts, the Commission must continue its zero tolerance policy toward manipulative behavior” in energy markets.
The announcement of the CFTC hearing came less than a month after the Senate Permanent Subcommittee on Investigations took the agency to task for not properly overseeing the activities of Amaranth in 2006.
The CFTC said the September hearing will focus on a number of issues, including the:
Witnesses at the planned CFTC hearing will include members of the energy trading community, financial services trade associations and energy consumer groups, the agency said. It noted that more details on the hearing will be made available in early September.
In other action last week, the Senate confirmed two nominees to the CFTC — Jill E. Sommers and Bart H. Chilton — bringing the agency almost up to full capacity.
Sommers was the former head of U.S. regulatory affairs at the International Swaps and Derivatives Association. Prior to that, she was the associate director of government affairs at the Chicago Mercantile Exchange. Her term will expire on April 13, 2009.
Chilton’s most recent post was chief of staff and vice president for government relations at the National Farmers Union. He also was senior advisor to former Senate Majority Leader Tom Daschle of South Dakota, and served in the Clinton administration. His term will expire on April 13, 2008.
The two will join Lukken and CFTC Commissioner Michael Dunn at the five-member agency. This leaves one vacancy still to be filled.
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