Union Tribune

July 11, 2002 

Feinstein again urges energy oversight

By TOBY ECKERT 
COPLEY NEWS SERVICE 

WASHINGTON Sen. Dianne Feinstein, D-Calif., has renewed her
push for stricter federal oversight of energy trades, hoping that
recent revelations of questionable deals and apparent price
manipulation will give new momentum to legislation that her
colleagues scuttled three months ago.

The proposal drew bipartisan support from lawmakers during a
Senate committee hearing yesterday. But it continues to face
opposition from some energy companies, business groups and
the head of the Commodity Futures Trading Commission, or
CFTC.

That opposition blocked Feinstein from attaching a similar
proposal to broader energy legislation in April.

Since then, more evidence has emerged that Enron Corp. and
other companies sought to manipulate power prices in California
during the 2000-01 power crisis and engaged in sham
transactions to boost revenue.

"I would have to say I think that the tenor of the time to get this
passed is much better today than it was three months ago,"
Feinstein said, adding that she may try to add the legislation to a
bill that would tighten regulation of the accounting industry.

Her proposal would subject all energy transactions to anti-fraud
and anti-manipulation oversight by the CFTC and the Federal
Energy Regulatory Commission, or FERC.

It would also impose reporting obligations on energy and metals
trades that are conducted electronically and require traders to
maintain sufficient capital to carry out the transactions.

The bill would effectively revoke broad regulatory exemptions
that Congress granted two years ago to energy derivative
contracts, which are used to set long-term prices for electricity,
natural gas and other commodities. 

Lawmakers also exempted online power trading from most
regulation.

Enron, which declared bankruptcy in December amid a raft of
alleged financial improprieties, was heavily involved in both
businesses.

"We've seen the gaming, we've seen the manipulation of the
market, and we've seen the absence of transparency. The time
has come to close this loophole," Feinstein told the Senate
Agriculture Committee, which has jurisdiction over commodity
trading.

But CFTC Chairman James Newsome cautioned lawmakers not to
rush forward with new regulations.

"With regulation comes a cost, and in this area I think very
substantial regulatory cost, both in terms of taxpayer dollars to
fulfill what this new mission potentially might be, and huge costs
to market participants. I don't feel comfortable recommending
that cost . . . until we have spent our time making sure that
whatever legislation passes does indeed solve the problems that
have been created by the Enron collapse," he told the
committee.

But CFTC Commissioner Tom Erickson endorsed much of
Feinstein's proposal, saying it would impose "modest
transparency, disclosure and reporting obligations" on energy
traders.

Sen. Richard Lugar, the top Republican on the Agriculture
Committee, signaled an about-face from his earlier opposition to
the proposal.

"Clearly, something has to change here. . . . The general public of
the country is looking to you, looking to us, for somebody to get
a handle on something that egregiously is wrong," he told
Newsome.

Separately, Feinstein introduced legislation yesterday that
would increase fines and prison sentences for violations of
federal power laws and make it easier for FERC to hire outside
accountants, lawyers and other experts to aid investigations. 

The maximum fine for violations would rise to $1 million from
$5,000 and the maximum prison sentence would increase to
five years from two.

Feinstein said the proposal was a response to a recent
congressional study that concluded FERC was ill-equipped to
police power markets.