Union Tribune

April 11, 2002 

Bid to rein in energy firms fails

By TOBY ECKERT 
COPLEY NEWS SERVICE 

WASHINGTON An effort to increase federal oversight of
energy trading, motivated by California's power crisis and the
Enron debacle, failed yesterday when Sen. Dianne Feinstein and
other supporters were unable to clear the way for a vote.

Consumer groups called it the first test of Congress' resolve to
tighten regulations in the wake of the Enron scandal. But
opponents said the measure was too broad and would have
endangered the complex market in derivatives, which are used
to set future prices for electricity and other commodities.

Feinstein drafted the measure, which she was trying to attach to
a larger energy bill the Senate is debating, two months after
Enron declared bankruptcy. It would have lifted some of the
secrecy surrounding over-the-counter energy and metals
derivatives and, the California Democrat argued, prevented the
manipulation of power markets.

Enron was a major player in the derivatives market. Federal
regulators recently launched an investigation into whether the
company manipulated power prices on the West Coast during
the California crisis. A Senate subcommittee is scheduled to
delve into the issue today. 

Supporters were unable to muster the 60 votes necessary to cut
off debate and force a vote on Feinstein's amendment.
Forty-eight senators supported the move, while 50 opposed it.

"Its defeat means an enormous loophole remains open, allowing
energy and metals to be traded online with no anti-price
manipulation oversight, no transparency and no provisions to
ensure adequate capital," Feinstein said. "This loophole was
created for Enron, by Enron, and I think it is tragic that the
Enron experience was not enough to enable . . . passage at this
time."

But opponents, including Federal Reserve Chairman Alan
Greenspan, said the measure could have had far-reaching
consequences for the $100 trillion over-the-counter derivatives
market. Energy and metals represent about 2 percent of that
market.

"We do not want to endanger a market that Alan Greenspan says is critical to the future of the economy," said Sen. Phil Gramm, R-Texas, who led the opposition to Feinstein's amendment. "We support and are willing to work with her to achieve her stated objectives of strict enforcement against fraud and price  manipulation, and greater access to information by the regulators, but we want to be sure that we don't do other things that are not intended."

Earlier talks aimed at working out a compromise between
Feinstein and Gramm collapsed.

Gramm co-sponsored legislation in 2000 that exempted energy
derivative contracts from federal oversight, including trading on
Enron's online market. That shielded many of Enron's energy
dealings from review by federal regulators and from price and
volume disclosures that must be made by other commodity
exchanges.

Feinstein's legislation would have given the Commodity Futures
Trading Commission oversight of energy and metals derivative
transactions, imposing reporting and capital requirements.

An array of business groups, including power marketers, lobbied
against the proposal.

Consumer groups, California officials and an energy consultant
are expected to testify at a Senate Commerce subcommittee
hearing today that Enron was in a position to wield great control
over power prices on the West Coast during the California crisis,
when prices soared to unprecedented levels.

Some say that a lack of disclosure requirements makes it difficult to determine whether the market was being manipulated.

"Do we know whether Enron exercised its market power in an
attempt to increase prices during the market crisis that occurred
between May 2000 and July 2001? No," consultant Robert
McCullough said in testimony prepared for the subcommittee.
"Publicly available data simply isn't that detailed."

Enron has repeatedly denied manipulating markets. Company
officials are not scheduled to testify at the hearing.