As a further fallout from Enron Corp.’s financial collapse, three Democratic senators from the West Coast introduced legislation in Congress last week to step up the regulatory oversight of the energy markets to ensure full disclosure of all energy transactions. They plan to offer the measure as an amendment to the comprehensive energy bill, which the Senate is expected to take up after the Presidents Day recess.

The initiative seeks to close the loopholes that were granted by the Commodity Futures Modernization Act of 2000, which the senators claim allowed energy companies, such as Enron, to operate outside the radarscope of regulators. Sponsors of the legislation are Sens. Dianne Feinstein of California, Maria Cantwell of Washington and Ron Wyden of Oregon.

The proposal seeks to expand the Commodity Futures Trading Commission’s (CFTC) oversight in the paper energy markets, giving it regulatory authority over energy derivative transactions (where there is generally no delivery) on multilateral markets and over private online trading platforms.

It would subject all multilateral markets and dealers in energy commodities to registration, transparency, disclosure and reporting obligations. Also, companies running online trading platforms would be required to maintain sufficient capital to carry out their operations, and would be required to maintain open books and records for investigation and enforcement purposes.

The proposed measure would augment the Federal Energy Regulatory Commission’s oversight of the physical natural gas and electricity markets, providing the agency with the authority to regulate rates for bilateral energy transactions and all other energy deals that are not regulated by the CFTC.

“The Enron bankruptcy has uncovered many gaping holes in our regulatory structure, everything from accounting and investment practices to online energy transactions. Congress must take a look at all of this. The bill we are introducing…is a first step,” said Feinstein.

On the House side, Rep. Peter DeFazio (D-OR) is drafting legislation to combine the CFTC and the Securities and Exchange Commission into a single regulatory body, which would regulate over-the-counter derivatives, as well as carry out each commission’s current activities. Derivative deals would have to register with the new commission, and report their market activities to federal regulators. As with the Feinstein measure, they would also be required to maintain adequate capital and collateral on their transactions.

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