[House Prints 110-110]
[From the U.S. Government Publishing Office]



 
   ENERGY SPECULATION: IS GREATER REGULATION NECESSARY TO STOP PRICE 
                             MANIPULATION?

=======================================================================

                                HEARING

                               BEFORE THE

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                           DECEMBER 12, 2007

                               __________

                           Serial No. 110-78





      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov

                              _____________


                   U.S. GOVERNMENT PRINTING OFFICE
46-477 PDF                  WASHINGTON : 2008
----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, 
Washington, DC 20402-0001




                    COMMITTEE ON ENERGY AND COMMERCE

                  JOHN D. DINGELL, Michigan, Chairman

HENRY A. WAXMAN, California          JOE BARTON, Texas
EDWARD J. MARKEY, Massachusetts          Ranking Member
RICK BOUCHER, Virginia               RALPH M. HALL, Texas
EDOLPHUS TOWNS, New York             FRED UPTON, Michigan
FRANK PALLONE, Jr., New Jersey       CLIFF STEARNS, Florida
BART GORDON, Tennessee               NATHAN DEAL, Georgia
BOBBY L. RUSH, Illinois              ED WHITFIELD, Kentucky
ANNA G. ESHOO, California            BARBARA CUBIN, Wyoming
BART STUPAK, Michigan                JOHN SHIMKUS, Illinois
ELIOT L. ENGEL, New York             HEATHER WILSON, New Mexico
ALBERT R. WYNN, Maryland             JOHN B. SHADEGG, Arizona
GENE GREEN, Texas                    CHARLES W. ``CHIP'' PICKERING, 
DIANA DeGETTE, Colorado              Mississippi
    Vice Chairman                    VITO FOSSELLA, New York
LOIS CAPPS, California               STEVE BUYER, Indiana
MICHAEL F. DOYLE, Pennsylvania       GEORGE RADANOVICH, California
JANE HARMAN, California              JOSEPH R. PITTS, Pennsylvania
TOM ALLEN, Maine                     MARY BONO, California
JAN SCHAKOWSKY, Illinois             GREG WALDEN, Oregon
HILDA L. SOLIS, California           LEE TERRY, Nebraska
CHARLES A. GONZALEZ, Texas           MIKE FERGUSON, New Jersey
JAY INSLEE, Washington               MIKE ROGERS, Michigan
TAMMY BALDWIN, Wisconsin             SUE WILKINS MYRICK, North Carolina
MIKE ROSS, Arkansas                  JOHN SULLIVAN, Oklahoma
DARLENE HOOLEY, Oregon               TIM MURPHY, Pennsylvania
ANTHONY D. WEINER, New York          MICHAEL C. BURGESS, Texas
JIM MATHESON, Utah                   MARSHA BLACKBURN, Tennessee
G.K. BUTTERFIELD, North Carolina
CHARLIE MELANCON, Louisiana
JOHN BARROW, Georgia
BARON P. HILL, Indiana

                                 ______

                           Professional Staff

                 Dennis B. Fitzgibbons, Chief of Staff

                   Gregg A. Rothschild, Chief Counsel

                      Sharon E. Davis, Chief Clerk

           David L. Cavicke, Minority Staff Director7*ERR03*

              Subcommittee on Oversight and Investigations

                    BART STUPAK, Michigan, Chairman
DIANA DeGETTE, Colorado              ED WHITFIELD, Kentucky
CHARLIE MELANCON, Louisiana              Ranking Member
    Vice Chairman                    GREG WALDEN, Oregon
HENRY A. WAXMAN, California          MIKE FERGUSON, New Jersey
GENE GREEN, Texas                    TIM MURPHY, Pennsylvania
MIKE DOYLE, Pennsylvania             MICHAEL C. BURGESS, Texas
JAN SCHAKOWSKY, Illinois             MARSHA BLACKBURN, Tennessee
JAY INSLEE, Washington               JOE BARTON, Texas (ex officio)
JOHN D. DINGELL, Michigan (ex 
    officio)

                                  (ii)

  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Stupak, Hon. Bart, a Representative in Congress from the State of 
  Michigan, opening statement....................................     1
Whitfield, Hon. Ed, a Representative in Congress from the 
  Commonwealth of Kentucky, opening statement....................     5
Dingell, Hon. John D., a Representative in Congress from the 
  State of Michigan, opening statement...........................     6
Burgess, Hon. Michael C., a Representative in Congress from the 
  State of Texas, opening statement..............................     7
Green, Hon. Gene, a Representative in Congress from the State of 
  Texas, opening statement.......................................     9

                               Witnesses

Greenberger. Michael, professor of law and director, Center for 
  Health and Homeland Security, University of Maryland...........    10
    Prepared statement...........................................    14
    Answers to submitted questions...............................   281
Campbell, Laura, assistant manager, energy resources, Memphis 
  Light, Gas, and Water..........................................    32
    Prepared statement...........................................    34
Cota, Sean, president and co-owner, Cota & Cota Incorporated.....    40
    Prepared statement...........................................    43
LaSala, Tom, chief regulatory officer, division of compliance and 
  risk management, New York Mercantile Exchange, Incorporated....    55
    Prepared statement...........................................    57
Vice, Charles A., president and chief operating officer, 
  Intercontinental Exchange, Incorporated........................    88
    Prepared statement...........................................    89
    Answers to submitted questions...............................   284
Kelliher, Joseph T., Chairman, Federal Energy Regulatory 
  Commission.....................................................   128
    Prepared statement...........................................   134
Lukken, Walter, Acting Chairman, U.S. Commodity Futures Trading 
  Commission.....................................................   188
    Prepared statement...........................................   191
    Answers to submitted questions...............................   286

                           Submitted Material

Staff Report, dated June 27, 2006................................   218
Letter of December 10, 2007, from U.S. Commodity Futures Trading 
  Commission to Committee on Energy and Commerce.................   278

 
   ENERGY SPECULATION: IS GREATER REGULATION NECESSARY TO STOP PRICE 
                             MANIPULATION?

                              ----------                              


                      WEDNESDAY, DECEMBER 12, 2007

                  House of Representatives,
      Subcommittee on Oversight and Investigations,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 9:35 a.m., in 
room 2123 of the Rayburn House Office Building, Hon. Bart 
Stupak (chairman) presiding.
    Members present: Representatives Melancon, Green, Barrow, 
Inslee, Dingell, Whitfield, Walden, Murphy, Burgess, Blackburn, 
and Barton.
    Also present: Representatives Fossella and Shimkus.
    Staff present: Richard Miller, Scott Schloegel, John 
Arlington, John Sopko, Carly Hepola, Alan Slobodin, Dwight 
Cates, and Kyle Chapman.

  OPENING STATEMENT OF HON. BART STUPAK, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Stupak. The subcommittee will come to order.
    Today we have a hearing titled ``Energy Speculation: Is 
Greater Regulation Necessary to Stop Price Manipulation?'' 
Before we begin, I would like to make two quick comments. This 
is the 19th hearing of the Oversight and Investigations 
Subcommittee in 2007. I want to take a moment to thank all the 
staff and the members for their hard work throughout the year. 
This has been a very aggressive schedule, and I know staff on 
both sides of the dais have logged countless hours of 
investigations and research, and Members have done the same.
    I also want to thank my good friend, Mr. Whitfield, the 
ranking member, for his work and friendship on this 
subcommittee. Due to the departure of the former Speaker, Mr. 
Hastert, the minority re-drew their subcommittee assignments, 
and this will be Mr. Whitfield's last hearing as ranking 
member. However, you are going to remain on the committee, so 
your expertise will still be shared with all of us, and we 
thank you for your time and the courtesy you have shown me, 
personally, as chairman of the subcommittee this year.
    I would now like to recognize members for an opening 
statement, and I will begin.
    Of the 19 hearings this subcommittee has held this year, 
today's hearing is perhaps the most technical and complex. 
Americans do not sit around the dinner table and discuss 
futures markets, swaps, position limits, look-alike contracts, 
and exempt commercial markets. What families do talk about is 
the cost of gas, oil, home heating oil, and propane. They talk 
about how the high energy costs are literally taking food off 
their table to pay for their basic needs, such as 
transportation and warmth.
    In 1 day, we saw a 45-percent hike in gasoline prices in my 
district. In another energy spike example, one senior high-rise 
in my district saw their natural gas bill jump from just over 
$5,000 in November 2005 to an astonishing $13,000 one month 
later, in December.
    Futures contracts for energy are traded on New York 
Mercantile Exchange, NYMEX, which is regulated by the Commodity 
Futures Trading Commission, the CFTC. The unregulated 
international exchange market was created by the Enron loophole 
as part of the Commodity Futures Modernization Act of 2000.
    Unregulated markets are known as dark markets, because 
there is very little oversight of the trades. By trading on the 
dark ICE market, traders can avoid CFTC rules, which are in 
place to prevent price distortions and supply squeezes. This 
makes it difficult for regulators to detect excessive large 
positions, which could lead to price manipulation. Trading 
volumes on this dark market have skyrocketed in the past 3 
years and are now as large, or even larger, in some months as 
the volumes traded on the regulated futures market.
    [Chart shown.]
    Chart 3 that is before us shows the quantity of natural gas 
futures contracts on NYMEX and ICE are almost equal in 2006; 
239 trillion cubic feet on NYMEX versus 237 trillion cubic feet 
on ICE. To put this trading volume in perspective, the total 
U.S. consumption of natural gas in 2006, represented by the 
yellow, horizontal line near the bottom, was only 21.6 trillion 
cubic feet. So why is trading on each market 10 times more than 
necessary to supply America?
    [Chart shown.]
    Chart 4 shows that only 600,000 natural gas contracts were 
traded on the dark ICE market in January 2005, but increased by 
433 percent to 3.2 million contracts by October 2007. And why 
is that? The spiraling growth in commodity trading and dark 
markets has left regulators with a blind spot and the public 
without information to track how non-commercial traders could 
be affecting energy prices.
    The CFTC has no control over dark markets, and they lack 
enough staff to police the regulated markets, let alone the 
unregulated dark markets. This lack of oversight means that 
traders who exceed limits or who shun openness of futures 
markets will merely take their business to the dark markets.
    Less than one percent of futures contracts ever result in 
physical delivery. Thus, most future trades are not interested 
in delivery of a product. They are interested in profit. The 
Energy Information Administration recently observed that oil 
markets have been drawing increased interest and participation 
from investors and financial entities without direct commercial 
involvement in physical oil markets. A report from Lehman 
Brothers entitled ``Frenzied Oil Futures Frustrate 
Fundamentals'' states: ``The surge in oil markets to $90, the 
mirror image of last winter's price fall, seems underpinned 
more by financial flows and political risk than by fundamental 
factors.''
    Oil and gas trader Steven Schrock, who published the 
Schrock Report on Energy Markets, wrote ``factors other than 
supply and demand are now impacting the price. We now have to 
factor in how the speculators are going to affect the market, 
because they have different priorities in managing their 
portfolios.'' Rather than a market that is serving a price 
discovery function, we have a market that is more and more 
driven by profits and excessive prices. Often it is speculation 
based on fear, which leads to greed.
    Because of the Enron loophole, several major energy 
companies and hedge funds have been charged with price 
manipulation. In February 2004, British Petroleum acquired 90 
percent of all U.S. propane supplies. Once in control of the 
market, BP intentionally withheld propane from the market and 
charged buyers artificially inflated prices in a classic supply 
squeeze. In a recent Court settlement, BP agrees to pay $303 
million in penalties and restitution.
    In July of this year, FERC and the CFTC brought anti-
manipulation cases against Amaranth, a Connecticut-based hedge 
fund, which dominated natural gas financial markets for most of 
2006 until its ultimate collapse in September of 2006. FERC 
charged that Amaranth manipulated prices paid in the physical 
natural gas markets by driving down natural gas futures 
contracts through massive selling during the last 30 minutes of 
trading for the months of March, April, and May 2006 contracts. 
This then allowed Amaranth to profit from such larger short 
positions traded on the dark ICE market that bet on this price 
decline. FERC has proposed a $291 million in penalties and 
disgorgement of unjust profits.
    A June 2007 staff report by the Senate Permanent 
Subcommittee on Investigations entitled ``Excess Speculation in 
Natural Gas Market'' found Amaranth trading price increased 
volatility to the point that traders deemed the price ``out of 
whack'' with regard to supply and demand fundamentals. These 
out-of-whack prices may have cost industrial, commercial, and 
homeowners as much as $9 billion. When the regulated mark at 
NYMEX directed Amaranth to reduce its excessive positions in 
the natural gas contracts, Amaranth shifted 80 percent of its 
gas contracts over to the dark ICE market, allowing them to 
maintain and even increase their overall speculative position.
    [Chart shown.]
    Chart No. 6 shows that on August 28, 2006, Amaranth held 
nearly 100,000 contracts for September on ICE. To put this in 
perspective, by holding 100,000 contracts, a mere penny 
increase in price would result in profit to Amaranth of $10 
million. Amaranth traders knew this move would be invisible to 
regulators. In an August 29 instant message about a large price 
move, Amaranth lead trader wrote, ``classic pump and dump. Boy, 
I bet you see some CFTC inquiries in the last 2 days.''
    But another trader reminded him that most of the trades had 
taken place on the dark ICE market, using swaps. He replied, 
``only until the monitor swaps, no big deal.'' No big deal? 
Tell that to the homeowners across America who are paying 
record heating costs to heat their homes. Tell that to the 
domestic manufacturers who are paying exponentially higher 
energy prices to manufacture their goods. Tell that to the 
people who have been laid off because the manufacturing plant 
they worked in closed down and moved their operations offshore, 
where energy and labor costs are lower. Tell that to Municipal 
Gas Authority of Georgia, which buys natural gas for public 
utilities in four States and took $18 million in losses, which 
they contend was due to Amaranth's trading scheme.
    In another case of market manipulation, in July of 2007 
FERC and CFTC charged that the Energy Transfer Partners, ETP, 
manipulated natural gas prices by using its dominant market 
share in the Houston ship channel to force the price of natural 
gas down in order to profit from much larger short positions, 
many of which were held on the dark ICE market. This strategy 
earned ETP nearly $70 million in unjust profits, according to 
FERC. Driving down prices might seem to help consumers in the 
short term. However, in the long run, distorting price signals 
will drive up costs to consumers.
    I would like to now play voice recordings of individuals 
from the British Petroleum and Energy Transfer Partner cases. 
Here they are, in their own words.
    [Playing TV broadcast.]
    Shades of Enron all over again. So what are possible 
solutions to these problems of manipulation? CFTC recently 
proposed legislation to regulate dark markets. Witnesses today 
will explore whether these proposals go far enough to restore 
integrity to energy markets or will increase oversight of the 
dark market's drive energy commodity trading overseas to less 
regulatory jurisdictions. ICE futures already trade oil, 
gasoline, and heating oil swaps for U.S. delivery in London 
under the UK's Financial Services Authority, which has weaker 
market rules.
    Another tool in addressing manipulation is ensuring FERC's 
authority to police price manipulation trades that impact 
delivery of energy. Legislative intent on the part of this 
committee is clear. We fully expect the authority granted to 
FERC through the Energy Policy Act of 2005 will be upheld. We 
question whether CFTC, in trying to block FERC from enforcing 
its anti-manipulation authority, is circumventing congressional 
intent. Consumers could pay dearly if CFTC prevails, and this 
committee is unlikely to be a bystander, should that unlikely 
event occur.
    A third possible solution which has been proposed by 
Professor Michael Greenberger, who will testify before us 
today, is for the CFTC to close the loophole that allows U.S. 
traders to avoid CFTC regulation by using less regulated 
foreign markets to trade energy commodities. There are also 
several pending legislative proposals intended to address this 
problem: H.R. 3009, The Market Trust Act of 2007, sponsored by 
Representatives Barrow and Graves, H.R. 4066, Close the Enron 
Loophole Act, introduced by Representative Welch from Vermont, 
and H.R. 5942, Preventing Unfair Manipulation of Price Act, 
which I introduced with Chairman Dingell.
    In the end, what we need is less of the greed, of which we 
just heard from the traders' own voices a few moments ago and 
more honesty. We need to close the Enron loophole to close the 
foreign market loophole, and we need additional enforcement by 
the CFTC and FERC to clamp down on the fear and speculation 
that lead to greed and market manipulation.
    And with that, that is the end of my opening statement. I 
would next like to yield to Ranking Member, Mr. Whitfield.

  OPENING STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF KENTUCKY

    Mr. Whitfield. Thank you, Chairman Stupak, and I appreciate 
your comments about our working relationship on Oversight and 
Investigation, and I have certainly enjoyed working with you 
and look forward to continuing to do so as we move forward.
    I also appreciate this hearing this morning, and today's 
hearing will cover many diverse and complicated topics 
regarding how energy markets operate and whether further 
regulation is necessary. We will hear testimony about the lack 
of market transparency and excess speculation in the designated 
contract markets regulated by the Commodity Futures Trading 
Commission and the Wholesale Energy Markets, regulated by the 
Federal Energy Regulatory Commission. We will hear about 
regulatory arbitrage between the regulated futures market 
managed by the New York Mercantile Exchange and the unregulated 
over-the-counter market managed by the Intercontinental 
Exchange, or ICE.
    These matters are important and complex. Daily trading 
volumes in the energy markets have grown significantly over the 
past few years. In January 2005, only 600,000 natural gas swaps 
were traded on the ICE Exchange. This number has grown to 3.3 
billion in October of 2007. Increased trading activity has had 
an impact on price volatility, and concerns have been voiced 
about excess speculation and its potential impact on energy 
prices. Because of the crucial role energy prices have in our 
economy, Congress must ensure that regulators have the tools to 
protect energy consumers. As we consider all of these complex 
matters, I think we all share one fundamental concern. Do the 
prices consumers pay for energy represent fundamental supply 
and demand conditions in the marketplace, or are prices 
influenced by manipulation or other forces?
    According to the testimony of Ms. Laura Campbell, who 
represents the American Public Gas Association, the public 
utilities have lost confidence in the natural gas markets. She 
believes that market prices for natural gas are not an accurate 
reflection of supply and demand. I look forward to hearing her 
views, and I am sure that other members of the panel will also 
have views on this.
    However, there is some good news to report today from FERC. 
In response to provisions we included in the Energy Policy Act 
of 2005, FERC acted quickly to establish its office of 
enforcement. As a result, FERC has an enhanced ability to 
police the electricity and natural gas wholesale markets to 
prevent market manipulation. We look forward to the testimony 
of FERC Chairman Joe Kelliher regarding FERC's efforts to 
protect energy consumers.
    In his written testimony, Chairman Kelliher points out that 
Congress gave FERC all the tools needed 2 years ago. And at 
this time he testifies he does not believe that FERC needs any 
additional legal authority to protect consumers from market 
manipulation. I also look forward to the testimony of the New 
York Mercantile Exchange and the Intercontinental Exchanges, 
based in Atlanta. NYMEX is highly regulated by the CFTC, and 
ICE is not regulated. As Congress considers changes to the 
Commodity Exchange Act to increase regulation of over-the-
counter markets like ICE, we must ensure that FERC's consumer 
protection authorities are not diminished in this process.
    Fundamentally, FERC is a consumer protection agency. With 
respect to the alleged manipulative trading by the hedge fund 
Aeromat, FERC was the first to identify the problem and open an 
investigation. CFTC followed behind FERC with its own 
investigation, and I think this demonstrates the important and 
aggressive role that they are playing in protecting the 
American consumer.
    Mr. Chairman, I was going to introduce Marsha Blackburn, 
who I think has a constituent testifying, but she had to leave 
for another matter. So I yield back my 32 seconds.
    Mr. Stupak. I thank the gentleman, and hopefully Mrs. 
Blackburn will be back, because she is a vital member of this 
subcommittee. Next, I turn to the chairman of the full 
committee, Mr. Dingell, for an opening statement, please.

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Dingell. Mr. Chairman, thank you, and good morning. I 
very much appreciate your holding this important hearing.
     The cost of energy is becoming an ever-enlarging component 
of the average citizen's household budget for electricity, 
gasoline, heating, and for all kinds of products and services 
based on hydrocarbons. Energy costs are rising rapidly for 
industrial users as well. This in turn raises the price of 
products and services in virtually every sector of the American 
economy.
    The collapse of Enron in late 2001 confirmed what many had 
suspected. Not all the increases in energy prices are the 
result of supply and demand. Much of Enron's business consisted 
of speculative trading in electronic, over-the-counter market 
exempt from regulation. It was virtually impossible for anyone, 
including the government regulators, to know what Enron was 
doing or how it was affecting the broader market. We now know 
that Enron engaged in fraud on a massive scale and manipulated 
California electronic and electric power markets, to the tune 
of millions of dollars out of the pockets of American 
consumers. Unfortunately, Enron was and is not alone. Over the 
past 6 years, the rise in energy prices has been outpaced only 
by the rise in speculation.
    In short, energy speculation is a growth industry, and it 
has gone global. A case in point is Amaranth. Over recent 
months in 2006, Amaranth, a $9 billion hedge fund, dominated 
trading in the U.S. natural gas contracts and intentionally 
drove down the price of natural gas futures on NYMEX so that it 
could make tens of millions of dollars on its undisclosed 
holdings in the so-called dark markets, the unregulated over-
the-counter markets. This is not a victimless crime. In the 
summer of 2006, Amaranth took enormous positions which appeared 
to have inflated the price of natural gas for delivery in the 
following winter. Businesses, utilities, schools, and 
hospitals, as well as individual consumers, wound up paying 
abnormally high rates as a result, to the benefit of Amaranth.
    As a result, and according to a recent Senate report, 
speculation of this nature may have added $20 to $25 per barrel 
to the price of crude in 2006. The Industrial Energy Consumers 
of America estimates that Amaranth's speculation alone cost 
consumers of natural gas as much as $9 billion from April to 
August of last year. At a time when people everywhere in this 
country are paying record prices for gasoline and record prices 
to heat their homes, government has a responsibility to put an 
end to this speculative excess.
    This raises the interesting question of what the Federal 
Energy Regulation Commission, FERC, and the Commodity Futures 
Trading Commission, CFTC, two agencies that share jurisdiction 
over these matters, have done to address the problem. I 
understand that FERC has made considerable progress over the 
past years in providing its market surveillance capabilities to 
be improved and to be better in exercising its enforcement 
authorities. On the other hand, there are indications that CFTC 
may have been more enthusiastic in granting exemptions from 
regulation than it has been in routing out possible energy 
market manipulations. I look forward, as do you and the members 
of this committee, to exploring this matter further with CFTC.
    I am also disappointed to see that CFTC has challenged 
FERC's authority to investigate and pursue the energy market 
manipulators, despite Congress's explicit granting of authority 
to FERC in the Energy Policy Act of 2005. We will look forward 
to explanations of this rather curious behavior. I would hope 
that by the time we conclude this hearing, CFTC will have 
rethought its views on this issue, and we will try and help 
them to achieve that end.
    Mr. Chairman, speculative excess in the energy market has 
cost American consumers billions of dollars in unnecessary 
energy costs. It is time for us to close the loopholes that 
have allowed this unscrupulous consumer exploitation and see to 
it that the Federal agencies do what it is they are supposed to 
do to protect the American consumers. Thank you, Mr. Chairman.
    Mr. Stupak. Thank you, Mr. Dingell. Mr. Burgess, for an 
opening statement.

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE 
              IN CONGRESS FROM THE STATE OF TEXAS

    Mr. Burgess. Thank you, Mr. Chairman. And just like 
everyone else up here on the dais, I am concerned about the 
manipulation of energy market prices and want to thank you and 
Ranking Member Whitfield for holding the hearing today. This 
subcommittee has a long standing in overseeing the health and 
competitive prosperity of the American public. And although I 
wasn't able to participate in the Enron hearings held before 
this committee in 2001 and 2002, I am pleased to be able to 
participate here today.
    Like many members of this body, I hear from constituents on 
a near-daily basis about the high prices they pay for their 
energy needs. In fact, in Texas in November, we were paying $3 
a gallon for gas. If we are paying $3 a gallon for gas in 
November, I can promise you it will be at least a dollar higher 
in May, because that is when our prices typically go up as we 
have to transition to the summer blends because of regulations 
under the Clean Air Act. I do find it odd that in November 2006 
I was criticized for gas prices that were $2.20. In November 
2007, no one is criticizing gas prices of $3 a gallon, but that 
is a separate matter.
    But I am looking forward to hearing from the witnesses on 
the second panel today, who actually have the authority to 
properly oversee commodities futures markets and wholesale 
energy markets.
    Manipulation of the natural gas market is especially 
pertinent in my district, because the exploration of what is 
known as tight gas reservoirs in a geologic formation known as 
a Barnett shale in north Texas has become a very successful 
exercise in drilling for clean, domestic energy and is a key to 
the recent economic prosperity in the area of Texas that I 
represent. In 2006, the Barnett shale was responsible for over 
50,000 permanent jobs and over $225 million in revenues to 
local governments in Texas--not to investors, to local 
governments in Texas. I want to ensure that the price consumers 
pay for natural gas is fair and that the natural gas is sold in 
an open and competitive basis.
    In economic terms, we need to ensure perfect competition. 
More competition in the energy markets drives us towards less 
collusion, and by the definition of perfect competition, no 
producer, no consumer has the market power to influence or 
manipulate prices. In true competitive markets, risk has 
already been calculated, and a technical analyst will tell you 
that all available information is already incorporated into the 
market commodity price. Any manipulation of our open, free, and 
competitive energy markets must be investigated publicly, and 
that is what we are here about today. And for that, I am 
grateful.
    Now, Mr. Chairman, I just can't help but notice that, 
because of the issue of global climate change, not so much in 
this committee, but in other subcommittees, we have been 
working on how to manage the issue of global climate change. 
And you hear a lot of people talk about instituting a cap-and-
trade system as perhaps a method for regulating carbon in the 
environment. And today's hearing brings up the question, who is 
going to regulate this new cap-and-trade market? Will FERC 
regulate it? Will some other entity be created or crafted to 
regulate this? How do we guard against manipulation in really 
what is going to be a new and untested market environment?
    And, Mr. Chairman, I would just like to point out that we 
may go from a situation where we are talking about from dark 
markets to a dark America, because we are going to be replacing 
all of America's energy with lethargy. But that is a separate 
point as well.
    From my understanding, through the Energy Policy Act of 
2005, it is the intent of this committee and, in fact, the 
intent of Congress, to provide the Federal Energy Regulatory 
Commission with the necessary tools to enforce their anti-
manipulation authority. I believe this authority was given to 
the Federal Energy Regulatory Commissions for reasons that will 
be supported by their testimony here today. And certainly want 
to welcome Chairman Kelliher back to the Energy and Commerce 
Committee and thank him for his leadership in the matter.
    Mr. Chairman, in the spirit of the holiday season, I am 
going to yield back the minute of my time.
    Mr. Stupak. You know I don't take carryovers. Mr. Green, 
for opening statement, please.

   OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Green. Thank you, Mr. Chairman, for holding the hearing 
today on energy speculation. As a representative from Houston, 
Texas, where we call ourselves energy capital of the world, 
including the use and ship channel, I understand the critical 
need for transparency in the marketplace. The debacle played 
out by former energy giant Enron Corporation showcased to the 
world what happens when lax government and private sector 
oversight collapses under its own weight. Houston is the home 
of many families who benefited from Enron during the good times 
and suffered tremendously when it fell apart. Congress must 
remain vigilant to help prevent similar failures and to ensure 
American consumers are not being played by any future gaming of 
the system. Unfortunately, recent allegations brought against a 
small handful of U.S. companies indicate that gaming may 
continue to manipulate the price of energy supplies in the 
marketplace.
    Our congressional district manufactures aviation fuel, 
diesel gas for our trains, planes, cars, and trucks, and our 
ships. Energy trading is supposed to help move these products 
efficiently, and it does not add one gallon to our supply. But 
then it can add substantial amount to the cost to the consumer. 
Several economists' reports question whether the standard 
economic principle, supply and demand, are no longer the sole 
factors affecting energy prices. Current petroleum and natural 
gas prices are set by a complex mix of factors, including 
global crude prices, increased world and U.S. demand, gasoline 
imports, extreme weather conditions, and geopolitical events. 
Most of these factors are out of our control. What factors are 
within our control, like the evidence of market manipulation, I 
believe the appropriate Federal agency should find and 
prosecute manipulation to the fullest extent of the Law.
    To bring this problem home to an energy-producing area, in 
2005, the CEO of Shell Western Hemisphere sat in my office and 
said, we are transferring chemical jobs from the chemical plant 
in Deer Park, Texas, that is in our district, to the 
Netherlands because of the high price of natural gas. It just 
so happens that ETP, the allegations of FERC, includes 2003 to 
2005. Now I have to add the full statement. It was also the 
high cost of healthcare in Deer Park, Texas, compared to the 
Netherlands, which is also the purview of our full committee, 
and I hope we would deal with that. But when you have someone 
like Shell, who probably imports enough of their own, but they 
use the trading market for either to sell back or maybe to buy 
what they need for their chemical production, we see what 
happens.
    Both the Commodity Futures Trading Commission and the 
Federal Energy Regulatory Commission have a complementary role 
to play in protecting both the integrity in our markets and our 
consumers. Closer attention should be paid to the largely 
under-regulated over-the-counter markets which are a rapidly 
growing segment of the marketplace. If energy supplies are 
indeed manipulated, the consumer runs the risk of paying 
distorted prices to drive, fly, heat, and cool our homes. No 
one in Congress wants to see American families pay distorted 
energy prices. If we can shine the bright light of 
accountability on commodity transactions, we can help foster 
fair and open and transparent markets for American consumers, 
businesses, industry, and utilities.
    Mr. Chairman, I hope today's panels will help flesh out 
these complex issues, and I look forward to working with you 
and other members on improving our transparency of our energy 
markets. And I will actually have a better Christmas spirit. I 
will yield back more than a minute. Thank you.
    Mr. Stupak. Thank you. Mr. Walden, for an opening 
statement, please. You are going to waive yours at this point 
in time? That concludes the opening statements. It should be 
noted for the record Mr. Barrow, who is from Georgia, was here. 
He is up in Agriculture. He might be popping back down. Mrs. 
Blackburn was here. Congressman Welch has entered a statement 
for the record. I want to recognize you, Mr. Cota, for being 
here. And on behalf of Mr. Welch, thank you. So it will be 
entered in record without objection. Any objection, Mr. 
Whitfield? Hearing none, it will be entered. That concludes the 
opening statements by members of the subcommittee.
    Mr. Stupak. I now call our first panel of witnesses to come 
forward. On our first panel, we have Mr. Sean Cota, president 
and co-owner of Cota & Cota, Incorporated; Ms. Laura Campbell, 
assistant manager of energy resources at Memphis Light, Gas, 
and Water; Mr. Tom LaSala, chief regulatory officer at the New 
York Mercantile Exchange; Mr. Charles Vice, president and chief 
operating officer at Intercontinental Exchange, ICE; Mr. 
Michael Greenberger, professor of law and director of Center 
for Health and Homeland Security at the University of Maryland.
    It is the policy of this subcommittee to take all testimony 
under oath. Please be advised that witnesses have the right 
under the rules of the House to be advised by counsel during 
your testimony. Do any of our witnesses wish to be represented 
by counsel? Everyone is shaking their heads no. OK, then I am 
going to ask you to please rise and raise your right hand to 
take the oath. Let the record reflect that all witnesses 
replied in the affirmative. You are now under oath. We are 
going to start on my left, your right. Professor Greenberger, 
if you would like to start, sir, for an opening statement, I 
appreciate it.

    STATEMENT OF MICHAEL GREENBERGER, PROFESSOR OF LAW, AND 
 DIRECTOR, CENTER FOR HEALTH AND HOMELAND SECURITY, UNIVERSITY 
                          OF MARYLAND

    Mr. Greenberger. Thank you, Chairman Stupak. In my 
statement today, I have in the beginning a one-page summary, 
which I think encapsulates everything I want to say. I have a 
detailed statement that follows that is supported with 
footnotes and academic information.
    The agricultural industry founded the concept of futures 
markets. In the 1960s and 1970s, futures markets were 
introduced in the energy sector. The futures markets today and 
historically have served a price discovery function. When 
somebody goes to sell a commodity in the business world, they 
most often look to the Wall Street Journal or some other 
information to see what the futures price is, and that tells 
them what a fair price is to sell or buy a commodity.
    The agriculture industry learned the hard way that the 
futures market, if unregulated, can be subject to manipulation, 
excessive speculation, and fraud. And therefore the futures 
price can be different than what economic fundamentals dictate. 
The farmers got, in their words, in the late 19th century and 
the early 20th century, ``screwed'' by the futures markets. And 
in 1921, Congress began to introduce regulatory legislation, 
which now comes to us in the form of the Commodity Exchange 
Act, which was principally designed to regulate futures markets 
to prevent excessive speculation, fraud, and manipulation so 
when someone goes to sell their wheat or their natural gas or 
their crude oil or their heating oil, and they look to the 
newspaper or online data to see what the natural gas price is, 
et cetera, that is an honest price. And that is the job of the 
CFTC, to ensure it is an honest price.
    In a lame duck session in December 2000, a 262-page bill 
was added to an 11,000-page omnibus appropriation bill on the 
Senate floor with no substantial consideration. And my view is 
that nobody but the Wall Street lawyers who drafted that 
legislation understood what that legislation meant. For today's 
hearings, the intent of the President's Working Group and the 
Senate draft, before it was amended late in the night in 
December 2000, was that agriculture and energy commodities 
would continue to be regulated fully by the CFTC. Late in the 
night of December 2000, the word energy was struck from that 
bill. So the Agriculture Committee made sure that the farmers 
were still protected by the CFTC, but the energy sector was now 
allowed to operate outside the confines of the CFTC.
    Everybody agrees today that that loophole should be ended. 
The problem is that people are offering thousands of pages of 
bills to fix a simple thing. Stick the words ``or energy'' back 
in so that energy will be regulated fully by the CFTC. And, for 
simple purposes, that would mean ICE would be regulated like 
NYMEX. NYMEX has chosen to be regulated for energy commodities. 
ICE has chosen not to be regulated for energy commodities.
    Because of the Enron loophole--and believe me, if Christmas 
had come earlier that year, and that bill had not been passed--
we would still have an Enron today. It was Enron's undoing to 
get that loophole through. That loophole allows ICE to be 
unregulated, and Mr. LaSala has chosen to be regulated. The 
CFTC prevents fraud and manipulation and excessive speculation 
on NYMEX. They can't do it on ICE. It is as simple as that.
    Now the Senate Permanent Investigating Committee, in a 
bipartisan way, once in a Republican Congress, once in a 
Democratic Congress, in 2006 and 2007, has pinpointed and 
proven now, I think, beyond all doubt that the price you pay 
for crude oil and the price you pay for natural gas has been 
driven up by the kinds of conversations you broadcast there 
today. And you heard those guys say the CFTC can't touch us 
because ``or energy'' was dropped from agriculture or energy in 
2000. Energy can now be traded without watching or reporting 
for fraud, manipulation or excessive speculation.
    And as Senator Levin and the Republicans as well in that 
staff report have said, the economists say that at least $20, 
maybe as high as $30, added to the price of crude oil is 
because the futures price is being conducted with those kinds 
of conversations and manipulated upward without any relation to 
what supply/demand creates. $20 to $30, what does that mean for 
gasoline, which is made by crude oil? What does that mean for 
heating oil, which is made from crude oil? And what does it 
mean for natural gas, which everybody is dependent on? And in 
fact, the farmers were so dependent on it that Congressman 
Graves, Republican, of Missouri, worked through a floor 
amendment in the Republican-controlled House in December 2005 
to do something about the unregulated price of natural gas. At 
that point, it was $14 per million BTU. Within 6 weeks, it 
dropped to $9, just because an amendment passed the House.
    The day after Amaranth failed, the futures price of natural 
gas dropped from about $8.50 to $4.50. The manipulator was 
gone. Economic fundamentals took over. The price dropped about 
$4 in a day, in half. What does that mean to your consumers? 
Now, it jumped right back up to $10, and then hearings were 
held on it. And it is now back at $7.
    With a very simple legislative fix, adding ``or energy'' 
``and energy'' back into the Exchange Act, you can fix this 
problem.
    There is one other point I want to make. ICE not only 
operates under this exemption--and, by the way, I want to say 
ICE is not doing the manipulating here. ICE has used this 
exemption to profit successfully. It is the traders on ICE that 
are taking advantage of this exemption, not ICE. ICE not only 
operates under this Enron loophole, but in 2000 they bought the 
United Kingdom's International Petroleum Exchange. It is now 
fully owned by ICE, which is a United States company. I 
understand that while it is not relevant, those exchange 
platforms are in the United States. And they are now trading 
West Texas Intermediate Crude in direct competition with NYMEX.
    Now, because the International Petroleum Exchange was a 
foreign exchange, they said we need to get exemptions from the 
CFTC or you will be discriminating against us on the basis of 
world trade. We are a foreign company. Want to sell foreign 
crude oil products, brand oil, on foreign terminals. Exempt us. 
And the CFTC staff, not the commission, the staff, in a no-
action letter, said, fine. ICE, a U.S. company, bought the 
International Petroleum Exchange. The CFTC staff never changed 
the no-action letter. ICE decided it was going to trade U.S.-
delivered commodities. The CFTC never changed the no-action 
letter.
    All of the legislation that is being offered today does not 
affect that foreign board of trade exemption, which allows ICE, 
a U.S. company trading U.S.-delivered products, significantly 
affecting the price of crude oil in the United States. They are 
now regulated by the United Kingdom, not the CFTC. This 
afternoon, the CFTC could go back to its offices and terminate 
that no-action letter. It has a termination-at-will clause.
    Now, if they did, ICE would come back----
    Mr. Stupak. Well, sir, I am going to need you to wrap up 
your----
    Mr. Greenberger. OK, if they did, ICE would come back and 
say, well, now we use the Enron loophole. So you have to close 
the Enron loophole. You have to end U.S. companies' trading U.S 
products saying they should be regulated by the United Kingdom.
    When I am asked questions, I will tell you why the CFTC's 
proposal to the Enron loophole is not a regulatory fix. It is 
regulation in name only, and your consumers in February would 
be screaming if you passed the CFTC legislation today. Thank 
you.
    [The prepared statement of Mr. Greenberger follows:]
    [GRAPHIC] [TIFF OMITTED] T6477.001
    
    [GRAPHIC] [TIFF OMITTED] T6477.002
    
    [GRAPHIC] [TIFF OMITTED] T6477.003
    
    [GRAPHIC] [TIFF OMITTED] T6477.004
    
    [GRAPHIC] [TIFF OMITTED] T6477.005
    
    [GRAPHIC] [TIFF OMITTED] T6477.006
    
    [GRAPHIC] [TIFF OMITTED] T6477.007
    
    [GRAPHIC] [TIFF OMITTED] T6477.008
    
    [GRAPHIC] [TIFF OMITTED] T6477.009
    
    [GRAPHIC] [TIFF OMITTED] T6477.010
    
    [GRAPHIC] [TIFF OMITTED] T6477.011
    
    [GRAPHIC] [TIFF OMITTED] T6477.012
    
    [GRAPHIC] [TIFF OMITTED] T6477.013
    
    [GRAPHIC] [TIFF OMITTED] T6477.014
    
    [GRAPHIC] [TIFF OMITTED] T6477.015
    
    [GRAPHIC] [TIFF OMITTED] T6477.016
    
    [GRAPHIC] [TIFF OMITTED] T6477.017
    
    [GRAPHIC] [TIFF OMITTED] T6477.018
    
    Mr. Stupak. Thank you, Professor. And Ms. Campbell, please, 
for an opening statement.

    STATEMENT OF LAURA CAMPBELL, ASSISTANT MANAGER, ENERGY 
            RESOURCES, MEMPHIS LIGHT, GAS AND WATER

    Ms. Campbell. Chairman Stupak and members of the 
subcommittee, I appreciate the opportunity to testify before 
you today, and I thank you for calling this hearing to examine 
the critically important issue of the need for greater 
transparency in the energy markets.
    My name is Laura Campbell, and I am the assistant manager 
of energy resources for Memphis Light, Gas and Water, or MLGW. 
MLGW is the Nation's largest three-service municipal utility, 
and we currently provide services to over 420,000 customers. I 
am testifying today on behalf of the American Public Gas 
Association, or APGA.
    APGA is the national association for publicly-owned natural 
gas distribution systems. There are approximately 1,000 public 
gas systems in 36 States, and almost 700 of these systems are 
APGA members. Publicly-owned gas systems are not-for-profit, 
retail distribution entities owned by and accountable to the 
citizens they serve. APGA's top priority is the safe and 
reliable delivery of affordable natural gas.
    To bring gas prices back to affordable level, we ultimately 
need to increase the supply of natural gas. However, also 
critical is to restore public confidence in the natural gas 
pricing. This requires the natural gas market to be fair, 
orderly, and transparent so that the price consumers pay 
reflects the fundamental supply-and-demand forces and not the 
result of manipulation or abusive conduct. An appropriate level 
of transparency does not currently exist, and that has led to a 
growing lack of confidence by our members in the natural gas 
market.
    Without question, natural gas futures contracts traded on 
NYMEX and financial contracts for natural gas traded on the 
over-the-counter or OTC markets are economically linked. The 
market for financial and natural gas contracts is composed of a 
number of segments, which include futures contracts traded on 
NYMEX, the financial contracts for natural gas traded on the 
OTC markets. OTC contracts may be traded on multi-lateral 
electronic trading facilities known as exempt commercial 
markets, or ECMs. They also may be traded bilaterally on 
electronic platforms through voice brokers and in direct 
bilateral transactions between counter parties.
    The impact of last year's activities by the Amaranth 
advisors' hedge fund exemplifies both the linkage and the harm 
caused by the lack of transparency in these markets. When the 
positions accumulated by Amaranth began to unwind, gas prices 
decreased. Unfortunately, many of APGA's members had already 
locked in prices prior to that period at levels that did not 
reflect the current supply-and-demand conditions.
    As a result, the elevated prices during that period when 
Amaranth held these exceedingly large positions, many of APGA's 
members were forced to pay a premium, which was passed through 
to their customers on their gas bill.
    Today the Commodity Futures Trading Commission has 
effective oversight of NYMEX, and the CFTC and the NYMEX 
provide a significant level of transparency. But the simple 
fact is that the CFTC's large trader reporting system, its 
chief tool in detecting and deterring manipulative market 
conduct, generally does not apply with respect to transactions 
in the OTC markets. This lack of transparency in a very large 
and rapidly growing segment of the natural gas market leaves 
open the potential for participants to engage in manipulative 
or other abusive trading strategies with little risk of early 
detection by the CFTC until after the damage is done to the 
market.
    It simply makes no sense to have transparency with respect 
to one small segment of the market and none with respect to a 
larger and growing segment. Accordingly, APGA believes that 
transparency in all segments of the market is critical to 
ensure that the CFTC has a complete picture of the market. We 
believe that the CFTC does not currently have the tools 
necessary to police its beat. The CFTC has done a good job in 
catching market abuses after the fact. However, by the time 
these cases are discovered using the tools currently available 
to government regulators, our members and their customers have 
already been injured by the higher natural gas prices that 
result from these abusive activities.
    It is beyond dispute that the CFTC did not have a complete 
picture of the full extent of Amaranth's trading position until 
after Amaranth's collapse and that Amaranth was able to use the 
current gaps in transparency to obscure their abusive 
activities from the regulatory authorities while Amaranth was 
engaging in those abuses. Greater transparency with respect to 
the traders' large positions, whether entered into on a 
regulated exchange or in the OTC markets in natural gas, will 
provide the CFTC with the tools to detect and deter potential 
manipulative activity before our members and their customers 
suffer harm.
    One additional issue I would like to briefly address 
relates to the enforcement response to Amaranth. Both the CFTC 
and FERC have brought enforcement actions against Amaranth. 
FERC's enforcement action was the first brought under its anti-
manipulation authority contained in the Energy Policy Act of 
2005. APGA supported congressional action to provide FERC with 
this new anti-manipulation authority, and we support FERC's use 
of this authority through its recent enforcement action.
    APGA's view was then and remains that FERC's new anti-
manipulation authority affords consumers an important 
additional measure of protection. We support having multiple 
cops on the beat and urge the CFTC and FERC to work closely 
together to provide consumers with the full measure of 
protection that Congress intended.
    The current situation is not irreversible. Congress can 
provide American consumers with the protection they deserve by 
passing legislation that would turn the lights on in these 
currently dark markets. APGA looks forward to working with you 
to accomplish this goal, and I will be happy to answer any 
questions that you may have.
    [The prepared statement of Ms. Campbell follows:]

                      Testimony of Laura Campbell

    Chairman Stupak and Members of the Subcommittee, I 
appreciate this opportunity to testify before you today and I 
thank you for calling this hearing to examine the critically 
important issue of the need for greater transparency in our 
energy markets. My name is Laura Campbell and I am the 
Assistant Manager of Energy Resources for Memphis Light Gas & 
Water (MLGW). MLGW is the nation's largest three-service 
municipal utility and currently provides service to more than 
420,000 customers. Since 1939, MLGW has met the utility needs 
of Memphis, Tennessee and Shelby County residents by delivering 
reliable and affordable electricity, natural gas and water 
service. Natural gas is the most popular means of residential 
heating in the MLGW service area and we currently provide 
natural gas to more than 313,000 customers.
    I testify today on behalf of the American Public Gas 
Association (APGA). APGA is the national association for 
publicly-owned natural gas distribution systems. There are 
approximately 1,000 public gas systems in 36 states and almost 
700 of these systems are APGA members. Publicly-owned gas 
systems are not-for-profit, retail distribution entities owned 
by, and accountable to, the citizens they serve. They include 
municipal gas distribution systems, public utility districts, 
county districts, and other public agencies that have natural 
gas distribution facilities.
    APGA's members have lost confidence that the prices for 
natural gas in the futures and the economically linked over-
the-counter (``OTC'') markets are an accurate reflection of 
supply and demand conditions for natural gas. This lack of 
confidence has increased over the past several years as 
volatility in the natural gas market has drawn hedge funds and 
others to the market. Restoring our trust in the validity of 
the pricing in these markets requires a level of transparency 
in natural gas markets which assures consumers that market 
prices are a result of fundamental supply and demand forces and 
not the result of manipulation or other abusive market conduct. 
APGA strongly believes that this level of transparency 
currently does not exist, and this has directly led to the 
current lack of confidence in the natural gas marketplace. 
Although APGA's number one priority is the safe and reliable 
delivery of affordable natural gas, which ultimately will 
require an increase in the supply of natural gas, it is equally 
critical that public confidence in the pricing of natural gas 
be restored through increased transparency.
    APGA believes that statutory changes are necessary to 
remedy the lack of market transparency which undermines the 
public's confidence in the pricing integrity of these markets. 
Accordingly, APGA has called upon Congress to move quickly to 
pass legislation that would increase transparency in the 
natural gas markets.

                  The Market in Natural Gas Contracts

    The market for natural gas financial contracts is composed 
of a number of segments. Contracts for the future delivery of 
natural gas are traded on the New York Mercantile Exchange 
(``NYMEX''), a designated contract market regulated by the 
Commodity Futures Trading Commission (CFTC). Contracts for 
natural gas are also traded in the OTC markets. OTC contracts 
may be traded on multi-lateral electronic trading facilities 
which are exempt from regulation as exchanges (``exempt 
commercial markets'' or ``ECMs''). They may also be traded in 
direct, bi-lateral transactions between counterparties, through 
voice brokers or on electronic platforms. OTC contracts may be 
settled financially or through physical delivery. Financially-
settled OTC contracts often are settled based upon NYMEX 
settlement prices and physically delivered OTC contracts may 
draw upon the same deliverable supplies as NYMEX contracts, 
thus economically linking the various financial natural gas 
market segments, including regulated futures markets, ECMs and 
bilateral trading, whether conducted on an electronic trading 
platform or otherwise.
    The exemption under Section 2(h)(3) of the Act providing 
for ECMs was added as part of the Commodity Futures 
Modernization Act of 2000 (``CFMA''). In general, the greater 
flexibility of a principles-based regulatory framework provided 
for by the CFMA has worked exceedingly well with respect to the 
regulated markets, as has the CFMA's overall concept of tiered 
regulation based upon the characteristics of the trader and of 
the commodity traded. However, since enactment of the CFMA, 
changes in the nature of trading and the composition of traders 
on ECMs warrant reconsideration of the provisions relating to 
ECMs. More broadly, as discussed in greater detail below, 
issues surrounding the lack of transparency are particularly 
acute with respect to trading in contracts for natural gas and 
the lack of transparency with respect to the market for natural 
gas should be reconsidered. In this regard, differentiating the 
appropriate regulatory response based upon the characteristics 
of the particular commodity traded is consistent with the 
overarching framework and philosophy of the CFMA.
    Specifically, with respect to ECMs, there is scant 
legislative or regulatory history with respect to the intent 
behind the Section 2(h)(3) exemption. Nevertheless, the trading 
platforms that have qualified for exemption under this 
provision have evolved since enactment of the CFMA in a number 
of ways. Initially, such markets tended to be an electronic 
substitute for voice brokers with respect to the trading of OTC 
contracts. Their participants were generally limited to those 
in the trade and trading likely carried with it counterparty 
credit exposure. Since then, however, ECMs have introduced 
cleared transactions, effectively removing the counterparty 
risk of such transactions which initially distinguished their 
trading from trading on futures exchanges. In addition, ECMs 
over the years have attracted greater numbers of non-trade 
market participants, such as hedge funds. The introduction of 
clearing of contracts that are financially settled based upon 
the settlement prices of regulated futures contracts along with 
this broader and deeper non-trade customer base has, over time, 
rendered trading on some ECMs to be largely indistinguishable 
from trading on regulated futures markets. These markets are 
economically linked through arbitrage and the prices on one 
affect prices on the other.
    The economic links between the natural gas futures 
contracts traded on NYMEX and those contracts, agreements and 
transactions in natural gas traded in the OTC markets (which 
include but are not limited only to trading on ECMs) are beyond 
dispute. Without question, a participant's trading conduct in 
one venue can affect, and has affected, the price of natural 
gas contracts in the other. \1\
    Increasingly, the price of natural gas in many supply 
contracts between suppliers and local distribution companies 
(``LDC"), including APGA members, is determined based upon 
monthly price indexes closely tied to the monthly settlement of 
the NYMEX futures contract. Accordingly, the futures market 
serves as the centralized price discovery mechanism used in 
pricing these natural gas supply contracts. Generally, futures 
markets are recognized as providing an efficient and 
transparent means for discovering commodity prices.\2\ However, 
any failure of the futures price to reflect fundamental supply 
and demand conditions results in prices for natural gas that 
are distorted and which do not reflect its true value. This has 
a direct affect on consumers all over the U.S., who as a result 
of such price distortions, will not pay a price for the natural 
gas that reflects bona fide demand and supply conditions. If 
the futures price is manipulated or distorted, then the price a 
consumer pays for the fuel needed to heat their home and cook 
their meals will be similarly manipulated or distorted.
    Today, the CFTC has effective oversight of NYMEX, and the 
CFTC and NYMEX provide a significant level of transparency with 
respect to NYMEX's price discovery function. But, the OTC 
markets, which include but are not limited to ECMs, lack such 
price transparency. The lack of transparency in a very large 
and rapidly growing segment of the natural gas market leaves 
open the potential for a participant to engage in manipulative 
or other abusive trading strategies with little risk of early 
detection; and for problems of potential market congestion to 
go undetected by the CFTC until after the damage has been done 
to the market. It simply makes no sense to have transparency 
over one segment of the market and none over a much larger 
segment, especially when the OTC markets are the fastest 
growing sectors of the natural gas marketplace. APGA strongly 
believes that it is in the best interest of consumers for 
Congress to rectify this situation by passing legislation that 
would ensure an adequate level of transparency with respect to 
OTC contracts, agreements and transactions in natural gas.

                          Regulatory Oversight

    NYMEX, as a designated contract market, is subject to 
oversight by the CFTC. The primary tool used by the CFTC to 
detect and deter possible manipulative activity in the 
regulated futures markets is its large trader reporting system. 
Using that regulatory framework, the CFTC collects information 
regarding the positions of large traders who buy, sell or clear 
natural gas contracts on NYMEX. The CFTC in turn makes 
available to the public aggregate information concerning the 
size of the market, the number of reportable positions, the 
composition of traders (commercial/non-commercial) and their 
concentration in the market, including the percentage of the 
total positions held by each category of trader (commercial/
non-commercial).
    The CFTC also relies on the information from its large 
trader reporting system in its surveillance of the NYMEX 
market. In conducting surveillance of the NYMEX natural gas 
market, the CFTC considers whether the size of positions held 
by the largest contract purchasers are greater than deliverable 
supplies not already owned by the trader, the likelihood of 
long traders demanding delivery, the extent to which contract 
sellers are able to make delivery, whether the futures price is 
reflective of the cash market value of the commodity and 
whether the relationship between the expiring future and the 
next delivery month is reflective of the underlying supply and 
demand conditions in the cash market.\3\
    Although the CFTC has issued ``special calls'' to one 
electronic trading platform, and that platform has determined 
to voluntarily provide information on traders' large 
positions,[4] the CFTC's large trader reporting surveillance 
system does not routinely reach traders' large OTC 
positions.\5\ Despite the links between prices for the NYMEX 
futures contract and the OTC markets in natural gas contracts, 
this lack of transparency in a very large and rapidly growing 
segment of the natural gas market leaves open the potential for 
participants to engage in manipulative or other abusive trading 
strategies with little risk of early detection and for problems 
of potential market congestion to go undetected until after the 
damage has been done to the market, ultimately harming the 
consumers or producers of natural gas.

                         Amaranth Advisors LLC

    Last year's implosion of Amaranth Advisors LLC 
(``Amaranth'') and the impact it had upon prices exemplifies 
these linkages and the impact they can have on natural gas 
supply contracts for LDCs. Amaranth was a hedge fund based in 
Greenwich, Connecticut, with over $9.2 billion under 
management. Although Amaranth classified itself as a 
diversified multi-strategy fund, the majority of its market 
exposure and risk was held by a single Amaranth trader in the 
OTC derivatives market for natural gas.
    Amaranth reportedly accumulated excessively large long 
positions and complex spread strategies far into the future. 
Amaranth's speculative trading wagered that the relative 
relationship in the price of natural gas between summer and 
winter months would change as a result of shortages which might 
develop in the future and a limited amount of storage capacity. 
Because natural gas cannot be readily transported about the 
globe to offset local shortages, the way for example oil can 
be, the market for natural gas is particularly susceptible to 
localized supply and demand imbalances. Amaranth's strategy was 
reportedly based upon a presumption that hurricanes during the 
summer of 2006 would make natural gas more expensive in 2007, 
similar to the impact that hurricanes Katrina and Rita had had 
on prices the previous year. As reported in the press, Amaranth 
held open positions to buy or sell tens of billions of dollars 
of natural gas.
    As the hurricane season proceeded with very little 
activity, the price of natural gas declined, and Amaranth lost 
approximately $6 billion, most of it during a single week in 
September 2006. The unwinding of these excessively large 
positions and that of another previously failed $430 million 
hedge fund-MotherRock- further contributed to the extreme 
volatility in the price of natural gas. The Report by the 
Senate Permanent Subcommittee on Investigations affirmed that 
``Amaranth's massive trading distorted natural gas prices and 
increased price volatility. \6\
    The lack of OTC transparency and extreme price swings 
surrounding the collapse of Amaranth have caused bona fide 
hedgers to become reluctant to participate in the markets for 
fear of locking-in prices that may be artificial.

                      Greater Transparency Needed

    APGA members, and the customers served by them, do not 
believe there is an adequate level of market transparency under 
the current system. This lack of transparency leads to a 
growing lack of confidence in the natural gas marketplace. 
Although the CFTC operates a large trader reporting system to 
enable it to conduct surveillance of the futures markets, it 
cannot effectively monitor trading if it receives information 
concerning positions taken in only one segment of the total 
market. Without comprehensive large trader position reporting, 
the government is currently handicapped in its ability to 
detect and deter market misconduct. If a large trader acting 
alone, or in concert with others, amasses a position in excess 
of deliverable supplies and demands delivery on its position 
and/or is in a position to control a high percentage of the 
deliverable supplies, the potential for market congestion and 
price manipulation exists.
    Over the last several years, APGA has pushed for a level of 
market transparency in financial contracts in natural gas that 
would routinely, and prospectively, permit the CFTC to assemble 
a complete picture of the overall size and potential impact of 
a trader's position irrespective of whether the positions are 
entered into on NYMEX, on an OTC multi-lateral electronic 
trading facility which is exempt from regulation or through bi-
lateral OTC transactions, which can be conducted over the 
telephone, through voice-brokers or via electronic platforms. 
The passage of legislation is necessary to achieve this needed 
level of transparency.

                           Bi-lateral trading

    Because Amaranth's trading was largely conducted on both a 
regulated futures exchange and on an unregulated electronic 
trading facility, the immediate focus has been confined to the 
relative inequality of transparency between those two multi-
lateral trading venues. Moreover, because the volume of 
transactions in bi-lateral markets may not be as apparent as 
the volume of transactions on exchanges or electronic trading 
facilities there may be a tendency to discount the impact that 
the bi-lateral markets have upon the price discovery process. 
APGA believes that, to be comprehensive, a large trader 
reporting system must include large positions amassed through 
the OTC bi-lateral markets in addition to those accumulated on 
futures exchanges or on OTC electronic trading facilities.
    Bi-lateral trading can also take place on an electronic 
trading venue that may be as attractive to traders as multi-
lateral trading facilities. Enron On-line, for example, was an 
all-electronic, bi-lateral trading platform. Using this 
platform, Enron offered to buy or sell contracts as the 
universal counterparty to all other traders. On the Enron On-
line trading platform, only one participant--Enron--had the 
ability to accept bids and offers of the multiple participants-
-its customers-- on the trading platform. This one-to-many 
model constitutes a dealer's market and is a form of bi-lateral 
trading.\7\
    Section1a(33) of the Act further defines bi-lateral trading 
by providing that, ``the term `trading facility' does not 
include (i) a person or group of persons solely because the 
person or group of persons constitutes, maintains, or provides 
an electronic facility or system that enables participants to 
negotiate the terms of and enter into bilateral transactions as 
a result of communications exchanged by the parties and not 
from interaction of multiple bids and multiple offers within a 
predetermined, nondiscretionary automated trade matching and 
execution algorithm. . . . .'' This means that it is also 
possible to design an electronic platform for bi-lateral 
trading whereby multiple parties display their bids and offers 
which are open to acceptance by multiple parties, so long as 
the consummation of the transaction is not made automatically 
by a matching engine.
    Both of these examples of bi-lateral electronic trading 
platforms might very well qualify for exemption under the 
current language of sections 2(g) and 2(h)(1) of the Commodity 
Exchange Act. It is entirely foreseeable that if a CFTC large-
trader reporting regime were expanded to require the reporting 
of positions entered into only on multi-lateral electronic 
trading facilities and does not include bi-lateral electronic 
trading platforms too, traders who wish to evade the new 
reporting requirement would simply be able to move their 
trading activities from an electronic trading facility to a bi-
lateral electronic trading platform, just as Amaranth moved its 
trading from NYMEX to ICE.
    Moreover, even in the absence of electronic trading, the 
ability of traders to affect prices in the natural gas markets 
through direct or voice-brokered bi-lateral trading should not 
be underestimated. For example, a large hedge fund may trade 
bi-laterally with a number of counterparty/dealers using 
standard ISDA documentation. By using multiple counterparties 
over an extended period of time, it would be possible for the 
hedge fund to establish very large positions with each of the 
dealer/counterparties. Each dealer in turn would enter into 
transactions on NYMEX to offset the risk arising from the bi-
lateral transactions into which it has entered with the hedge 
fund. In this way, the hedge fund's total position would come 
to be reflected in the futures market.
    Thus, a prolonged wave of buying by a hedge fund, even 
through bi-lateral direct or voice-brokered OTC transactions, 
can be translated into upward price pressure on the futures 
exchange. As futures settlement approaches, the hedge fund's 
bi-lateral purchases with multiple dealer/counterparties would 
maintain or increase upward pressure on prices. By spreading 
its trading through multiple counterparties, the hedge fund's 
purchases would attract little attention and escape detection 
by either NYMEX or the CFTC. In the absence of routine large-
trader reporting of bi-lateral transactions, the CFTC will only 
see the various dealers' exchange positions and have no way of 
tying them back to purchases by a single trader.

                          Need for Legislation

    As previously stated in this testimony, establishing the 
level of transparency that APGA maintains is warranted will 
require the passage of legislation. There have been a number of 
bills introduced in the House that directly address market 
transparency. Those bills include the PUMP Act introduced by 
Chairman Stupak, the Market TRUST Act introduced by Congressmen 
Barrow (D-GA) and Graves (R-MO) and the Close the Enron 
Loophole Act introduced by Congressman Welch (D-VT). The CFTC 
has also recommended changes to the Act that would extend its 
large trading reporting system and other regulatory 
requirements to contracts traded on an ECM that are significant 
price discovery contracts.\8\
    APGA believes that the legislation that Congress enacts to 
enhance transparency in these markets should require that large 
traders report their positions regardless of whether they are 
entered into on designated contract markets, on electronic 
trading facilities, on OTC bi-lateral electronic trading 
platforms, in the voice-brokered OTC markets or in direct 
bilateral OTC markets. This would treat all trading positions 
in financial natural gas contracts equally in terms of 
reporting requirements. Extending large trader reporting to OTC 
natural gas positions and to positions entered into on 
electronic trading facilities will provide the CFTC with a 
complete picture of the natural gas marketplace and ensure that 
the cop on the beat has the tools necessary to be effective.
    Although some have raised concerns about the costs of 
expanding the large trader reporting system, APGA believes the 
costs would be reasonable. Insofar as the CFTC's large trader 
reporting system is already operational, there would be no need 
to create an entirely new program to collect this information. 
In addition, large traders, such as those which would be 
required to report to the CFTC, will likely have automated 
recordkeeping systems for their own internal risk management 
purposes that could be adapted for the purpose of reporting 
positions to the CFTC. APGA believes that the costs of a 
comprehensive large trader reporting system for natural gas 
would be reasonable and are far outweighed by the benefits in 
terms of helping assure consumers that the market price is a 
reflection of appropriate market forces.
    Even if Congress determines to extend the CFTC's routine 
large trader reporting system only to contracts traded on ECMs, 
it should take care that the enhanced level of transparency is 
not drawn too narrowly. In this regard, unlike some of the 
legislative proposals such as the Market TRUST Act and the 
Close the Enron Loophole Act which apply broadly to ECMs, the 
CFTC's legislative recommendations apply only to those specific 
contracts traded on an ECM that have been found to be a 
significant price discovery contract. Where some contracts on 
an ECM are found to be a significant price discovery contract 
but other, related contracts are not, there is the danger that 
in response to regulatory inquiries or disciplinary action, a 
trader would move his positions to the less transparent, less 
regulated contracts trading on the same trading platform. This 
is the very course of action that Amaranth followed when, in 
order to avoid regulatory scrutiny, it liquidated its positions 
on NYMEX and opened similar positions on ICE. In order to avoid 
this possibility, APGA urges Congress to extend the CFTC's 
large trader reporting system to all contracts traded on an ECM 
for a commodity the prices of which are discovered to a 
material degree by trading on the ECM. In this way, a trader 
will not be able to obscure its positions by moving them 
between contracts, some regulated and others not, which are 
traded on the same ECM.\9\

                       CFTC Enforcement Authority

    The need to provide the CFTC with additional surveillance 
tools through legislation does not imply that the CFTC has not 
been vigilant in pursuing wrongdoers using its current 
statutory enforcement authorities. In this regard, we note that 
the CFTC has assessed over $300 million in penalties, and has 
assessed over $2 billion overall in government settlements 
relating to abuse of these markets. These actions affirm the 
CFTC's vigor in pursuing misconduct in these markets. However, 
while APGA applauds the CFTC's vigorous enforcement efforts to 
address misconduct with respect to trading in the energy 
markets, it notes that increased coordination between Federal 
regulators is necessary to provide U.S. consumers with the full 
measure of protection that Congress has provided.
    In this regard, both the CFTC and the Federal Energy 
Regulatory Commission (FERC) initiated enforcement actions 
against Amaranth in connection with Amaranth's trading 
activities in natural gas, alleging that Amaranth had engaged 
in price manipulation. The CFTC brought a civil enforcement 
action against Amaranth in the United States District Court for 
the Southern District of New York. \10\ The FERC brought an 
administrative action, issuing an Order to Show Cause and 
Notice of Proposed Penalties with respect to Amaranth's trading 
activities.\11\ Significantly, FERC's enforcement action was 
the first brought by it under the anti-manipulation authority 
granted to FERC by the Energy Policy Act of 2005, Pub. L. No. 
109-58 (2005).
    In response to FERC's commencement of its enforcement 
action, Amaranth argued to the U.S. District Court that its 
futures trading activities are subject to the exclusive 
jurisdiction of the CFTC and beyond the jurisdiction of FERC. 
FERC maintains that its authority to impose penalties upon 
those who manipulate markets in natural gas applies not only to 
direct participants in the physical gas markets, but also to 
entities whose manipulative conduct in the financial markets 
directly or indirectly impacts the price of FERC-jurisdictional 
transactions. On September 28, 2007 the American Public Gas 
Association, American Public Power Association (APPA) and 
National Rural Electric Cooperative Association (NRECA) jointly 
filed an amicus memorandum of law with the court in support of 
FERC's authority to bring an enforcement action against 
Amaranth in connection with Amaranth's futures-related trading 
activities.
    As a group that represents consumers, APGA supported 
Congress' action in providing FERC with its new anti-
manipulation authority in the Energy Policy Act of 2005. APGA's 
view was then, and remains, that the anti-manipulation 
authority granted to FERC affords consumers an important 
additional measure of protection. Accordingly, APGA urges the 
CFTC and FERC to work closely together towards exercising their 
respective authorities in a way that increases the protection 
of energy consumers from market abuses, as we believe, Congress 
intended.
    In any event, it must be borne in mind that although these 
efforts to punish those that manipulate or otherwise abuse 
markets are important, catching and punishing those that 
manipulate markets after a manipulation has occurred is not an 
indication that the system is working. To the contrary, by the 
time these cases are discovered using the tools currently 
available to government regulators, our members, and their 
customers, have already suffered the consequences of those 
abuses in terms of higher natural gas prices. Greater 
transparency with respect to traders' large positions, whether 
entered into on a regulated exchange or in the OTC markets in 
natural gas will provide the CFTC with the tools to detect and 
deter potential manipulative activity before our members and 
their customers suffer harm.
    Finally, APGA believes that greater public involvement 
would assist the CFTC as its policies necessarily evolve to 
meet the challenge of these new conditions in the energy 
markets. In this regard, APGA strongly commends the CFTC for 
its recent announcement of its intention to establish an 
Advisory Panel on Energy Markets composed of industry experts, 
including representatives of consumer organizations, to offer 
technical advice on issues relating to reporting and 
surveillance of the markets. APGA believes this group will play 
a valuable role in providing technical advice to the CFTC on 
issues relating to reporting and surveillance of the markets. * 
* * * *
    Natural gas is a lifeblood of our economy and millions of 
consumers depend on natural gas every day to meet their daily 
needs. It is critical that the price those consumers are paying 
for natural gas comes about through the operation of fair and 
orderly markets and through appropriate market mechanisms that 
establish a fair and transparent marketplace. Without giving 
the government the tools to detect and deter manipulation, 
market users and consumers of natural gas who depend on the 
integrity of the natural gas market cannot have the confidence 
in those markets that the public deserves.

                              ----------                              

    \1\ See ``Excessive Speculation in the Natural Gas 
Market,'' Report of the U.S. Senate Permanent Subcommittee on 
Investigations (June 25, 2007) (``PSI Report''). The PSI Report 
on page 3 concluded that ``Traders use the natural gas contract 
on NYMEX, called a futures contract, in the same way they use 
the natural gas contract on ICE, called a swap. . . . The data 
show that prices on one exchange affect the prices on the 
other.''
    \2\ See the Congressional findings in Section 3 of the 
Commodity Exchange Act, 7 U.S.C. 1 et seq. (``Act''). Section 
3 of the Act provides that, ``The transactions that are subject 
to this Act are entered into regularly in interstate and 
international commerce and are affected with a national public 
interest by providing a means for . . . discovering prices, or 
disseminating pricing information through trading in liquid, 
fair and financially secure trading facilities.''
    \3\ See letter to the Honorable Jeff Bingaman from the 
Honorable Reuben Jeffery III, dated February 22, 2007.
    \4\ Id, at 7. The CFTC presumably issued this call for 
information under Section 2(h) (5) of the Act.
    \5\ As explained in greater detail below, special calls are 
generally considered to be extraordinary, rather than routine, 
requirements. Although special calls may be an important 
complement to routine reporting requirements in conducting 
market surveillance, they are not a substitute for a 
comprehensive large trader reporting system.
    \6\ See PSI Report at p. 119
    \7\ This stands in contrast to a many-to-many model which 
is recognized as a multi-lateral trading venue. This 
understanding is reflected in section 1a (33) of the Act, which 
defines ``Trading Facility'' as a ``group of persons that . . . 
provides a physical or electronic facility or system in which 
multiple participants have the ability to execute or trade 
agreements, contracts or transactions by accepting bids and 
offers made by other participants that are open to multiple 
participants in the facility or system.''
    \8\ ``Report on the Oversight of Trading on Regulated 
Futures Exchanges and Exempt Commercial Markets,'' Report of 
the Commodity Futures Trading Commission, http://www.cftc.gov/
stellent/groups/public/@newsroom/documents/file/pr5403-07--
ecmreport.pdf (October 2007).
    \9\ As part of this authority, the CFTC could determine 
that particular contracts with de minimus levels of trading 
would be exempt from the reporting requirement. This would 
enable the CFTC to exempt particular contracts traded on the 
ECM that are inactive or too illiquid to be used in this way by 
a trader with large positions.
    \10\ See, U.S. Commodity Futures Trading Commission v. 
Amaranth Advisors, L.L.C., Amaranth Advisors (Calgary) ULC and 
Brian Hunter, No. 07CIV 6682 (SDNY filed July 25, 2007).
    \11\ Amaranth Advisors, LLC et al, Federal Energy 
Regulatory Commission Docket No. IN07-26-001.

    Mr. Stupak. Thank you, Ms. Campbell. Mr. Cota, please, 
opening statement.

  STATEMENT OF SEAN COTA, PRESIDENT AND CO-OWNER, COTA & COTA 
                              INC.

    Mr. Cota. Honorable Chairman Stupak, Ranking Member 
Whitfield, and distinguished members of the committee, thank 
you for this invitation to testify before you today. I 
currently serve as the regional chair of Petroleum Marketers 
Association of America, a national federation of 46 States in 
regional associations representing over 8,000 independent fuel 
marketers that account for about half the gasoline sold and 
nearly all of the distillate sold to American consumers in the 
United States. I am also the president of New England Fuel 
Institute, which represents over 1,000 heating oil fuel dealers 
in related service companies throughout the Northeast. NEFI 
members' companies deliver approximately 40 percent of the 
nation's heating oil, and many market diesel fuel, heating oil, 
propane, kerosene, jet fuel, and off-road diesel and motor 
vehicle fuels.
    Finally, I provide insight today as a co-owner and 
President of Cota & Cota of Bellows Falls, Vermont, a third-
generation family-owned and operated heating fuel provider in 
southern Vermont and western New Hampshire. Unlike larger 
energy companies, most retailer dealers are small, family-run 
businesses. Also unlike larger energy companies, heating oil 
and propane dealers deliver product directly to the doorstep of 
American homes and businesses.
    With the winter weather once again settling across the 
country, American families are facing a new and cold reality. 
In the Northeast, where consumers use over 80 percent of the 
nation's heating oil, the increase in heating oil costs has 
left them not only wondering how to fit the heating bill into 
the family budget but also wondering--and this is the billion-
dollar question--why energy prices have skyrocketed so 
abruptly.
    Excessive speculation in the market is driving this runaway 
train. Even the general secretary of OPEC said this week, ``the 
market is not controlled by supply and demand. It is totally 
controlled by speculators who consider oil as a financial 
asset.'' The rise in heating oil prices and crude prices in 
recent months has dragged with it nearly every single refined 
product, especially heating oil. Since March 2007, when the 
industry recognized the end of the peak heating season demand, 
the wholesale price of heating oil had risen a remarkable 32 
percent from $1.88 per gallon to $2.77 per gallon, despite 
reports by the EIA that heating inventories remain well above 
the 5-year average.
    Home heating fuel dealers do not benefit from inflated 
prices now set by activity in the energy commodities market. 
For us, volatility and skyrocketing prices mean strained credit 
lines with terminals, suppliers, and their banks, increased 
cash demands. A load of heating oil to me now costs $27,000, 
where just a few years ago it was less than $10,000. Struggling 
families find it harder to pay their bills, further straining 
the dealers' credit obligations with their banks and suppliers. 
Consumers are more likely to use credit cards for their 
purchases, due to hidden credit card company interchange fees, 
and consumers ultimately pay more for their fuel. Federal and 
State LIHEAP dollars, already at severely insufficient levels, 
become diluted by rising prices, and each dollar invested in 
the energy assistance program is only able to help fewer 
families in need.
    Additionally, many heating fuel companies like mine hedge 
in an effort to protect consumers against roller-coaster-like 
price volatility in energy commodity markets. Because of this 
we strongly support open, transparent exchanges subject to the 
rule of Law. In fact, it is essential to a business like me, 
which began to offer fixed pricing to our consumers 20 years 
ago. We enter into NYMEX-based futures contracts with our 
suppliers, who purchase contracts for future delivery and then 
resell these contracts to me for profit. In this way, companies 
like mine are able to financially hedge heating fuels to the 
benefit of the consumer and help protect them against 
uncertainty and volatility.
    However, the ability of commodities markets to set the 
price based upon economic fundamentals has become less and less 
reliable, and, as a result, so do our hedging programs. As the 
influence of price setting functions under the under-regulated 
markets continue to grow, American consumers are forced to ride 
the same speculative roller coaster as the energy trader. My 
Congressman, Peter Welch, from Vermont, has helped to bring 
this important question for my State and for all American 
consumers nationwide to these halls.
    For far too long, insufficient oversight in transparency 
has encouraged excessive speculation in creating a trading 
environment that rewards misdeeds like the recent allegations 
against Amaranth Hedge Funds in British Petroleum. Loopholes in 
Federal Law have created what I call ``dark markets'', energy 
trading environments that operate without adequate Federal 
oversight or regulation. Today, the vast majority of trading 
occurs in these markets.
    We strongly urge that Congress make and take swift action 
to bring these dark markets to light. We would recommend that, 
one, closing the notorious Enron loophole ripped open by the 
Commodities Futures Modernization Act, through which billions 
of dollars have poured since it was created in 2001. Virtually 
overnight, this loophole freed electronic trading from the 
Federal oversight. Congress needs to close the loophole and 
enclose it for all energy commodities, thereby returning the 
CFTC to the statutory authority that it lost 7 years ago.
    Two, investigate the CFTC's use of no-action letters, which 
Professor Greenberger alluded to earlier, which I call the no-
action loophole. In this area, the CFTC could provide 
regulatory exemptions to applicable foreign boards of trade 
that offer contracts for delivery within the United States. The 
current process may fail to provide sufficient public notice 
and consultation and may not take into account the impact that 
these letters have had on the market. Moreover, in order to 
obtain such exemptions, the CFTC requires that a comparable 
regulatory authority be presented in a country where these 
exchanges operate. Congress should examine whether or not it 
determined such regulatory authorities be comparable. And 
finally, we are concerned that no-action letters may have been 
approved for exchanges that sought to establish electronic 
platforms overseas in order to circumvent U.S. regulatory 
authority.
    And three, provide adequate funding to the CFTC, which 
currently receives approximately one tenth of the funding of 
its sister regulator, the Securities and Exchange Commission. 
We make these recommendations while acknowledging that there 
are several different policy recommendations floating around on 
Capitol Hill from an array of sources, including legislators, 
the Commission, Administration officials, futures groups, and 
commodity exchanges themselves. We ask that your deliberations 
take into account all trading environments in all energy 
commodities, not just the regulation of one commodity to the 
exclusion of others.
    Moreover, we urge lawmakers and Administration officials 
take into account the impact of these reforms in rulemaking on 
the American consumer and small businesses like mine. Again, 
thank you, Mr. Chairman, and to your colleagues for this 
opportunity to present my insight on this issue. And I am open 
to any questions later.
    [The prepared statement of Mr. Cota follows:] 
    [GRAPHIC] [TIFF OMITTED] T6477.019
    
    [GRAPHIC] [TIFF OMITTED] T6477.020
    
    [GRAPHIC] [TIFF OMITTED] T6477.021
    
    [GRAPHIC] [TIFF OMITTED] T6477.022
    
    [GRAPHIC] [TIFF OMITTED] T6477.023
    
    [GRAPHIC] [TIFF OMITTED] T6477.024
    
    [GRAPHIC] [TIFF OMITTED] T6477.025
    
    [GRAPHIC] [TIFF OMITTED] T6477.026
    
    [GRAPHIC] [TIFF OMITTED] T6477.027
    
    [GRAPHIC] [TIFF OMITTED] T6477.028
    
    [GRAPHIC] [TIFF OMITTED] T6477.029
    
    [GRAPHIC] [TIFF OMITTED] T6477.030
    
    Mr. Stupak. Thank you. Mr. LaSala, please, opening 
statement.

   STATEMENT OF THOMAS F. LASALA, CHIEF REGULATORY OFFICER, 
DIVISION OF COMPLIANCE AND RISK MANAGEMENT, NEW YORK MERCANTILE 
                         EXCHANGE, INC.

    Mr. LaSala. Yes, Mr. Chairman and members of the 
subcommittee, my name is Tom LaSala, and I am the chief 
regulatory officer of the New York Mercantile Exchange, Inc. 
NYMEX is the world's largest forum for trading of physical-
commodity-based futures contracts, including energy and metals 
products. NYMEX has been in business for 135 years and is a 
federally chartered marketplace, fully regulated by the 
Commodity Futures Trading Commission, both as a derivatives 
clearing organization and as a designated contract market, or 
DCM. A DCM maintains the highest and most comprehensive level 
of regulatory oversight to which a derivatives trading facility 
may be subject under current Law and regulation.
    On behalf of the Exchange, its Board of Directors, and 
shareholders, I thank you and the members of the Subcommittee 
on Oversight and Investigations for the opportunity to 
participate in today's hearing. NYMEX is regulated by the CFTC, 
which by statute has long had exclusive jurisdiction over 
futures contracts, trading, and markets. As a benchmark for 
energy prices around the world, trading on NYMEX is 
transparent, open, and competitive.
    In the CFTC's direct monitoring of futures trading, NYMEX, 
as a DCM, has an affirmative statutory obligation to act as a 
self-regulatory organization, relying upon the standards set by 
statute and by CFTC regulation and interpretation. As an SRO, 
NYMEX routinely uses tools such as large trader reporting, 
position accountability, and position limits to monitor and 
police trading in our contracts. A new statutory tier of 
trading facility, the Exempt Commercial Market, or ECM, was 
added to the CFTC's governing statute in 2000. The ECM is 
essentially exempt from substantive CFTC regulation and also 
has no explicit SRO duties by statute. In addition, to date, 
ECMs have not voluntarily assumed any SRO duties.
    As a result of market changes that were not anticipated in 
2000, such as the effective linking of trading on unregulated 
venues with trading on regulated venues of competing products, 
certain ECMs now serve in a price discovery role and thus 
trigger public policy concerns and warrant a higher degree of 
CFTC oversight and regulation. From its vantage point as a DCM, 
NYMEX was able to observe firsthand how this regulatory 
disparity operated in the failure of Amaranth, a $7 billion 
hedge fund that focused upon trading of energy products that 
was active in a NYMEX natural gas contract.
    In August of 2006, NYMEX proactively took steps to maintain 
the integrity of its markets by ordering Amaranth to reduce its 
open positions in the National Gas Futures Contract. Instead, 
Amaranth sharply increased its positions on the unregulated and 
nontransparent ICE electronic trading platform. Because ICE and 
NYMEX trading venues for natural gas are tightly linked and 
highly interactive with each other, Amaranth's response to 
NYMEX's regulatory directive admittedly reduced its positions 
on NYMEX but did not reduce Amaranth's overall risk or the risk 
to Amaranth's clearing member. Unfortunately neither NYMEX nor 
the CFTC had efficient means to monitor Amaranth's positions on 
ICE or to take steps to have Amaranth reduce its participation 
in that trading venue.
    A recent CFTC report to Congress recommends that such 
contracts should be subject by statute to large trader 
reporting, position limits, or position accountability, self-
regulatory oversight, obligations, and emergency authority for 
both the CFTC and for the ECM itself. NYMEX strongly supports 
the CFTC's legislative proposals. These proposals are also 
supported by the President's Working Group on Financial 
Markets.
    Finally, Congress created the CFTC in 1974, providing the 
new agency with exclusive jurisdiction over futures markets. 
Congress intended the CFTC Act of 1974 to strengthen futures 
regulation, create a comprehensive regulatory structure for 
futures trading, and avoid regulatory gaps. Further, Congress 
intended that the new agency be an expert in futures 
regulation, a function which requires highly specialized 
skills. The CFTC has demonstrated such expertise. In subsequent 
reauthorizations, when Congress intended to create limited 
exemptions to that authority, it has always done so through 
express amendments of the CFTC's governing statute.
    Consequently, most observers have concluded that Congress 
did not intend to alter the CFTC's exclusive jurisdiction with 
the Energy Policy Act of 2005. The contrary interpretation now 
being pursued by FERC substantially harms futures markets by 
adding the cost and uncertainty of conflicting standards. It 
also severely undermines the ability of NYMEX and other 
regulated exchanges to carry out their SRO responsibilities.
    I thank you for your time today and welcome any subsequent 
questions you may have.
    [The prepared statement of Mr. LaSala follows:]
    [GRAPHIC] [TIFF OMITTED] T6477.031
    
    [GRAPHIC] [TIFF OMITTED] T6477.032
    
    [GRAPHIC] [TIFF OMITTED] T6477.033
    
    [GRAPHIC] [TIFF OMITTED] T6477.034
    
    [GRAPHIC] [TIFF OMITTED] T6477.035
    
    [GRAPHIC] [TIFF OMITTED] T6477.036
    
    [GRAPHIC] [TIFF OMITTED] T6477.037
    
    [GRAPHIC] [TIFF OMITTED] T6477.038
    
    [GRAPHIC] [TIFF OMITTED] T6477.039
    
    [GRAPHIC] [TIFF OMITTED] T6477.040
    
    [GRAPHIC] [TIFF OMITTED] T6477.041
    
    [GRAPHIC] [TIFF OMITTED] T6477.042
    
    [GRAPHIC] [TIFF OMITTED] T6477.043
    
    [GRAPHIC] [TIFF OMITTED] T6477.044
    
    [GRAPHIC] [TIFF OMITTED] T6477.045
    
    [GRAPHIC] [TIFF OMITTED] T6477.046
    
    [GRAPHIC] [TIFF OMITTED] T6477.047
    
    [GRAPHIC] [TIFF OMITTED] T6477.048
    
    [GRAPHIC] [TIFF OMITTED] T6477.049
    
    [GRAPHIC] [TIFF OMITTED] T6477.050
    
    [GRAPHIC] [TIFF OMITTED] T6477.051
    
    [GRAPHIC] [TIFF OMITTED] T6477.052
    
    [GRAPHIC] [TIFF OMITTED] T6477.053
    
    [GRAPHIC] [TIFF OMITTED] T6477.054
    
    [GRAPHIC] [TIFF OMITTED] T6477.055
    
    [GRAPHIC] [TIFF OMITTED] T6477.056
    
    [GRAPHIC] [TIFF OMITTED] T6477.057
    
    [GRAPHIC] [TIFF OMITTED] T6477.058
    
    [GRAPHIC] [TIFF OMITTED] T6477.059
    
    [GRAPHIC] [TIFF OMITTED] T6477.060
    
    [GRAPHIC] [TIFF OMITTED] T6477.061
    
    Mr. Stupak. Thank you, Mr. LaSala. Mr. Vice, for an opening 
statement, please, sir.

  STATEMENT OF CHARLES A. VICE, PRESIDENT AND CHIEF OPERATING 
            OFFICER, INTERCONTINENTAL EXCHANGE, INC.

    Mr. Vice. Chairman Stupak, Ranking Member Whitfield, I am 
Chuck Vice, president and chief operating officer of the 
Intercontinental Exchange, or ICE. We very much appreciate the 
opportunity to appear before you today to give our views on 
energy markets.
    As background, ICE was established in 2000 as an over-the-
counter market. Since that time, ICE has grown significantly, 
both through product and technology innovations as well as 
through acquisition of other exchanges. Today ICE operates a 
leading global marketplace in futures and OTC derivatives 
across a variety of asset classes. Commercial hedgers use our 
products to manage risks while investors provide liquidity 
necessary to maintain and grow the markets. ICE hosts four 
separate marketplaces on our electronic trading platform.
    First there is ICE's OTC energy market, which operates 
under the Commodity Exchange Act as an exempt commercial 
market, or ECM. Second, there's ICE Futures Europe, formerly 
known as the International Petroleum Exchange, which is 
regulated by the UK Financial Services Authority. Third, there 
is ICE Futures US, formerly known as the Board of Trade of the 
City of New York, or the NYBOT, which is a CFTC-regulated, DCM 
contract market. And fourth, there is the Winnipeg Commodity 
Exchange, which is regulated by the Manitoba Securities 
Commission.
    ICE has always been and continues to be a strong proponent 
of competitive markets and of regulatory oversight of those 
markets. To that end, we have continuously worked with FERC, 
the CFTC, and other regulatory agencies in the U.S. and abroad 
to ensure that they have access to all relevant information 
regarding trading activity in our markets. We strongly support 
legislative and regulatory changes that will enhance the 
quality of oversight and available information with respect to 
the energy markets. Over the past several months, ICE has been 
working with members of Congress to create an enhanced but 
appropriate level of oversight over OTC energy markets that are 
either economically linked to a designated contract market and 
its price discovery function or serve a significant price 
discovery function themselves.
    By appropriate, ICE means that any regulatory changes that 
are made need to reflect the varying nature of ICE's many OTC 
markets and the key differences between contracts on ICE that 
serve a significant price discovery function and those that do 
not. We welcome the opportunity to work with the subcommittee 
and its staff on these important issues.
    Because OTC markets tend to be global in nature, most are 
increasingly electronic. ICE responded to the transparency and 
speed enjoyed in other OTC markets as an ECM by establishing 
its many-to-many electronic marketplace for trading physical 
energy commodities and financially settled derivatives or 
swaps. In effect, ICE performs the same function as a voice 
broker in the OTC market but does so through an electronic 
platform. Voice brokers offer limited transparency and only 
then to the largest firms. ICE, however, provides the same 
high-quality information to all traders, large and small, and 
at the same instant. ICE offers faster and more efficient 
execution while providing regulators with a comprehensive audit 
trail, none of which is available from voice brokers.
    The introduction of ICE's platform has promoted competition 
and innovation in the energy derivatives market to the benefit 
of all market participants and consumers generally. As the CFTC 
pointed out in its Senate PSI testimony, ``the ability to 
manipulate prices on either NYMEX or ICE has likely been 
reduced, given that ICE has broadened participation in 
contracts for natural gas.'' Importantly, greater participation 
means increased liquidity, lower transaction costs, and tighter 
bid/ask spreads, which lowers the cost of hedging energy price 
risk for businesses.
    The problem with one-size-fits-all regulation can be 
illustrated by contrasting the historic nature of futures 
markets with the OTC markets. Recognizing the importance of 
futures pricing benchmarks to the general public and the retail 
accessibility of these markets, core principles were developed 
to facilitate regulation of futures trading by the designated 
contract market. The high level of liquidity typical in 
benchmark contracts makes application of core principles, such 
as market monitoring and position accountability, feasible and 
appropriate. Suggesting that these same DCM core principles, 
which were developed with the futures exchange model in mind, 
should apply to all OTC contracts traded on an ECM market is 
attempting to fit a square peg in a round hole.
    While some level of additional reporting and a system of 
accountability limits is appropriate for certain contracts, 
most of the energy swaps on ICE are niche OTC products that 
have little in common with futures benchmarks and are not 
amenable to the application of DCM core principles.
    I would now like to offer a quick comment on the CFTC/FERC 
jurisdictional question. Although many believe that FERC and 
CFTC's jurisdictions conflict, ICE believes they are 
complementary. That said, overlapping regulation in any market 
creates uncertainty over compliance with two separate varying 
and sometimes conflicting legal standards. There is a clear 
role for each regulator, and we believe that FERC and the CFTC 
should be able to coordinate rather than duplicate their 
responsibilities.
    In conclusion, as an operator of global futures and OTC 
markets and as a publicly-held company, ICE understands the 
importance of ensuring the utmost confidence in its markets. To 
that end, we have continuously worked with the CFTC and FERC to 
ensure that they have access to all relevant information 
regarding trading activity in our markets. Mr. Chairman, thank 
you for the opportunity to share our views.
    [The prepared statement of Charles A. Vice follows:]

                      Testimony of Charles A. Vice

    1. ICE Operates a Transparent Platform. ICE provides a 
reliable, transparent over-the-counter market for trading 
physical energy commodities and financially-settled OTC 
derivatives. ICE has promoted competition and innovation on the 
derivatives market, which has lowered transaction costs for 
energy users.
    2. One Size Regulation Does not Fit All Markets or 
Contracts. Many of the products on ICE are niche OTC products 
that trade in illiquid markets. Applying Designated Contract 
Market (DCM) core principles to these markets does not make 
sense. ICE supports creating appropriate oversight of energy 
markets that serve a significant price discovery market or 
impact a significant price discovery market on a DCM. However, 
the two-tier regulatory structure currently in place should be 
kept for DCMs and Exempt Commercial Markets.
    3. The Federal Energy Regulatory Commission and the 
Commodity Futures Trading Commission have Complementary 
Jurisdiction. ICE believes that FERC and the CFTC have 
complementary jurisdiction in energy markets. However, dual 
regulation would cause harm to the markets. There is a clear 
role for each regulator to oversee the energy markets and FERC 
and the CFTC should be able to coordinate their oversight and 
enforcement responsibilities.
    4. Funding of the CFTC. The CFTC is currently under-funded 
and ICE supports increasing their budget. However, ICE urges 
caution in levying a "transaction tax" or "user fee."
    December 12, 2007
    Chairman Stupak, Ranking Member Whitfield, I am Chuck Vice, 
President and Chief Operating Officer of the 
IntercontinentalExchange, Inc., or "ICE." We very much 
appreciate the opportunity to appear before you today to give 
our views on energy markets.
    As background, ICE was established in 2000 as an over-the-
counter (OTC) market. Since that time, ICE has grown 
significantly, both through its own market growth fostered by 
ICE's product, technology and trading innovations, as well as 
by acquisition of other markets to broaden its product 
offerings.
    Today, ICE operates a leading global marketplace in futures 
and OTC derivatives across a variety of product classes, 
including agricultural and energy commodities, foreign exchange 
and equity indexes. Commercial hedgers use our products to 
manage risk and investors provide necessary liquidity to the 
markets. Headquartered in Atlanta, ICE has offices in New York, 
Chicago, Houston, London, Singapore, Winnipeg and Calgary.
    ICE hosts four separate markets on our electronic trading 
platform - ICE's OTC energy market, which operates under the 
Commodity Exchange Act (CEA) as an "exempt commercial market," 
or ECM, and three subsidiaries: ICE Futures Europe, formerly 
known as the "International Petroleum Exchange," which is 
regulated by the UK Financial Services Authority; ICE Futures 
US, formerly known as "The Board of Trade of the City of New 
York (NYBOT)," which is a CFTC-regulated Designated Contract 
Market (DCM), and the Winnipeg Commodity Exchange, which is 
regulated by the Manitoba Securities Commission.
    ICE has always been and continues to be a strong proponent 
of open and competitive markets in energy commodities and 
related derivatives, and of regulatory oversight of those 
markets. As an operator of global futures and OTC markets and 
as a publicly-held company, we strive to ensure the utmost 
confidence in the integrity of our markets and in the soundness 
of our business model. To that end, we have continuously worked 
with FERC, the CFTC and other regulatory agencies in the U.S. 
and abroad in order to ensure that they have access to all 
relevant information available to ICE regarding trading 
activity on our markets and we will continue to work with all 
relevant agencies in the future. ICE strongly supports 
legislative and regulatory changes that will enhance the 
quality of oversight and available information with respect to 
the energy markets.
    Over the past several months, ICE has been working with 
members of Congress to create appropriate oversight of certain 
energy markets that either impact a designated contract market, 
and its price discovery function, or which separately serve a 
significant price discovery function. By appropriate, ICE 
believes that any legislative or regulatory changes that are 
made need to reflect the different nature of ICE's varied 
markets and the significant differences between contracts on 
ICE that serve a significant price discovery function and those 
that do not. We also believe that any consideration of possible 
changes to the current regulatory structure must be based upon 
an understanding of the operations of "exempt commercial 
markets," such as ICE, and of the balance struck by Congress 
and the CFTC between overseeing these markets while still 
allowing them to function in the context of OTC trading by 
commercial and institutional participants. We welcome the 
opportunity to work with the Subcommittee and its staff on 
these important issues.

                  ICE Operates a Transparent Platform

    Broadly, because OTC markets tend to be global in nature, 
most OTC markets are now conducted electronically across most 
asset classes, including OTC markets for U.S interest rate 
instruments, foreign exchange and debt securities. ICE 
responded to the transparency and speed enjoyed in other OTC 
markets by establishing its many-to-many electronic marketplace 
for trading physical energy commodities and financially-settled 
over-the-counter derivatives, primarily swaps, on energy 
commodities. ICE in effect performs the same function as a 
"voice broker" in the OTC market, but does so through an 
electronic platform. Voice brokers offer limited transparency 
and only then to the largest trading firms. ICE, however, 
provides the same high quality information to all traders, big 
and small, and at the same instant. The ICE electronic market 
also offers faster and more efficient execution while providing 
regulators with a comprehensive audit trail with respect to 
orders entered, and transactions executed - none of which is 
available from voice brokers. The introduction and development 
of ICE's platform have promoted competition and innovation in 
the energy derivatives market, to the benefit of all market 
participants and consumers generally. The reliability of ICE's 
markets has also resulted in an increasing preference for 
electronic trading in these markets. NYMEX, in its recent 
testimony before the Senate Permanent Subcommittee on 
Investigations (the "Senate PSI"), noted that 80-85% of its 
volume is now traded electronically, a development driven 
largely by competition from ICE. The CFTC also pointed out, in 
its Senate PSI testimony, that "the ability to manipulate 
prices on either [NYMEX or ICE] has likely been reduced, given 
that ICE has broadened participation in contracts for natural 
gas." Importantly, greater participation means heightened 
liquidity, which results in lower transaction costs and tighter 
bid/ask spreads. This makes the cost of hedging energy price 
risk lower, which results in cheaper operating costs for 
businesses.
    Participants on ICE enter bids and offers electronically 
and are matched in accordance with an algorithm that executes 
transactions on the basis of time and price priority. 
Participants executing a transaction on our platform may settle 
the transaction in one of two ways - on a bilateral basis, 
settling the transaction directly between the two parties, or 
on a cleared basis through LCH.Clearnet using the services of a 
futures commission merchant that is a member of LCH.Clearnet. 
In addition to providing the clearing house with daily 
settlement prices, ICE is also responsible for maintaining data 
connectivity to the clearing house.
    It is important to note that there are substantial 
differences between ICE's OTC market, other portions of the OTC 
market, and the NYMEX futures market. These differences 
necessarily inform and guide the appropriate level of oversight 
and regulation of our markets. First, ICE is only one of many 
global venues on which market participants can execute OTC 
trades. A significant portion of OTC trading in natural gas is 
executed through voice brokers or direct bilateral negotiation 
between market counterparties. Of the available forums, only 
ICE (and any other similarly-situated ECMs) is subject to CFTC 
jurisdiction and the CFTC's regulations, or to limitations on 
the nature of its participants.
    Second, participants in the futures markets must either 
become members of the relevant exchange or trade through a 
futures commission merchant that is a member. In contrast, 
ICE's OTC market, by law, is a "principals only" market in 
which participants must have trades executed in their own names 
on the system.
    Third, the OTC market offers a substantially wider range of 
products than the futures markets, including, for example, 
hundreds of niche derivative contracts on natural gas and power 
pricing at over 100 different delivery points in North America. 
The availability of these niche markets on ICE has improved 
transparency and lowered transaction costs via tighter bid-ask 
spreads, but volume nonetheless remains very low at most 
points. The market reality, for most of these illiquid points, 
is that participation is limited to the very small number of 
marketers, utilities, and others that have some intrinsic 
supply or demand interest.
    Fourth, the most liquid products traded in the OTC market 
broadly and on the ICE OTC market specifically are cash-settled 
swaps that require one party to pay to the other an amount 
determined by the final settlement price in the corresponding 
futures contracts but do not, and cannot, result in the 
physical delivery or transfer of energy commodities. These 
'lookalike' swaps have been widely used by OTC energy market 
participants long before the creation of ICE. In fact, these 
swaps are useful and common in any market for which there are 
benchmark futures prices. Our Henry Hub natural gas swap, for 
example, constitutes an important commercial hedging vehicle 
and has served as an important complement to and a hedge for 
the NYMEX Henry Hub natural gas futures contract. An 
understanding of the ICE markets is critical to any 
determination of the appropriate regulation of these markets.
    ICE and its market participants, including energy 
producers, distributors and users, benefited significantly from 
the regulatory flexibility embodied in the CFMA through the ECM 
structure established under section 2(h)(3) of the Act. The 
tangible benefits to the marketplace included more efficient 
hedging of energy price risk (tighter markets), greater price 
transparency in all parts of the marketplace, and vastly 
improved liquidity through the introduction of more 
participants (and thus greater price competition) in the 
markets. These benefits have not been limited to those brought 
about directly by ICE's business and its product offerings, but 
include those resulting from changes to the business models and 
product offerings of other market participants that responded 
to the competitive challenge presented by ICE's business.
    As these markets have grown and developed since passage of 
the CFMA, new regulatory challenges have emerged. ICE advocates 
a targeted approach to any reform of the CEA. Such an approach 
recognizes the unique characteristics of the many customized 
markets that have evolved and the importance of continuing to 
encourage market innovation.

      One Size of Regulation Does Not Fit All Markets or Contracts

    The problem with "one size fits all" regulation can best be 
illustrated by contrasting the historic nature of futures 
markets (limited number of actively traded benchmark contracts, 
all transactions executed through a broker who can trade for 
its own account or that of a retail customer) with the ECM OTC 
swaps markets (large number of niche products, many illiquid 
and thinly traded, principals only trading). Recognizing the 
importance of futures pricing benchmarks to the general public 
(a DCM is obligated to publish its prices to be used by the 
broader market), and in recognition of the potential for 
conflicts of interest due to members trading for their own 
accounts alongside business transacted on behalf of customers, 
some of whom were retail customers, DCM core principles were 
developed to facilitate regulation of the markets by the DCM, 
which acted as a self regulatory organization. The typical high 
level of liquidity in benchmark contracts make application of 
core principles such as market monitoring and position 
accountability and limits feasible and appropriate.
    Suggesting that these same DCM core principles, which were 
developed with the futures exchange model in mind, should apply 
to all OTC swap contracts traded on an ECM market is attempting 
to fit the proverbial square peg in a round hole. While some 
level of additional reporting and a system of position 
accountability limits may be appropriate for certain contracts 
- specifically, those that settle on a futures market contract 
price and that are the true economic equivalent of a contract 
actively traded on a regulated futures market - most of the 
energy swaps available on ICE are niche OTC products that trade 
in illiquid markets that are not amenable to the application of 
DCM core principles. For example, how would an ECM actively 
monitor an illiquid swaps market in an attempt to "prevent 
manipulation" where price changes can be abrupt due to the 
limited liquidity in the market? How would an ECM swaps market 
administer accountability limits in a market that has only a 
handful of market participants? Should the ECM question when a 
single market participant holds 50% of the liquidity in an 
illiquid market when the market participant is one of the only 
providers of liquidity in the market?
    It is important to analyze these questions not in 
isolation, but in the context of market participants having 
alternatives such as OTC voice brokers through which they can 
conduct their business. Importantly, such OTC voice brokers can 
even offer their customers the benefits of clearing through use 
of block clearing facilities offered by NYMEX (and also by 
ICE). Faced with constant inquiries or regular reporting by the 
ECM related to legitimate market activity, and facing no such 
monitoring when it transacts through a voice broker, market 
participants might choose to conduct their business elsewhere. 
It is for these and other reasons that Congress and the 
Commission have developed the carefully calibrated two-tier 
regulatory structure applicable to DCMs and ECMs. We believe 
that the judgments made by Congress and the Commission thus far 
have been prudent and should generally be maintained.

           FERC and the CFTC have Complementary Jurisdiction

    In 2005, Congress passed the Energy Policy Act, which 
granted FERC broader authority to police manipulation in energy 
markets. Although many believe that FERC and CFTC's 
jurisdictions conflict, ICE believes that they complement each 
other. As noted before, ICE operates a global company across 
the span of energy markets: physical, OTC, and futures. 
Accordingly, it works closely with FERC and the CFTC to help 
ensure fair, competitive trading. ICE believes that FERC and 
the CFTC are capable regulators in their respective areas in 
the physical, OTC, and futures markets.
    It is important that this jurisdiction remain 
complimentary, however. Overlapping regulation of the same 
conduct would likely result in harm to markets. Applying dual 
regulation to energy markets would create uncertainty over 
compliance with two separate, varying and sometimes conflicting 
legal standards. The only certainty would be the increased cost 
to U.S. businesses from having to comply with two regulators. 
The possible effect would be that these firms, operating on a 
global scale, would take their business overseas to other 
trading venues. There is a clear role for each regulator to 
oversee the energy markets, and we believe that FERC and the 
CFTC should be able to coordinate, rather than duplicate, their 
oversight and enforcement responsibilities.

                          Funding of the CFTC

    ICE believes that the CFTC is currently under funded and we 
support Congress increasing the CFTC's budget. ICE strongly 
supports increasing the Commission's budget, but urges caution 
in considering whether to levy a "transaction tax" or "user 
fee" on futures transactions. As an operator of both domestic 
and foreign futures exchanges, ICE recognizes that the futures 
industry is highly competitive, on both a domestic and global 
basis. Trading firms often operate on thin margins. A 
transaction tax could double the trading costs for market 
makers, who provide important liquidity to the market. If these 
trading participants left all or some markets, that would take 
important market liquidity with them. A recent study of 
transaction taxes on futures markets found that a futures tax 
would negatively impact volume and bid/ask spreads.\1\ 
Consumers would feel the brunt of this tax, as businesses would 
be pass on the increased cost of offsetting price risk in less 
liquid markets to them.
    Further, it is questionable whether a transaction tax would 
raise the revenue needed for the Commission. Again, firms 
operate on thin margins and might choose to move their business 
offshore or to less transparent markets. This would increase 
the Commission's cost of surveillance, while decreasing taxable 
transactions.

                               Conclusion

    ICE has always been and continues to be a strong proponent 
of open and competitive markets in energy commodities and other 
derivatives, and of appropriate regulatory oversight of those 
markets. As an operator of global futures and OTC markets, and 
as a publicly-held company, ICE understands the importance of 
ensuring the utmost confidence in its markets. To that end, we 
have continuously worked with the CFTC and other regulatory 
agencies in the U.S. and abroad in order to ensure that they 
have access to all relevant information available to ICE 
regarding trading activity on our markets. We have also worked 
closely with Congress to address the regulatory challenges 
presented by emerging markets and will continue to work 
cooperatively for solutions that promote the best marketplace 
possible.
    Mr. Chairman, thank you for the opportunity to share our 
views with you. I would be happy to answer any questions you 
may have.
                              ----------                              

    \1\ Robin K. Chou and George H.K. Wang, Transaction Tax and 
the Quality of the Taiwan Stock Index Futures, Journal of 
Futures Markets, 1195-1216 (2006).

    Mr. Stupak. Thank you, and thank you all for your 
testimony. We will begin with questions. Mr. Barton, did you 
wish to make an opening statement? It would be appropriate at 
this time if you would like, before we begin questions.
    Mr. Barton. Thank you, Chairman. Just very briefly. I will 
submit my statement for the record, but this is a very 
important hearing. We have energy prices nearing all-time 
highs, and this issue of jurisdiction, I was chairman of the 
Energy Conference 2 years ago, when we put in some language 
that was specifically designed for what has happened at ICE and 
what has happened with Amaranth. That wasn't serendipity. It 
was conscious. We wanted to do more. We weren't allowed to. So 
at the appropriate time, especially when Chairman Kelliher is 
here, I will go into that in more detail.
    But I am very supportive of this hearing, Mr. Chairman. I 
remember explicitly this issue from 2 or 3 years ago, and if we 
need to clarify and put additional statutory authority for the 
FERC on the books, I am very willing to work with the majority 
to do that.
    Mr. Stupak. I thank the ranking member, and thank you for 
your statement. We will go 5 minutes. We will start with myself 
and go one or two rounds. Is that all right with you, Mr. 
Walden?
    All right, I will begin. Professor Greenberger, for some 
time I have been saying if we could regulate these OTC trades, 
or over-the-counter trades, we could reduce the price of barrel 
oil by $20 or $30. People think I am just saying that. You are 
a professor. Maybe they will listen to you. Explain how that 
would work if we could do the regulation. How would it lower 
the price of a barrel of oil $20 to $30, as you indicated?
    Mr. Greenberger. Well, just let us take the example of 
natural gas. I will get to barrel of oil. Amaranth, the day 
before it failed, natural gas was about $8.50 per MBTU, million 
BTU. The day after it failed, it went to $4.46. Senator Levin 
and Senator Coleman, in their bipartisan report, show in detail 
the way Amaranth gobbled up futures contracts to make it appear 
that there was a shortage of natural gas on ICE when there was 
no shortage.
    In fact, NYMEX went to Amaranth and said, you guys are 
going to kill yourselves. We want you to lower your positions. 
Not only we want, we require it, because we are regulated.
    Mr. Stupak. Correct.
    Mr. Greenberger. The next day they moved to ICE. Senator 
Levin's June 2006--Senator Levin, Senator Coleman have 
economists' statements that the manipulation of the futures 
prices, phony exchanges of contracts, buying up strategically 
futures contracts, has added $20 to $30 to the barrel of crude 
oil.
    If ICE tomorrow was regulated like NYMEX and out from under 
this phony foreign board of trade exemption, the price of crude 
oil would start to drop. Just like when Congressman Graves went 
to the floor in December of 2005 and said, enough of this 
exemption on natural gas, it dropped from $14 per million BTU 
to $9. Just the threat of regulation, these traders will think 
someone is going to listen to these telephone calls.
    [Chart shown.]
    Mr. Stupak. Well, let us go here to--this is chart No. 3 I 
had up earlier. The yellow line represents what we use as a 
country, like 21 trillion cubic, but yet we are trading--and 
that is 1 year's worth--200 and--what is it? I can't see here--
239 cubic feet, and 237 trillion cubic feet on ICE. Is all this 
excess trading, if you will, is that what drives up the price?
    Mr. Greenberger. Yes, because those guys, you heard their 
phone conversations. They are playing games, and in the same 
breath, they are saying, don't worry, guys. The CFTC can't 
touch us.
    Mr. Stupak. Because we are in the dark market.
    Mr. Greenberger. The red with the blue, if you would listen 
to their phone conversations, they would stop doing that 
instantly. And the price of natural gas and crude oil would 
drop by about a third.
    Mr. Stupak. OK, Mr. Cota, I also mentioned in my opening 
statement that the price of a gallon of gas jumped 45 cents in 
1 day in my district. Have you seen the same thing in the 
Northeast?
    Mr. Cota. In the Northeast, particularly in heating fuels, 
we had a rapid increase in price.
    Mr. Stupak. The Northeast is more dependent on home heating 
oil as opposed to natural gas in the rest of the country, 
correct?
    Mr. Cota. That is correct, but most of the commodities have 
followed both crude oil and heating oil with energy pricing. 
The one thing that has kept gasoline down a little bit has been 
actually a glut of ethanol and some of that trading. Otherwise, 
gasoline would be much higher than it is right now.
    Mr. Stupak. OK, thank you. Ms. Campbell, you said in your 
testimony that public gas utilities like yours have lost 
confidence, that prices for natural gas in the futures and 
economically linked over-the-counter markets are an accurate 
reflection of supply and demand. Explain precisely what is 
needed to remedy the problem of artificial prices in the 
natural gas markets.
    Ms. Campbell. Well, I think that Professor Greenberger has 
covered that in that what we are seeing is some manipulation, 
not so much the speculation but the manipulation. And so our 
position is that greater transparency in that marketplace, via 
the large trader reporting is really the answer to bring light, 
as we call the dark markets, to bring light to those markets 
such that we can see what is going on in those marketplaces and 
therefore bring back the consumer confidence in those markets.
    Mr. Stupak. Well, as a result of Amaranth's collapse, have 
you or other American Public Gas Association members made an 
estimate of the cost to your utilities and to consumers from 
Amaranth's efforts to drive up the price in the winter of 2006-
07?
    Ms. Campbell. Memphis Light, Gas, and Water has not, but I 
know that the Municipal Gas Authority of Georgia, MGAG, has, 
and their estimate was about $18 million cost to them due to 
the Amaranth activities.
    Mr. Stupak. Mr. LaSala, I think you indicated that NYMEX 
supports CFTC's legislative proposal to regulate the exempt 
commercial markets. Is that correct?
    Mr. LaSala. Yes, sir.
    Mr. Stupak. Are there specific improvements or changes 
NYMEX would suggest to those proposals, ways you would think--
--
    Mr. LaSala. Speaking to the proposals or beyond them, we 
support----
    Mr. Stupak. Beyond the proposals.
    Mr. LaSala. We support the proposals so far as the items 
that would trigger. You know, a linked market taking a 
settlement price, the things--the market serving a price 
discovery roles should trigger certain criteria. As we said, 
large trader reporting, position limits, self-regulatory 
authority and mandate that they have an SRO function as well as 
emergency action powers.
    Mr. Stupak. OK, you indicated in your testimony that 
Amaranth, when notified by NYMEX of too large of a whole 
position there, they then went to ICE. Have you seen that with 
other energy traders where they have informed you they would 
prefer to trade on an unregulated exchange rather than deal 
with NYMEX rules on disclosure and position limits?
    Mr. LaSala. That is a good question, Mr. Chairman. We have 
certainly heard it before anecdotally from traders in the 
marketplace when we have--we said earlier we administer hard 
position limits on basically all of our contracts, all the 
physical ones and many of the cash settled ones. When we have 
tried to negotiate hedge exemptions where there have been like 
substitutes, whether on Intercontinental, we have heard the 
comment made, ``I would just as soon--you know, you are 
beginning to tread so hard on me. I can easily move this 
over.'' We have also heard it in the context of WTI insofar as 
it affects the Foreign Board of Trade issue where, in direct 
conversations, in I will call ``lessons learned from Amaranth'' 
where we made some changes, lowered any one-month 
accountability levels, and also let us focus on them on a 
futures only basis. Where, in a conversation with a trader, the 
comment was made just simply I am being actively courted by the 
UK entity ICE Futures, and basically you are pressing me to 
want to shift gears.
    Mr. Stupak. My time is up. Mr. Walden, questions, please. 
We will second round. I have many more questions.
    Mr. Walden. Thank you, Mr. Chairman. This is an issue that 
I have been concerned about for some time. And in fact, in May 
of 2005, organized a letter to the Government Accountability 
Office now, asking for a full scale investigation signed by 19 
of my colleagues because of concerns that had come to me. And 
so, Mr. Chairman, I am glad we are having this hearing today 
because if indeed the market is being manipulated, as it 
appears it has been, then consumers are getting stuck with the 
bill. And that is not right, and it is time for us to step in.
    Professor Greenberger, I want to go to your issue about how 
much you think this market manipulation or potential market 
manipulation is adding to the price of crude oil because there 
seems to be some dispute, not that we want to spend a lot of 
time on that. But others, including the GAO, say there are 
other factors involved, too. You really think that that is it, 
and it is about a third?
    Mr. Greenberger. I feel every confidence--now it is my 
view--that it would drop at least $20. If this afternoon we 
went home and knew that ICE was--those telephone calls on ICE 
were going to be monitored, the phony games that are being 
played would stop, and the price would drop.
    Mr. Walden. And do you think just----
    Mr. Greenberger. Not to zero. There are reasons it is up 
near 100, but it would drop by about $20.
    Mr. Walden. And do you think that just changing the 
language in the CFTC Reauthorization adding energy adequate, or 
does FERC need to have a role here?
    Mr. Greenberger. No, FERC has got plenty of power. The 
CFTC, ICE, and NYMEX are fighting that power as Mr. Barton made 
clear. They have plenty of power in natural gas, but that is 
enforcement power after the horse is out of the barn. If you 
want to stop it to begin with, you have to regulate all of 
these exchanges.
    I would just like to make one quick point. The famous quote 
is ``what would Jesus do?'' In forming this new legislation, 
the mantra has been, to close the Enron loophole, what would 
ICE do? Everybody is looking to ICE on how to close this 
loophole. Mr. Vice says do not regulate all our contracts, just 
the ones that ``significantly'' affect price discovery. So who 
is going to have to prove that? I am going to have to prove 
that. Ms. Campbell is going to have to prove what is 
``significant.'' Mr. Cota, the CFTC will have to prove it. You 
are going to have a contract-by-contract contest. Prior to the 
Enron loophole, ICE would be a regulated entity as a whole.
    Just one more point. ICE says to you, my gosh, we have all 
these different contracts. One size doesn't fit all. Well, 
first of all, for the consumer, one price fits all.
    Mr. Walden. Correct.
    Mr. Greenberger. Nobody is worried about the consumer. 
Secondly, if I could just make this one point.
    Mr. Walden. Make it quick. I only have 2 minutes.
    Mr. Greenberger. OK, the Act allows the Commission to 
create exemptions if ICE proves that they need less regulation.
    Mr. Walden. Got it. All right, Mr. LaSala, if I could get 
your attention for a second. I want to make sure I understood 
what you were saying. Is it when NYMEX begins to put some 
pressure on people in the market that you believe need a little 
more regulatory oversight, they are sort of pushing back, 
saying, we will just go over to ICE? Is that what you are 
saying?
    Mr. LaSala. I am not saying that is a universal statement.
    Mr. Walden. No, but----
    Mr. LaSala. But that has certainly absolutely come up. It 
has come up in the context of the contracts that are natural-
gas oriented, that are offered on Intercontinental. And it has 
also come up in the WTI contract, where there is a look-alike 
on the FSA-regulated ICE futures.
    Mr. Walden. Mr. Vice of ICE.
    Mr. Vice. Sir?
    Mr. Walden. What do we do here?
    Mr. Vice. Well, I think, first of all there are--
particularly Professor Greenberger there, a number of issues 
that have all gotten rolled up together. So I am trying to pull 
the strings of that ball apart. You are talking about the ECM 
market specifically and natural gas and Amaranth. ICE is 
actually in complete agreement for the most part and has been 
working with Congress and the other exchanges like NYMEX, the 
President's Working Group, for some months now on additional 
regulation for ECMs for contracts that are determined to be 
significant price discovery contracts. And those are 
determinations that the CFTC, for the most part, has drafted 
and feel comfortable with. And it would be their determination 
on what falls into that category. We----
    Mr. Walden. Do you think adding the word energy into the 
CFTC statute would provide proper regulatory oversight?
    Mr. Vice. I think--I am not an expert.
    Mr. Walden. That it would stop manipulation of this market?
    Mr. Vice. I think the ECM category is a critically 
important category. If you look, ICE came along as a start-up 
company and competes fiercely with NYMEX today. It is one of 
the only corners of the U.S. futures where you can find that 
competition. And as a result, it has driven prices down. There 
has been product innovation. A lot of good has come out of 
that. What we are saying is, yes, that we agree there is room 
for improvement. Let us do something thoughtful, deliberate, 
and centering on the problem and not throw the baby out with 
the bath water.
    Mr. Walden. My time is expired, but I just--you know, as we 
watch the sub-prime market implode, there seems to be some 
correlation here about derivatives and regulatory oversight and 
what went wrong. And I will tell you, a lot of consumers are 
starting to feel that way on the energy side, and it is very 
disconcerting. So I am not saying that is what is happening 
here, but----
    Mr. Vice. Well, there is no question all commodities are at 
all-time highs. Metals, agriculture.
    Mr. Walden. And I understand, and I understand demand and 
supply curves and all of that. I also understand that we know 
that there is market manipulation in these if there is a proper 
regulation. And so we got to find that balance.
    Mr. Stupak. Mr. Walden, if I could just take 1 second----
    Mr. Walden. Yes.
    Mr. Stupak. Take a look at this one. This says right here--
it is No. 7 in the book there. Mr. LaSala, you may want to look 
at that, the book right there in front of you. This is exactly 
what Mr. Walden is talking about.
    [Chart shown.]
    Mr. Stupak. This chart shows the volume shift from NYMEX to 
ICE immediately after NYMEX imposed a rule earlier this year 
which required traders of natural gas who want to hold more 
than 1,000 positions going into the last day of trading prior 
to the expiration of futures contract to disclose their 
bilateral swaps, futures, and forward contract positions. So I 
almost have to ask Mr. LaSala the same thing Mr. Walden was 
asking. Why the shift? Why suddenly from NYMEX to ICE? Isn't it 
the case that your new rule is really simply putting teeth into 
existing 1,000-position contract or the contract limit there?
    Mr. LaSala. Yes the policy shift again, with the March 
future certainly put an added level of detail, formalized 
submission on anyone who is excess of 1,000 contracts going 
into the last day. We typically would allow that. We could 
grant exemptions. This was a new procedure that came out in 
discussions with our regulator and the FERC, and as far as----
    Mr. Stupak. Well, that is your rule there, February 26, 
2007, when the shift occurred, right?
    Mr. LaSala. That is right. You see the curve shift out.
    Mr. Stupak. Right.
    Mr. LaSala. We imposed commencing with the March expiration 
the higher standard, and immediately we see a significant drop-
off in volume on the last trading day, specifically, even the 
30-minute closing range. And just as a note, some of the 
concern in that loss in the 30-minute closing range is, at some 
point does loss and volume impact price discovery? I don't have 
an absolute metric to say at what point does it, but it could. 
And the shift is obviously a startling one.
    Mr. Greenberger. Mr. Stupak, I could fill this hearing room 
with customers who have gone to NYMEX and said, you need to 
regulate more strictly, and NYMEX has said, we really feel 
sorry for you, but if we regulate more strictly we will lose 
business to ICE. Don't forget ICE's ownership, Goldman Sachs, 
Morgan Stanley, British Petroleum, they trade on NYMEX. NYMEX 
has to pull its punches when it criticizes ICE, since it is 
criticizing its own traders.
    And No. 2, you talked about the sub-prime meltdown, 3, 4 
months from now you are going to have a hearing on the sub-
prime meltdown, and you are going to find that this very same 
legislation deregulated something called collateralized debt 
obligations, CDOs. Those are futures contracts deregulated by 
the CFMA. CitiBank lost $11 billion. That is why Chuck Prince 
is not the CEO. You are going to hear about this CFMA coming 
and going.
    And the final point is, I will answer the question about 
whether ICE would agree just to add ``or energy.'' They won't, 
because that would mean they would be regulated altogether. 
What they want everyone to do is go contract by contract on 
thousands of contracts and prove significant price discovery.
    Mr. Vice. First of all----
    Mr. Stupak. Take the mike, though, if you want to comment 
on it.
    Mr. Vice. First of all, we are a publicly-held company so 
we are not owned by those firms Mr. Greenberger just said. And 
as I stated earlier, we think having that ECM category with 
ability for, I think--the CFTC has referred to it as low-cost 
on-ramp for competitors to get into this market--has been very 
good for energy. Energy went from basically probably the back 
end of the commodity market in terms of efficiency and 
transparency and bid offer spreads to probably near the front 
of the pack there. Yes, there is work to be done, but it 
doesn't make sense to us to say there are only two flavors of 
trading here: a regulated futures market with all the overhead 
and all of the position limits and market monitoring and 
emergency authority to order down positions. It is either that, 
or it is an opaque voice broker market. There is nothing in 
between.
    And I think that people that are familiar and close to 
these markets recognize that energy and quite possibly many 
other commodity markets, there is an in-between. And it needs 
some of both of those worlds. Otherwise, you are just--the 
illiquid thousands of markets that Professor Greenberger refers 
to will just go back to voice brokers. And you will have no 
information, no audit trail about what anybody is doing in any 
of those markets.
    Mr. Stupak. All right, Kyle, could you put up exhibit 27? I 
think Mr. Walden has a follow-up he would like based on the 
back-and-forth we have been going here.
    Mr. Walden. Yes, if I could, Mr. Chairman, I would just 
like to get clarification on the difference between the end-of-
month data we just saw on that chart and sort of the contracts 
year-to-date or annualized, because it looks like the numbers 
have tracked pretty----
    Mr. Stupak. Exhibit 27.
    [Chart shown.]
    Mr. Walden. It is Exhibit 27 in that book, and it shows in 
the year 2006 NYMEX traded 23,019,000 contracts, natural gas 
contracts. ICE did 24,040,000. 2007 year to date NYMEX is at 
25,146,000. ICE is at 25,910,000. These annualized numbers 
don't seem to show the volatility that the end-of-the-month day 
numbers show, and I am curious if you could explain that to me, 
why the difference and what the significance of the difference 
is.
    Mr. Vice. I will try to explain the difference, Tom, if you 
don't mind. You go after me. One thing we haven't talked about 
here is the NYMEX contract and the ICE swap traded OTC are not 
the same thing. The NYMEX contract is a physically-delivered 
natural gas future. If I want, I can hold that contract. I can 
go to expiry and demand delivery and potentially squeeze a 
market.
    The ICE swap has no ability to do that. If I hold it until 
expiration, I receive the NYMEX final settlement price. That is 
it, and so what you find is these swaps were around long before 
ICE was around. And in terms of market size, generally the 
futures market is, generally in any commodity, is several times 
larger than the underlying physical production. And the OTC 
market is typically several times larger than the futures 
exchange on any commodity you look at. So these numbers aren't 
surprising at all.
    But if you look at how people use the two products 
differently, yes, they are economically linked. And we have 
acknowledged that there should be some regulation recognizing 
that. But they are used differently in that if I am a producer 
or a consumer like Memphis Gas, I am buying gas out there, and 
I am buying--in fact, this is the crux of FERC's argument in 
the Amaranth case of why they have jurisdiction--because it 
affected what is called next month physical gas trades, where 
people buy gas at the NYMEX, plus a basis spread. NYMEX 
settlement, plus a dime, plus 20 cents. And so a consumer may 
buy gas on that basis.
    So now it has locked in the basis price, but it has 
exposure to the NYMEX settlement price. So to get rid of that 
risk, they could go buy a swap for a fixed price and eliminate 
that variability. But to maintain that perfect hedge they need 
to hold that swap to delivery, not trade out of it, as you 
would a natural gas future at NYMEX. You need to hold it to 
delivery and actually receive the NYMEX settlement price 
because you are going to pay the producer that same amount, 
plus 10 cents. So they are used differently, and it is an 
important point.
    Mr. Greenberger. I would just add to that, Mr. Vice says 
they are connected, the physical and non-physical markets. They 
are identical, and anybody trying to tell you that there is a 
difference between the two is blowing smoke. They are 
identical, and in fact Mr. Cota is worried that physical 
markets may be so unimportant that they may end physical 
delivery, which would hurt the heating oil industry. And also, 
Mr. Vice tells you that Morgan Stanley, Goldman Sachs have no 
stake holding in that ICE company. They started that company, 
and if you look at Senator Levin and Senator Coleman's report 
on page 47, 48, they list Morgan Stanley, Goldman Sachs, and BP 
as large stakeholders. They may have reduced their positions, 
but they run--ICE is here for those companies.
    Mr. Stupak. Mr. LaSala, I think you wanted to comment.
    Mr. LaSala. I want to comment here because this is the crux 
of this hearing and what we are doing. So----
    Mr. Stupak. Did you want to say something, Mr. LaSala, and 
then we will go on to Mr. Green for questioning?
    Mr. LaSala. Absolutely. Again, they are different. One is 
physically settled, one is cash settled, but they are 
absolutely linked. And again I am bound by hard positions 
limits. I have to manage them. Whether you want to say pre- the 
new procedure or post- the new procedure, I have always been 
bound with SRO responsibilities on that. And parties can--with 
the ICE contract, there were no position limits whatsoever. So 
someone could load up. And you can, since they are linked, and 
I am asserting that, I think that others have done analysis and 
asserted that. You can drive the price up by activity in that 
market, and Mr. Vice is right. You don't have to get out. It is 
a financially settled one, so buy it at lower increments, drive 
it up, and get the final settlement price. If we agree that the 
markets are linked, that is absolutely possible.
    Mr. Vice. One quick comment. They are linked. They are 
financially linked, and they should be looked at jointly in any 
kind of regulatory oversight. Despite what Mr. LaSala has said, 
though, NYMEX itself in early 2006 changed their rulemaking. 
Previously their swap and their natural gas future were counted 
together in administering position limits. They recognized that 
they were different and broke them out. So I don't know how 
they can say they are exactly the same, because their actions 
indicate otherwise.
    Mr. LaSala. If I may.
    Mr. Vice. Sure.
    Mr. LaSala. In connection with that, we also put out a 
notice saying that untoward activity that, if you have position 
in the cash commodity, which we have on our books and we can 
monitor, if in fact there is underlying activity in the 
physical that the cash is--if a settlement derived by, we will 
prosecute you.
    Mr. Stupak. Mr. Inslee, for questions.
    Mr. Inslee. Thank you. Mr. Greenberger, your testimony is 
astounding in its implications, assuming you are correct. And I 
just want to ask you, tell me others who share your view of the 
ramifications of these failures.
    Mr. Greenberger. Well, Mr. Cota does. Ms. Campbell does. 
Professor Frank Portnoy, at the University of San Diego, agrees 
with my position. I think every State Attorney General's office 
agrees with my position. And, by the way, if the CFTC/ICE 
legislation to close the Enron loophole is passed in its 
present format, the State Attorney Generals are going to have 
to go contract by contract to prove what everybody knows. 
Futures contracts cause significant price discovery.
    If you make my change and put ``or energy'' back, ICE will 
be fully regulated. If they have some reason not to be fully 
regulated, they can apply to the CFTC for less regulation. But 
it is their lawyers, Goldman Sachs, Morgan Stanley, who would 
have to pay to get the change, not Mr. Cota, Ms. Campbell, and 
me, who have to prove that their contracts under the CFTC cause 
significant price discovery. Put the burden on ICE, not on the 
public.
    Mr. Inslee. So, game play for me those two different 
mechanisms.
    Mr. Greenberger. OK, I will game play it exactly. ICE has 
hundreds of thousands of contracts. Mr. Cota is worried about 
one contract. He thinks it has significant price discovery. He 
is going to have to go to the CFTC and get engaged in a 
hearing. The CFTC itself is going to have to have a hearing, 
saying this contract, not the exchange, causes significant 
price discovery. They make a finding after a lengthy hearing. 
Is ICE or the traders going to challenge that in Court? You bet 
your life. There will be injunctions. There will be Court 
proceedings. The public and the CFTC will carry the burden 
every step of the way.
    If you add ``or energy'' back to the definition of 
commodities that aren't exempt, just those two words, it will 
be ICE's burden to show that they shouldn't be regulated like 
NYMEX. They will have to carry the weight, Goldman Sachs, 
Morgan Stanley, British Petroleum, not the poor heating oil guy 
from Vermont. ICE will immediately be regulated and then have 
to prove, if they have the ability to prove it, that they 
should get less regulation, because Mr. Vice is worried that 
there are all these different contracts, and you should worry 
about them but not worry about the person back in your home 
district that is paying 30-percent premium over supply/demand 
for gas, heating oil, natural gas, and oil.
    We shouldn't be worried about ICE and Goldman Sachs and 
Morgan Stanley. We should worry about your constituents. Put 
ICE back under regulation. Let ICE get out of it. ICE can get 
exemption under the Act as it exists. Don't make your 
constituents fight that battle on a case-by-case basis and then 
have to go into Court, District Court, Circuit Court, and maybe 
to the Supreme Court to show that one--and by the way, when 
that one contract is determined for significant price 
discovery, these traders are going to move to other contracts, 
just the way they moved from NYMEX to ICE.
    You will have spent years convincing them that one contract 
causes significant price discovery. These guys will get on the 
telephone just like you heard them. Mr. Stupak played those 
recordings. And they will say, guess what, guys. We are moving 
to a contract that isn't regulated.
    Mr. Inslee. So you think those two words are worth 30 
percent of the value of those products?
    Mr. Greenberger. I absolutely do, and Enron had them taken 
out, and Enron made $2 billion the next year, forcing the 
California consumers to pay $40 billion in extra electricity 
bills. Is it worth $40 billion to put two words in? It 
certainly is.
    Mr. Inslee. That is a pretty per-word rate. Mr. Vice, would 
ICE be willing to give up its no-action exemption and register 
as a designated contract market just as NYMEX has?
    Mr. Vice. Are you referring to the Foreign Board of Trade?
    Mr. Inslee. Yes.
    Mr. Vice. Well, we--no, I think in the sense that the--I 
don't know that it is a matter of do it or don't do it. I think 
the CFTC went through a very deliberate, extensive, thoughtful 
process with all of the associations in the industry, all of 
the exchanges worldwide to really determine, what is a domestic 
contract. Is it where the computers are? Is it where the 
customers are? Is it where the contract is delivered? If it is 
cash settled, is it where the index that it settles on is 
delivered?
    And I think what that process showed is that these are 
global markets, and there are no easy answers there. In fact, 
we have a U.S. DCM ourselves. We own the New York Board of 
Trade. We own that in New York. It trades, for example, 
agricultural products, coffee, cocoa, sugar, other things. None 
of those products are delivered in the U.S. If that were the 
criteria for deciding where regulation should occur, then 
Brazil would oversee the regulation of those markets.
    Many of the financial instruments are traded at the CME, so 
those settle on London Interbank Overnight rates. So there are, 
when you start trying to figure out where, on one of those 
dimensions, where a market should be regulated, what that 
conference showed that the CFTC went through is, you run into a 
lot of problems. And I think the more pragmatic, more 
practical, and more effective approach that they put in place 
was a recognition of mutually-respected regulators and 
information-sharing arrangements between those regulators.
    So in fact, today what our UK exchange ICE Futures Europe 
does, there is an information sharing----
    Mr. Inslee. Could I ask you just a real quick question? I 
am sorry to interrupt, but I want to make sure I understand it. 
Are you trading today U.S. commodities or U.S. terminals 
without being subject to the full panoply of CFTC regulations 
and transparency requirements?
    Mr. Vice. We are trading futures that settle on delivery 
points to the U.S. and the position information is provided to 
the regulator in the UK, the Financial Services Authority, 
which is comparable to the CFTC. All that information is 
provided to the CFTC.
    Mr. Inslee. Do you think that is equivalent as full CFTC 
regulation?
    Mr. Vice. I do.
    Mr. Greenberger. Mr. Inslee, if it was equivalent, they 
would go to the CFTC.
    Mr. Vice. Equivalently effective.
    Mr. Greenberger. It is not just U.S. terminals and U.S. 
contracts, he is in Atlanta, Georgia. They just happened to buy 
a British Exchange. I signed a template for those foreign no-
action letters. It was for foreign exchanges trading foreign 
products in a foreign country.
    Mr. Inslee. Mr. Chair, I am out of time, but Mr. LaSala 
wants to respond. Do you want to allow him or----
    Mr. Stupak. Sure.
    Mr. LaSala. Thank you.
    Mr. Stupak. Then we will go to Mr. Barton.
    Mr. LaSala. Just a comment. I think that, broadly speaking, 
the Commission's no-action process has been effective. However, 
things have changed insofar as certain contracts, basically 
taking to a point where it is a similar posture as our posture 
with the natural gas, where certain indicia are hit. For 
example, taking the WTI settlement price. It is basically a 
U.S. market that the no-action process should have the ability 
for the CFTC to prospectively put certain other requirements. I 
am not saying, make them a DCM. We are not saying, make them a 
DCM, but maybe in the no-action process, having a comparable 
position limit, having an absolutely comparable large trader 
requirement would be appropriate. That would be our suggestion.
    Ms. Campbell. Mr. Chairman, may I comment as well?
    Mr. Stupak. Ms. Campbell.
    Ms. Campbell. As far as APGA, our position is not that if 
we bring light to the dark markets that this is going to bring 
an immediate percentage change in the price. What we are 
looking to do is increase the confidence in the market, that 
this is truly the forces of supply and demand at work. And we 
support the risk-based regulatory regime as it is in that we 
have a tier in which ECMs can exist because they have brought a 
great deal of value to my customers on a physical basis.
    We are able to--where we used to get on the phone--we have 
2 hours to buy gas every morning. We used to get on the phone 
and call as many people as we could. Now we have a screen in 
front of us, and we have this great deal of price discovery on 
the physical side that we didn't have before.
    But once we cross that line where we now have a natural gas 
contract on ICE that is a look-alike contract to the NYMEX, 
that is where we kind of cross that line, and we need to bring 
greater transparency to that contract, the ICE contract, so 
that we can see the full picture of the full marketplace. And 
then the CFTC can do their job to detect and deter the 
manipulation. Thank you.
    Mr. Stupak. Thank you. Thank you, Mr. Inslee. Mr. Barton, 
for questions, please.
    Mr. Barton. Thank you, Mr. Chairman. I want to start out 
reading something just--I want to, before I ask questions. Back 
in 2002 and 2003, the beginning of 2004, when oil prices 
started going up, and the price at the pump for gasoline 
started going up, and we also had heating oil prices going up, 
we had natural gas prices going up. We had a series of hearings 
on this committee about what caused the price and whether there 
was price gouging, things like this.
    And I called the New York Mercantile executives to testify, 
and I also met with them privately in my office, and they 
talked about something called ICE, that was kind of the new kid 
on the block. And what I was wanting to do was see if we 
couldn't raise the margin call on buying these contracts, 
because on the New York Merc, the margin requirement was 
minimal.
    And I asked, I said, how do you call--set the margin call? 
And basically the answer I got was--they didn't put it in these 
terms, but it was, like, we are financial bookies. We really 
don't care. We just want what the price is. We just want to 
create action, so we set the margin to create action. It is 
almost like an over/under betting line on sporting events.
    And anyway, the Merc said, if you really want to do 
something, you are going to have to regulate this group called 
ICE down in Atlanta, because they don't play by even the rules 
that we play by. So in the Energy Policy Act of 2005, we put a 
paragraph in. And the paragraph basically, ``it shall be 
unlawful for any'', a-n-y, ``any entity, directly or 
indirectly, to use or employ in connection with the purchase or 
sale of natural gas or the purchase or sale of transportation 
services subject to the jurisdiction of the commission'', which 
is the FERC.
    That was not serendipity. It was intentional. In fact, we 
wanted to do more, but that was as much as we could get 
approved on a bipartisan, bicameral basis. So this allegation 
that somehow we didn't mean what the Law says is silly. And 
this hearing shows that even this may not be enough, that we 
may need to do more.
    So, my question to the young lady from Memphis Light and 
Gas, what do you get by trading on ICE that you don't get by 
trading on the Merc, which is at least more transparent and 
more regulated? What is it that Mr. Vice and his group have 
that is so much better? Is it just a cheaper price to conduct 
the transaction, or is there really some tangible benefit by 
using ICE as opposed to a regulated exchange?
    Ms. Campbell. Sure. Let me be sure I am clear. My comments 
earlier were, we were trading on ICE as a physical commodity as 
opposed to the futures. So every day we are out buying gas, the 
physical gas, we are looking to ICE.
    Mr. Barton. So you are not talking about these look-alike 
contracts?
    Ms. Campbell. We are not. I was not, but let me give you an 
example. Many of our members are very small, and so their 
volumes are very small. The NYMEX is for 10,000 MBTUs, which is 
much more than what they would typically use. So they look to 
hedge their risk through over-the-counter markets or through 
ICE, which has a smaller volume. So there is value there.
    There is value in the credit-worthiness. You mentioned 
increasing the margins. Well, that may drive us out of the 
market, because we don't have the cash position to maintain 
those positions, so----
    Mr. Barton. But you are not in the market to speculate.
    Ms. Campbell. No, sir.
    Mr. Barton. At least I would hope not. You are a 
regulated----
    Ms. Campbell. We are completely hedging.
    Mr. Barton. Yes.
    Ms. Campbell. And so the thing to be careful of, as we 
start to look at what the right thing to do for these markets, 
is to be sure that we don't price the actual hedgers out of the 
market or do something that would put us out of the market. 
Because when you think about it, the traders can go anywhere 
and go, as we have said, to different markets. We have the 
natural gas market, the NYMEX, the OTC, to depend on so that we 
can lay off our risk, the price risk for the next winter. And 
remember this market is twice as volatile as the stock market, 
so we must do something to protect our customers on the price.
    Mr. Barton. Well, is it--and I will give Mr. Vice a chance. 
It is not fair to chastise his organization without giving him 
a chance to reply. But when you look at the statistics and the 
facts, the number of contracts that appear to be speculative in 
the natural gas market and the oil and gas and oil markets are 
skyrocketing 300 to 400 percent increases. We have the company, 
the Amaranth, which tried to corner the natural gas market. And 
when the Merc finally and the CFTC tried to put the brakes on 
it, they just moved most of their contracts to the ICE 
Exchange, just switched them over.
    Mr. Vice, do you agree that speculators in--and in order to 
have a market, there have to be speculators. So I am not 
negative on speculators. I am somewhat negative when it looks 
like the speculators dominate the market at the expense of the 
hedgers that are physically trying to buy and sell to actually 
provide a product and provide a service.
    Do you agree that the speculators have affected the price 
that consumers pay on the upside in the last 18 months?
    Mr. Vice. I don't know that I can answer that question 
other than--I am not going to make a statement like Professor 
Greenberger. It would just be my opinion and nothing more.
    Mr. Barton. Well, yours is a----
    Mr. Vice. I think----
    Mr. Barton. Technically, you are an informed opinion. I 
mean----
    Mr. Vice. If I knew the right price for these commodities, 
I would be a trader, not----
    Mr. Barton. No, I didn't say, the right price. I am saying, 
everybody in the country seems to think that there is a 
premium, and different people disagree about what it is. But $2 
to $3 in MCF. We have heard as high as $30 a barrel of oil, and 
you disagree with that, apparently.
    Mr. Vice. Well, what I can say is that all commodities, 
ags, metals, and energies, are all up dramatically. And part of 
that is the demand of China, India, other demand on those 
commodities, part of it is they are all traded in dollar-
denominated contracts. And the dollar is down 17, 18 percent in 
the last 2 years. So that directly drives the price of those 
up.
    And all of those markets have gone--they are all 
essentially electronic now, and there is no question in 
moving--whether it is Eurodollars at the CME or natural gas at 
NYMEX or anything else--moving from a floor-based exchange to 
an electronic platform, you dramatically increase the 
transparency, the efficiency. The bid/ask spreads tighten, and 
the volumes go up dramatically. They do. And you see that in 
our numbers, and you see it in futures exchanges across the 
board.
    Mr. Barton. Mr. Chairman, may I ask one more question?
    Mr. Stupak. Sure.
    Mr. Barton. Well, Mr. Vice, since your contract doesn't 
require actual delivery, although less than one percent of the 
futures contracts actually end up in delivery, other than being 
a smaller contract, what advantages are there to using your 
market versus the mercantile market? Why would people use you 
if not purely for speculative purposes?
    Mr. Vice. Well, I think you need a little history there. We 
traded a contract bilaterally for a number of years on our 
platform. It was the only place you could trade electronically. 
If you wanted to trade the economic equivalent of the physical 
future at NYMEX, you had to call a broker on the floor, and 
people were not--it was not the best execution. The price you 
were going to get was uncertain.
    So on the screen over time, that became a very popular 
thing, and that grew. And for a number of years, the only place 
that you could hedge or speculate on the price of natural gas 
electronically with all the benefits of trading 
electronically--I said a minute ago, speed of execution, 
transparency and so forth--was on ICE.
    Mr. Barton. So you have an efficiency advantage?
    Mr. Vice. We spent millions of dollars on our platform, on 
the functionality and the speed of it and the distribution of 
it. And that is some of the competition that I am referring to 
in the ECM category. And NYMEX has responded. They have 
dramatically----
    Mr. Barton. So if we changed the Law and explicitly 
regulate your market so you have to comply by the same rules, 
you will stay in business because you have an efficiency edge 
and you have a product differentiation that you think is 
positive? You are not going to go out of business?
    Mr. Vice. I think what we are saying for our major 
contracts, like the Henry Hub contract, which the industry is 
starting to call significant price discovery contracts, yes, 
that is true. Those contracts, they behave to some extent like 
a future and therefore are amenable to DCM-type core principles 
being applied to them. We support that, and we are working with 
members of Congress to that end.
    We are also saying that there are hundreds, thousands of 
other markets on our platform. One core principle, for example, 
is coming up, is for publishing every day ``What is the open 
interest? What are the settlement prices? What are the opening 
and closing range?'' Some of those products may trade once a 
week, and so to put the regulatory overhead on us but more 
importantly the thousand participants that are on ICE to 
somehow comply with any of that, the four or five Memphis Gas 
or other types of utilities that might be trading a very 
illiquid swap at some very liquid gas pipeline point, are going 
to say, forget it. I will just, I will go back to the voice 
broker.
    Mr. Barton. Well, we can handle the exceptions, but when 
you have thousands and thousands of contracts, and you have 
companies moving between the two exchanges, based on the 
regulatory reporting requirements, when you created a mirror 
market, it would seem to me that the Federal regulators in the 
Congress should make sure that everybody gets a fair shake and 
it is not just used as a way to evade transparency and the very 
things that you created your exchange allegedly to bring to the 
market.
    And with that, Mr. Chairman, thanks for the courtesy of the 
extra time, and I yield back.
    Mr. Stupak. You bet you. Mr. Melancon, for questions, 
please.
    Mr. Melancon. Thank you, Mr. Chairman. I came in a little 
late, and I am still trying to put together the pieces of this 
thing. I grew up in the shipping industry, and the only people 
that make money trading sugar is the traders. The consumers are 
the people that are selling, usually are the ones that are not 
beneficiaries, and of course, what I found as I grew up was 
that the slightest rumor caused the price to spike up or down. 
And the reality is, it doesn't matter which way it goes, the 
traders make money.
    So, I think I am sitting here listening to an argument over 
who is going to make money the easiest or the fastest or the 
least regulated, I think Professor Greenberger hit the nail on 
the head. This is all about making sure that the American 
consumer is the person that comes out ahead. When Ms. Campbell 
looks to purchase gas for Memphis, it is not about the broker 
making money. It is a combination of what is the easiest thing 
for me to do today to get the best price as quick as I can, if 
I understand what you are doing.
    So I guess it brings me to trying to figure out, you know, 
we are looking at doing legislation. I am kind of a different 
kind of guy. I am in the legislature, but I figure that we can 
solve more problems sometimes without actually legislating. We 
need to correct the problems, but I am more about mediating.
    What I am seeing, I think, is a jurisdictional fight that 
was started by the Congress. The regulations that became kind 
of gray and the shifting of jurisdiction now had two agencies 
that are out there that are conflicted, and one maybe not 
talking to the other or both not talking to each other.
    The question is: Can we bring some transparency, some 
regulation that is fair to all, and through a memorandum of 
understanding and jurisdictional oversight, whether it is joint 
committee or not, to make sure that what is taking place in 
this market is fair; that it doesn't allow for people to corner 
the market, as I think happened recently. I don't know what 
happened with the Hunt brothers when they tried to get all the 
silver in the world, but that is probably why they started 
trying to do some of the things legislatively that maybe 
brought us to the problem.
    There is probably some need, but is it extensive, or is it 
minimal? And what MOU, with FERC and CFTC, more readily address 
the issue?
    Mr. Greenberger. If I can just explain one thing. The fight 
between FERC and the CFTC only relates to enforcement of 
natural gas. It has nothing to do with what traders have to do 
from the get-go. It is only after the horse is out of the barn.
    And only natural gas. And I hope minority counsel will tell 
Mr. Barton, when you fixed the Energy Policy Act, as I 
understand it, that was just natural gas. He has his consumers 
coming in and saying gasoline, heating oil. Well, what he has 
to tell his consumers is that ICE has two exemptions. They have 
the Enron loophole, because they moved ``or energy'' out of the 
CEA. And then, if you fix that, which is all the present 
legislative fix is addressed to, you have to tell your 
constituent that ICE, that is located in Atlanta, has Goldman 
Sachs, Morgan Stanley, BP supporting it. Goldman Sachs tells 
its customers, don't trade on NYMEX. ICE is in Atlanta.
    Mr. Vice. I have to correct that.
    Mr. Greenberger. Well, you had your chance, Mr. Vice. Yes, 
you will have your chance. You have to tell your constituents 
that ICE in Atlanta with all these great trading engines in the 
United States, trading United States West Texas Intermediate, 
we can't do anything about it because the staff of the CFTC 
said ICE should be regulated by the United Kingdom. Try telling 
people in Louisiana that an Atlanta company trading West Texas 
crude on the United States engines is out of the control of the 
United States.
    Mr. Melancon. Isn't natural gas priced by countries or by 
regions and not necessarily world price, like oil?
    Mr. Greenberger. There are different kinds of gases, but 
ICE is trading gas delivered in the United States.
    Mr. Melancon. That is where I am----
    Mr. Greenberger. Henry Hub.
    Mr. Melancon. And I think I am familiar with where----
    Mr. Greenberger. And they are competing with NYMEX, and, 
poor NYMEX, they are suffering because they have to be 
regulated by the CFTC. They are doing fine. NYMEX may be bought 
by the New York Stock Exchange. It is the most profitable 
exchange in the world. ICE says, don't do this to us. We have 
all these small contracts. We don't have time to go to the CFTC 
and use the exemptions in the statute to get these exempt. We 
want you to regulate around us, because we have a great trading 
engine, and we are great guys. Forget about telling the guy in 
Louisiana that we are in Atlanta with a trading engine in the 
United States trading United States-delivered products. But for 
crude oil, you got to go to the United Kingdom to take care of 
us. That doesn't make sense. People in Louisiana will not 
understand that, and there is no legislation addressing that. 
And the CFTC staff and the CFTC could fix that this afternoon 
under existing legislation. It has nothing to do with FERC.
    Mr. Cota. We, as an industry, like speculators. Speculators 
are important. It is the excessive speculation that is the 
killer. I could not offer futures contracts to my consumers 
without having speculators in the market. The volume of 
speculation has gone out of control. We are figuring that for 
gasoline and heating oil, approximately 50 cents to a dollar a 
gallon could be a result of excess speculation. The volumes of 
trades are huge.
    The contract that I am most familiar with is the heating 
oil contract. The heating oil contract is about 8 billion 
gallons in the U.S. annually. Well, that amount gets traded 
amongst NYMEX and ICE--I am not sure how much is traded on ICE, 
because there is no data that is reported to the markets 
unless----
    Mr. Vice. It is zero percent.
    Mr. Cota. The volume of trades are about four times the 
annual consumption per day. You know, is that too much trades? 
You know, we focus a lot of the time on small contract. The 
major contracts trade huge volumes daily of what the annual 
volume is. And because you don't see the data--if it is illegal 
to do a contract under a U.S. law, it is still illegal to do 
it. Just nobody has any of the data. My brother-in-law from New 
Jersey has often told me, he said, there is no body, there is 
no crime. So these dark markets have no light on them. You 
don't know what is occurring. Only the people that are doing 
the trades know. What is wrong with oversight?
    Mr. Melancon. Thank you. I ran out of time a couple of 
minutes ago. Thank you, Mr. Chairman.
    Mr. Stupak. Thank you, Mr. Melancon. Ms. Blackburn, for 
questions, please.
    Ms. Blackburn. Thank you, Mr. Chairman, and I want to 
welcome all of our witnesses. I think that anyone who is 
watching this hearing today is probably just spellbound with 
the amount of debate between all of you. And they probably are 
sitting there thinking, what is this going to end up costing 
me? What does market manipulation cost me? And what does it 
mean to my heating bill?
    And, Mr. Chairman, I have a question for Ms. Campbell, but 
before I ask it, I do want to welcome her. She is a 
constituent. She lives in Fayette County, Tennessee, and does a 
wonderful job for Memphis Light, Gas and Water. And I 
appreciate the expertise that she has brought to the panel 
today and also the manner in which she has presented it. And we 
welcome you, and I thank you for that.
    I do have a question for you in light of my comments. When 
we talk about the market manipulation and in your testimony, 
you talked about the Amaranth activity. What kind of cost 
increase on a percentage basis do you pass on to your 
customers? How much fluctuation do they see? And let us say if 
natural gas were to go up a dollar MBTU--I think that is the 
unit, correct? So if it went up a dollar for an MBTU, then how 
much would that average customer see as an increase in their 
bill when they rip that envelope open and pull it out and look 
at it?
    Ms. Campbell. Goodness, the way that our mechanism works--
and what you will find is that across the country, everyone's 
cost recovery mechanism works a little differently. The way 
ours works is that we look at what it costs us for gas this 
month, and we immediately pass that through the next month on 
our customers.
    Ms. Blackburn. So you have a 1-month delay?
    Ms. Campbell. It is a 1-month delay. So if there is a $1 
increase in the price of natural gas, and it is currently at 
about $7, so let us just say that it is a 20-percent increase, 
then typically with our rate structure, almost all of that will 
pass through. And it will be somewhere in the range of a 15- to 
18-percent increase on our customers' bill because only of our 
customers' bill 80 percent of it is natural gas, and 20 percent 
of it is MLGW costs.
    Ms. Blackburn. OK, thank you. So many times our 
constituents think that it is due to the weather, and I think 
that is an important point is that it is due to what the 
manipulations are in the market. Based on that, Mr. Vice, let 
me come to you. Let us say an average investor wants to know 
what contracts have been sold on a certain day, and he wants to 
know what contracts have been made in your market, in ICE's 
market. So is that information readily available on a day-by-
day basis?
    Mr. Vice. It is available for a fee.
    Mrs. Blackburn. For a fee?
    Mr. Vice. Yes.
    Mrs. Blackburn. OK, and then what would that fee be?
    Mr. Vice. I don't know the pricing of all our market data. 
If you want a real-time screen to sit there and watch it----
    Mrs. Blackburn. Why don't you get that and get it back to 
me?
    Mr. Vice. Sure, be happy to.
    Mrs. Blackburn. OK, I think that that would be interesting 
to know, because we may have investors out there that are 
listening to all of this, and they are saying, my goodness, I 
am hearing from Ms. Campbell that it is all passed through. It 
is passed through on a month delay. There is this market out 
there. It is called ICE. I wonder what these contracts are--who 
they are being made with and what that pricing is every day. 
Let me ask you this also. Is ICE going to implement an 
electronic system that provides minute-by-minute and up-to-date 
information for public investors? Do you plan to do that?
    Mr. Vice. Well, when you say ICE, we have, as I said 
earlier, we have a number of futures exchanges which already do 
that. In our over-the-counter markets, which is where our 
natural gas trades, we do do that. Keep in mind, our history up 
to this point has been that we are an over-the-counter market, 
which the point here is, means that it is a principals-only. It 
is a professionals-only market. There is no retail access. 
There are no brokers. I could not personally go into that 
market and trade. There are $100 million asset requirements. So 
it is utilities, like Memphis Gas. It is banks. It is energy 
companies.
    Mrs. Blackburn. OK.
    Mr. Vice. And so until now, it has been a relatively small, 
it is the wholesale market if you think of it that way.
    Mrs. Blackburn. So you keep the firewall in place, since it 
is a wholesale market. Mr. Greenberger, any comment to that?
    Mr. Greenberger. Yes, you asked about what the price to 
your consumer, and let me just read to you from the bipartisan 
Senate staff report from the Senate Permanent Investigating 
Committee under the auspices of Senator Coleman of Minnesota, 
Senator Levin. The price for natural gas was $8.45 before 
Amaranth collapsed. NYMEX said, you got to reduce your 
position. They went over and moved all their trading over to 
ICE. They went bankrupt. The day after they went bankrupt, the 
price went down to $4.80.
    ``The Electric Power Research Institute described this 
price collapse as stunning, one of the steepest declines ever. 
Throughout this period, the market fundamentals of supply and 
demand were largely unchanged.'' So eliminating that one 
speculator from ICE almost dropped the price of natural gas, 
which is a component of electricity, by one half. Now, that is 
a school of scandal. Everybody saw what Amaranth did. So others 
went right back into that market. It is back up to $7 now, but 
if we weren't talking about deregulating, it would be up to 
$10, where it was the day before people were talking about 
introducing legislation. That is what your consumers are paying 
too much.
    Ms. Blackburn. Thank you, Mr. Greenberger. I am out of 
time. Again, Ms. Campbell, thank you for being with us today, 
and I yield back.
    Mr. Stupak. Mr. Burgess, for questions.
    Mr. Burgess. Thank you, Mr. Chairman. Mr. Vice, we may be a 
lot of things on this subcommittee, but we are unfailingly 
polite, and you were unable to respond to a statement that was 
made a minute ago. And if I have reconstructed the statement 
properly, I think it was that if you are on ICE, you can't 
trade on NYMEX. You wanted to make a comment about that. So let 
me give you a moment to do that.
    Mr. Vice. Thank you, I appreciate that. Yes, I think 
Professor Greenberger several times has alleged that Morgan 
Stanley, Goldman Sachs own, control ICE, and he is saying 
things as outrageous as they are telling their people not to 
use NYMEX. In fact, those companies, I don't know if any of 
them own any shares of ICE anymore. I am pretty sure some of 
them don't. I know they probably own seats on the NYMEX, and 
they are also actively starting up new competitors, new 
businesses that will compete with us in various areas. So that 
is just patently false. I mean, it doesn't even make sense if 
you--that Goldman Sachs or anyone like that would be doing that 
type of thing. Thank you for the opportunity.
    Mr. Burgess. Well, I appreciate the clarification. Now, you 
have talked about the electronic trading platform and the 
investment that your exchange has made in that or, I guess, the 
multiple exchanges that are involved or that make up ICE. And 
you have referenced speed and transparency.
    So that should be a good thing just from the perspective of 
a consumer if the trades can be made more in real time, if 
there is greater transparency. So, if, as Ms. Blackburn said, 
the price is right, you can go and have the real-time screen 
and know these things. That should be of benefit to the people 
who are purchasing, I would think.
    So my previous career was in healthcare, and the more we 
can increase the speed of computing, and the more we can 
increase transparency, these are seen as positive things for 
the delivery of healthcare. And I would think the same could be 
said for pricing in the energy markets. Has NYMEX, for example, 
made this same, similar sort of investments into this 
electronic trading platform? Does that seem to be something 
that delivers value to the transactional process?
    Mr. LaSala. Thank you. We certainly have transitioned into 
an electronic forum. We are operating on our core contracts on 
both venues, meaning a floor as well as electronic. But we 
definitely have migrated to a point where approximately 80 
percent of our futures volume is now electronic. So I think 
that the marketplace has determined that the electronic medium 
is efficient. And at a point in time if the marketplace decides 
that that is the only form that they see as appropriate, we 
would be responsive to it. But until then, there is still a use 
for the floor.
    Mr. Burgess. Well, it just seems like, in an era where most 
young people today don't have any concept of what it means to 
go to the bank and write a check for cash, they go to the ATM 
and make withdrawals, it just seems like moving in a direction 
of the electronic trading makes a lot of sense. And if we 
create the right type of regulatory environment, it seems to 
me, and I am just a casual observer to this process, but it 
seems to me that the increased transparency could bring 
problems to light much more quickly than we sometimes find 
things in our current regulatory environment.
    And I hate to keep going back to health analogies, but just 
like when we created the database that now the FDA is going to 
use to be able to flag problems with new medications in their 
post-market surveys, it just seems like the data could be 
collected on a real-time, ongoing basis by whatever regulatory 
body, whether it be FERC or CFTC or some new entity that is 
created. It just seems like that information would be delivered 
to them real time.
    Mr. LaSala. Well, just a point on that is that with the 
electronic medium, we also have to, I believe from my 
perspective, factor in is that when the contracts are similar, 
the electronic medium even more moves to the point of linking 
the markets, meaning that there are electronic devices that are 
going to be on front-end systems that are going to treat the 
NYMEX market and the ICE market as effectively one and the 
same. So the notion of similar markets being linked, I think, 
becomes even more relevant in an electronic forum.
    Mr. Burgess. And is that a good thing or a bad thing? Does 
it increase competition? Does that benefit the consumer or harm 
the consumer?
    Mr. LaSala. I think that, broadly speaking, it is a good 
thing, but with it comes the points that I have made earlier, 
that it moves the argument that, in fact, where one market is 
unregulated but linked, it suggests that regulation that would 
be good for the consumer would be appropriate.
    Mr. Cota. These systems are very efficient in how they do 
it, but the flows of money are just huge. People think that 
there is an energy shortage. There is no energy shortage. 
Inventories are at 5-year highs across the board. You take a 
look 5 years ago, crude oil is trading at about $30 a barrel. 
We are now at $90. The volumes of money--we have got a glut of 
cash. The cash has moved out of the sub-prime market into the 
energy market, and they are just driving the price through the 
roof. It has nothing to do with supply and demand.
    Mr. Burgess. Well, let me interrupt you for a minute, 
because I do have to ask Professor Greenberger a question, 
because I am just dying to hear the answer, and it kind of ties 
into what you are--expensive. Oil is expensive. Starbucks 
coffee probably costs $1,000 a barrel, but we keep buying it.
    But here is the question, Mr. Greenberger, if oil is too 
expensive, if crude is too expensive, why do we keep buying it?
    Mr. Greenberger. Well, at some point there will be a stop, 
but there has not been a stop now. It is almost at $100. 
Predictions are--Mr. Cota was citing statistics--it will be at 
$105 very shortly.
    Mr. Burgess. But if we paid the same prices for energy at 
the pump that the Europeans do, what would the cost of oil per 
barrel be? If there weren't the taxes that the European markets 
add to their finished product, if just gas, because of crude 
price costs $7 a gallon in Denton, Texas, what would the price 
of crude be?
    Mr. Greenberger. Probably $150, but are you going to tell 
your constituents, hey, Europeans pay more, and they are OK? 
Don't worry about it?
    Mr. Burgess. No, I am just asking the question. How 
expensive does it have to get before we stop buying it?
    Mr. Greenberger. There will be movements to move to 
alternative fuels at some point.
    Mr. Burgess. Well, and would not we argue that that is 
something that this committee has spent a good deal of time and 
other subcommittees talking about?
    Mr. Greenberger. That is great, but do you want to have 
that done on the backs of the consumer who are paying $30 for a 
barrel that they don't need to pay? Wouldn't it be better----
    Mr. Burgess. Not the question. The question is, if oil is 
so expensive, why are we buying it?
    Mr. Cota. We are rapidly approaching demand destruction. 
Gasoline is relatively inelastic in demand. Heating use, we 
have seen a reduce in heating consumption. I have also seen a 
huge trend of paying with credit cards, because consumers are 
out of cash. When you get to the demand destruction point, you 
are going to have a collapse in this market, because the big 
players in the markets can move money faster than any consumer, 
more than Memphis Gas can.
    Mr. Burgess. Purely from observational data, and I am not 
arguing with you, because you guys are the experts, but purely 
observational data, a year ago, market destruction meant that 
Republicans lost the majority of the House because oil was $56 
a barrel. $96 a barrel this year, and there seems to be no 
penalty for it. And as I drive around the metroplex, I don't 
see any diminution of the number of SUVs with a single occupant 
on the freeways.
    Mr. Greenberger. Mr. Burgess, there will be in February a 
penalty if heating oil does not drop.
    Mr. Burgess. But with global warming, there is not going to 
be any need for heating fuel. We have actually obviated that 
problem.
    Mr. Greenberger. May I also take the privilege of 
responding to one point?
    Mr. Burgess. Sure.
    Mr. Greenberger. I am citing----
    Mr. Burgess. If it is OK with the chairman. I said, sure, 
but he is running the show here.
    Mr. Stupak. Go ahead.
    Mr. Greenberger. This is the bipartisan June 27, 2006, 
report that was put out by Republicans and Democratic staffers 
under the chairmanship of the Republican Senator from 
Minnesota, Mr. Coleman. On page 48 of that report, which no one 
to today has said is wrong, says, ``according to one energy 
trade publication, several of the large stakeholders, several 
of the large ICE stakeholders, BP, Total, and Morgan Stanley 
were ``doing their best to support the ICE WTC contract, with 
Goldman Sachs directing its traders to use the ICE platform 
rather than NYMEX.'' Now, I may be wrong, but if I am wrong, 
Senator Coleman----
    Mr. Vice. You are quoting an unnamed energy publication.
    Mr. Greenberger. Market forces, big oil increases, market 
reach, Energy Compass, March 24, 2006.
    Mr. Burgess. Mr. Chairman, I think at this point, I am 
going to yield back my time.
    Mr. Stupak. What is the date of the report you are quoting 
from, Professor?
    Mr. Greenberger. It is June 27, 2006, pages 48 to 49. This 
is the report where Senator Coleman, Senator Levin, through 
their staff, say, when oil was $77, $20 to $30 was being added 
by speculation.
    Mr. Burgess. Mr. Chairman, do we have a copy of that?
    Mr. Stupak. Yes, it is tab 24 in your document binder.
    Mr. Burgess. I don't have a document binder. I am on the 
minority.
    Mr. Stupak. Jeff has one. Be nice to your staff.
    Mr. Greenberger. I would say to any member of this 
subcommittee that if you read nothing else, read the two 
bipartisan staff reports of the Senate Permanent Investigating 
Committee on speculation and crude oil prices and natural gas. 
They are dated June 27, 2006, and June 25, 2007. The first 
report says ``$20 to $30 added to crude oil price''. The second 
report says ``Amaranth caused a $4 increase in natural gas''. 
Both reports say, this has got to stop. The first report says, 
the loophole has to be closed, and an Atlanta company with 
United States trading engines and using United States-delivered 
contracts should not be delivered by the United Kingdom.
    Mr. Cota. And the GAO put out a report 3 weeks ago that 
basically said similar things. That so much of the data is 
unavailable you can't tell whether there is market manipulation 
and again recommends that the CFTC regulate these markets.
    Mr. Burgess. Mr. Chairman, are we going to have time for a 
second round?
    Mr. Stupak. If we get there, yes.
    Mr. Burgess. OK.
    Mr. Stupak. No one else on this side. Mr. Fossella, who is 
a member of the full committee, but not the subcommittee. It 
has always been the practice of this subcommittee to allow 
members of the Energy and Commerce Committee, if they sit in, 
to ask questions. So, without objection, Mr. Fossella, if you 
would like to ask some questions. We will then go to a second 
round, Mr. Burgess.
    Mr. Fossella. Thank you very much, Mr. Chairman. Thanks for 
the hearing, and thank you to the panel. I find it very 
illuminating and great discussion. And maybe just to follow up, 
because I am curious, I know that the essence is here is not 
just whether more regulation is necessary but also impact on 
consumers and speculation and in some ways manipulation. And if 
I could just be clear, Professor, you made a pretty strong 
statement before, under oath, that Goldman Sachs tells its 
clients, I think you said, not to trade on NYMEX. You don't 
know that for a fact, or do you?
    Mr. Greenberger. I know what I have read by the bipartisan 
Senate staff. It is in their report. I read that to you. That 
is what I am basing my testimony on.
    Mr. Fossella. OK.
    Mr. Greenberger. That report, which is in an energy 
publication----
    Mr. Fossella. I understand. OK, so you are basing--I just 
want to be clear. You cited that report, and based on that, you 
believe that Goldman Sachs tells its traders not to trade on 
NYMEX. Is that what you believe?
    Mr. Greenberger. My statement is based on this report.
    Mr. Fossella. Do you believe it to be true?
    Mr. Greenberger. And I believe it to be true. I don't know 
it to be true, but I believe it----
    Mr. Fossella. OK, you believe that Goldman Sachs tells its 
traders not to trade on NYMEX?
    Mr. Greenberger. Yes, and I will tell you why.
    Mr. Fossella. OK.
    Mr. Greenberger. Goldman Sachs doesn't like NYMEX. They 
didn't control NYMEX. NYMEX got created before Goldman Sachs 
got in this business.
    Mr. Fossella. OK, I just want to be clear.
    Mr. Greenberger. Goldman Sachs----
    Mr. Fossella. I am not here to defend Goldman Sachs. They 
are a small player in the field. I recognize that, but they can 
take care of themselves.
    Mr. Greenberger. Goldman Sachs was not happy with NYMEX. 
They didn't control NYMEX. They didn't have power there. They 
helped create the Intercontinental Exchange insofar as it 
trades these products that we are talking about. I base my 
statement entirely on this staff report.
    Mr. Fossella. Fair enough.
    Mr. Stupak. And I think it would be appropriate at this 
time to move to put the June 27, 2006, staff report as part of 
the record. It will be made part of record, without objection.
    Mr. Burgess. Mr. Chairman?
    Mr. Stupak. Mr. Burgess, you are reserving the right to 
object. Let me just be certain that we have the additional 
minority staff views on the report, because they do take issue 
with several of the points that have just been made by 
Professor Greenberger.
    Mr. Barton. Would Mr. Fossella yield for a point of 
personal privilege?
    Mr. Fossella. Sure.
    Mr. Stupak. OK, well, let us finish with the motion. No 
objection. Then we will put the June 27 and the minority views 
in there, as Mr. Burgess suggested, in the record. Then it is 
to Mr. Fossella, to Mr. Barton.
    [The information appears at the conclusion of the hearing.]
    Mr. Barton. I think it is a point of personal disclosure, 
since we are bandying Goldman Sachs around so much, my daughter 
is a trader for Goldman Sachs in New York City. So we need to 
put that on the record, too, if we are going to be 
investigating Goldman Sachs.
    Mr. Fossella. I am just curious. Mr. LaSala, he has made 
some statements about Goldman basing obviously and he clarified 
his belief. Do you know that to be true, that Goldman Sachs 
directs its trader not to trade on NYMEX?
    Mr. LaSala. I have absolutely no idea as to what Goldman 
Sachs tells their traders.
    Mr. Fossella. Do you believe it? I mean, just trying to 
get--I mean, he is making statements about NYMEX. Have you 
heard that at all?
    Mr. LaSala. I have not heard that, no.
    Mr. Fossella. You have not? OK.
    Mr. LaSala. I have seen that report, but I don't know 
exactly what they----
    Mr. Fossella. You want to talk about manipulation of the 
markets. That is a pretty strong statement and a belief, OK. So 
you don't believe it to be true. Mr. Cota, you mentioned 
before, and if anybody else has a difference of opinion, I 
would be curious. What is the difference between speculation 
and excessive speculation?
    Mr. Cota. It is the amount of contracts that are traded and 
the positions of single parties and how much they hold. 
Amaranth got caught, as an example, because they did their 
trades on NYMEX or a portion of their trades on NYMEX. Their 
February position for natural gas was about 70 percent of the 
total U.S. natural gas production. That was just their 
position. And they were trading all of those trades within the 
last 15 minutes of the month before the contract expires, 
because if you are not intending to take physical on a traded 
market, you have to close out that position.
    I put it akin to if a trader was going to do an option deal 
to buy 70 percent of the single-family houses in the United 
States in the last 15 minutes of the month, would that have an 
impact? That would be excessive, perhaps. It depends what side 
of the transaction you are on. Certainly I would hate to rent 
that house afterwards, but that is the kind of excessive 
speculation, I think, that we are talking about.
    And when a single player has too much of a total position, 
which is the large trader reporting, which is required by CFTC 
for NYMEX, and NYMEX discloses, it is not done in the other 
markets, that that becomes a problem for the whole validity of 
the futures contract market for that segment of the market.
    Mr. Fossella. But let me be clear, because I want to ask 
one question, and maybe if each of you, because I am curious, 
is excessive speculation in the eye of the beholder? I mean, is 
there an objective standard? And would you point to 70 as--and 
you could all just provide this in writing, because I don't 
want to abuse my privilege here. And if you can provide that in 
writing, in your opinion, what is the difference between--or 
words--what is the difference between excessive speculation and 
speculation?
    But finally, it may be just a different perspective. Maybe 
it is not different. In light of the liquidity and the depth of 
our markets and the fact that we do live, as all has been 
acknowledged, in a more global marketplace. And the essence of 
this is whether greater regulation is necessary to stop price 
manipulation. There has been much talk in the last year, year 
and a half, about American competitiveness vis-a-vis the rest 
of the world, taxes, regulation, accounting amortization, many 
different points of view.
    I think most folks are coming to the consensus that we are 
not alone anymore. We never were, but, you know. Is there an 
implication of greater or more regulation to the American 
marketplace? And let me ask it a different way. If we go too 
far in terms of more regulation, do we force international 
players away from the U.S., taking capital and jobs with it? Is 
that a concern or should be a concern? And I can go right down 
the line, please.
    Mr. Greenberger. That is an excellent question, because it 
has been raised consistently as an argument against not 
regulating ICE. Of course, ICE bought the UK Petroleum Exchange 
and brought it to the United States. In the futures market, you 
have to be where the action is. You could not control 30 
percent of West Texas Intermediate Crude Futures contracts 
trading in London, and they don't. They are in the United 
States. You have to be near the product.
    When I was at the CFTC, I was asked to create the exemption 
to allow foreign boards of trade to bring their terminals in 
the United States. Now, you could say I could voice broker 
those trades. I could call them up in London and say make this 
trade. Or I somehow could by computer transact my trade, but 
the only way these exchanges could successfully sell their 
foreign products was to have terminals in the United States. 
For this product, Eurex, the largest German exchange, tried to 
open up as a United States exchange because they couldn't make 
it in the United States products trading in Europe.
    Everybody wants to be here. Look at the list of foreign 
exchanges that have asked for permission to have U.S. 
terminals. They don't want you calling them in Europe. They 
don't want you sending them in e-mail. They want you to be able 
to sit down at a terminal physically located in the United 
States to trade, so U.S. customers would trade.
    This is a U.S. industry. Henry Hub Natural Gas, West Texas 
Crude, other things, you have got to be in the United States. 
Everybody wants to be here.
    Mr. Fossella. OK, I am just saying, if we could make it a 
little--because I don't want to again abuse my time and 
privilege. If we could just give a sense whether we should be 
concerned about that.
    Ms. Campbell. Well, Memphis Light, Gas and Water is not 
going overseas. So we are depending on this market, and the 
natural gas market is certainly a domestic market. So I am less 
concerned about that, but I do think that you need to be 
measured in your response. And I think that transparency is 
that measured response where your large traders report their 
positions across the marketplace. And then that way it brings 
light to the dark markets, and then you have the full picture 
of the marketplace to determine manipulation.
    Mr. Fossella. Thank you. Mr. Cota.
    Mr. Cota. The U.S. energy market is where the action is at. 
We are 20 percent of world demand. I think that if we had more 
electronic trading disclosure done under a fuller regime by 
CFTC you will actually see an increased flood of trading money 
into the United States because the brokers around the world 
have traditionally looked at this as a safe market. So you are 
going to get more of the smaller players to play in our market 
as a trading platform than in their other markets.
    Whatever happens in Russia happens in Russia. You know, and 
people in Russia know that. So the U.S. boards of trade have 
always been a safer way of trading, and I think it would 
enhance their ability to do worldwide trading. And because we 
are a big part of the market. We are 20 percent of the world 
market.
    Mr. Fossella. Mr. LaSala.
    Mr. LaSala. I think the U.S. boards of trade are robust, 
and the points that I made earlier that you may have missed is 
just simply that where U.S. based products potentially get 
offered overseas under other regimes that our suggestion would 
be that the CFTC could address this--and the no-action process 
it good. It works, but there might be some consideration of 
additional comparability standards or additional hurdles such 
as position limits if we have them here that, if there is a 
like contract offer in another regime, that the regulatory 
regime, that they might be considered to be appropriate to be 
imposed in the context of the no-action relief.
    Mr. Fossella. Thank you. Mr. Vice.
    Mr. Vice. I have two quick, specific examples, one on your 
question about competitiveness, which is close to home. Our 
second or third or maybe fourth of those most liquid contracts 
on our ECM market, for example, is a fuel oil swap based on an 
index for fuel oil delivered into Singapore. I am proud of the 
fact that American ingenuity of this Atlanta company was able, 
through a lot of hard work, to have traders which are 
primarily--these are not U.S.-based traders.
    These are Asian companies for the most part or Asian 
branches of banks that are trading fuel oil delivered in 
Singapore. Has little to nothing to do with the U.S. market, 
and I think that is an example of if you put a futures-style 
DCM rule across everything that is on our ECM, that market 
would--we would lose that overnight, and it would go elsewhere. 
So it is important to have that middle tier of----
    Mr. Stupak. OK, you are going to have to answer his 
question, or I am going to have to cut you off. We are way 
over. So did you want to answer it or not, because you were 
going to a different----
    Mr. Vice. He was asking about American competitiveness.
    Mr. Stupak. OK.
    Mr. Vice. And I think overregulation, that is an example 
close to home, where it would certainly hurt our 
competitiveness and potentially cost jobs.
    Mr. Fossella. OK, thank you, Mr. Chairman.
    Mr. Stupak. Thank you, Mr. Fossella. And we have been 
generous with time on everybody because I know it is a complex 
issue, but I want to keep things moving. Mr. Green, for 
questions.
    Mr. Vice. One other thing. You asked about excessive 
speculation. It is defined in the Commodities Act. Section 6A, 
Commodities Act, defines excessive speculation.
    Mr. Stupak. Mr. Green, your questions.
    Mr. Green. And I appreciate on how we can deal with it. I 
was wondering how we could deal with what, I think, our 
witnesses said, deal with the products in the U.S. markets. I 
say Texas market, because that seems like what we end up with a 
lot. But how can we do that if there is fuel oil for the 
Northeast? I think we shouldn't really care what is going on in 
Singapore even though it has an effect on world price. But it 
is not for the U.S. consumers, the U.S. market. But how can we 
do that? Mr. Vice, we say Amaranth moved its trades from NYMEX 
to ICE, and when they didn't like what NYMEX's orders were. If 
only certain contracts on ICE are brought under regulation, for 
example, U.S. contracts, what would ICE do if a trader in 
response to the speculative position limit in a regulatory ICE 
contract, would they simply move to a non-regulated? How would 
that work?
    Mr. Vice. Well, the language being contemplated is not 
limited to U.S. It is up to the discretion on anything that is 
on our ECM including that Singapore example I gave. If said it 
is a significant price discovery contract, and we had to apply 
these DCM core principles, then we would be responsible for 
doing that.
    I think one thing that might be helpful to understand, you 
fall off a pretty big cliff in our market when you move from 
talking about our Henry Hub look-alike swap, which is what most 
of this is about. It is about 70 to 75 percent of our OTC 
revenue, OK. And the No. 2 is a far, far distant No. 2.
    Mr. Green. OK.
    Mr. Vice. I mention that just because whereas people 
compare what goes on in Henry to the futures contract at 
NYMEX--and we acknowledge and are part of a discussion of how 
do we--it does need some additional future-style regulation--is 
important to realize that it is a big step to the next 
contract, and when you move to that second contract--it is not 
a look-alike contract. It may be even a Canadian-based 
contract. I don't know. You get into a whole hodge-podge of 
much less liquid contracts.
    Mr. Green. Well, you satisfied one part that it has to be, 
because I know there are tankers that come in that may go to a 
refinery in Europe, or it could come to a refinery in our area 
of the United States. And so we would need to have oversight 
for that.
    Ms. Campbell, you mentioned in your testimony the lack of 
over-the-counter or transparency, and in your response to 
questions, you have talked about that and the extreme price 
swings surrounding the collapse of Amaranth, which has caused 
some bona fide hedgers to become reluctant to participate in 
the markets in fear of locking in prices that may be 
artificial. Do you believe this reluctance to hedge will affect 
your organization or the overall economy, that if they don't 
have trust in those prices?
    Ms. Campbell. Certainly it will. You know, we entered this 
winter in trying to decide exactly how we were going to 
approach it. Fortunately the CFTC put in the special call 
provision, which gave us a measure of confidence in the natural 
gas market. So we did put on the hedges that we typically 
would, going into this winter.
    But certainly, if you go back to the winter of 2 years ago, 
when there were the hurricanes, if we had not had the hedges we 
had in place, our customers would have been devastated. Just 
last year, we had $12.5 million of bad debt. I can't even 
imagine what it would have been the year before, had we not 
hedged. So it does have a direct impact on the consumer and on 
the overall economy.
    Mr. Green. And should FERC have the authority to pursue the 
market manipulation cases which span both the futures and the 
physical market?
    Ms. Campbell. Yes, sir, I believe they should. We supported 
FERC's action on that. And I will say that we have a great deal 
of confidence in both FERC and the CFTC, and we are hopeful 
that they are going to work together to find some common ground 
there on addressing that issue.
    Mr. Green. OK. Mr. Chairman, I have no other questions. 
Thank you.
    Mr. Stupak. Thank you, Mr. Green. A couple questions. We 
will go a second round here quickly, and we have been generous 
with time with everybody, because it is a little complex and 
technical area. Mr. LaSala, does NYMEX have what they call 
mini-contracts to accommodate people like Ms. Campbell if they 
want to do a smaller contract. Don't have something like that?
    Mr. LaSala. We do have some cash-settled mini, half- or 
quarter-sized version contracts. That is correct. Cash settled, 
generally settled not on the last trading day, but they are 
penultimately settled.
    Mr. Stupak. Would that solve your issue of having to go to 
ICE?
    Ms. Campbell. Well, that innovation has come about just in 
recent times, and so I would hope that that would have come 
about, anyway. But I certainly think that the competition 
between ICE and NYMEX has been healthy. And so, yes, it would 
address that issue. We are glad to see the competition between 
them, though, to make sure that we have those tools at hand.
    Mr. Stupak. You mentioned 2 years ago, when the hurricanes 
hit. Remember, I mentioned the high-rise in my district that 
went from $5,000 to $7,000 in 1 month? That was that same 
period, because of the hedge funds, and that cost is directly 
passed on to consumers and one of the reason for the hearings 
today. Mr. LaSala, let me ask you this. In your testimony, you 
said, and I am quoting now, ``there is potential for systemic 
financial risk from a market crisis involving significant 
activity occurring on an unregulated trading venue, which could 
arise from a mutualization of risk at the clearinghouse level, 
where large positions on unregulated markets are not 
monitored.'' What is your systemic failure, and could you 
describe a credible scenario where unregulated markets could 
trigger a systemic failure?
    Mr. LaSala. Well, the example would be a scenario where a 
party has gotten excessive position in an unregulated market 
such as an ICE look-alike market. Granted, these positions are 
in fact margined by another clearing organization. But they are 
not regularly--they haven't been regularly monitored. And in 
fact, you have a scenario where there is active volatility, and 
no one is looking.
    You know, again when you have this recent occurrence where 
there is a special call in place--and we appreciate that. We 
would like to see permanent regulation around it, but there 
could also be other contracts where the regulator does not see 
these underlying positions. And, in fact, there is a market 
move, and the clearing member or members--remember, gentlemen, 
many of the clients, these markets clear multiple houses.
    So you have exposure being aggregated across multiple 
firms, and not every firm knows what the position is of the 
party necessarily at the other firms. So market event, in 
positions that a Federal regulator does not see all of them, 
could, in fact, cause a financial collapse of the client and 
possibly take down the carrying firm or firms themselves.
    Mr. Stupak. Mr. Vice, let me ask you with NYMEX's 
statement. Do you agree there is a potential for systemic 
financial risk from the market crisis involving significant 
activity occurring on the unregulated trading venue arising 
from the mutualization of risk at the clearing house level 
where large positions are not monitored?
    Mr. Vice. I essentially don't agree with it. I mean, in the 
energy markets, between the NYMEX clearinghouse, and we use the 
London Clearinghouse--we don't own that clearinghouse, but they 
are both respected organizations with very strict risk 
management policies in terms of how margin is calculated and 
how collateral----
    Mr. Stupak. Well, London has less restrictions than CFTC or 
a NYMEX, right?
    Mr. Vice. No, not at all.
    Mr. Stupak. Really?
    Mr. Vice. No, the clearinghouses--I don't know all the 
rules, but the investment banks that are members of the NYMEX 
clearinghouse are the same investment banks that are the 
clearers that are members of the London Clearinghouse. And 
London Clearinghouse actually, I think, is the largest 
clearinghouse in the world. They clear the London Stock 
Exchange, the financial futures in London, the London Metals 
Exchange, and they clear our business as well.
    But putting that aside for a minute, I think that the 
clearing concepts introduced in the OTC markets by ICE and 
NYMEX have made quite a service there in that so much of the 
business is cleared at one of our clearinghouses. The OTC 
business, whether you want to characterize it as unregulated or 
somewhat regulated, the point there is that is far more secure 
and far less vulnerable to systemic risk than the bilateral 
positions that, say, took down Long Term Capital management or 
that is at work in credit default swaps in the sub-prime mess, 
where these products are not cleared. And these bilateral 
parties don't know what is on the other party's books.
    So I actually would argue the energy market, probably more 
so than any other commodity, has less systemic risk than any 
other.
    Mr. Stupak. Well, that is why my pump-back legislation to 
prevent unfair manipulation of prices deals with bilaterals.
    Mr. Greenberger. I would say any--Refco failed. It was the 
eighth largest FCM. It caused the 14th largest bankruptcy in 
the fall of 2005. When it failed, people were worried about 
systemic risk. I can assure you when Amaranth failed, even 
though there has been a lot of damage, you cannot say there has 
been systemic risk. But when Amaranth lost $6.6 billion in 4 
days, I will say from my experience working with the 
President's Working Group that the President's Working Group 
was on the phone trying to figure out whether there would be a 
systemic break. There can be a systemic break, and an 
unregulated entity aggravates that, because you can't get the 
data you need to see how big the problem is.
    Mr. Stupak. Mr. Walden, for questions.
    Mr. Walden. Thank you, Mr. Chairman. I just have a couple I 
am going to throw your way, folks. This is a question for the 
entire panel. Chairman Lukken, who is behind you there, of the 
CFTC, recently conducted a study of hedge fund speculation in 
the futures market, and that study concluded ``speculative 
buying as a whole does not appear to drive up prices.''
    Now, we have heard a lot about speculation of the market 
driving up prices. Have you read that report? Are you familiar 
with it? What are we missing here? Mr. Vice, will you keep it 
kind of short, too, if possible.
    Mr. Vice. I am vaguely familiar with it, so I don't know if 
I can comment on the report specifically. But I would say 
speculators speculate on prices going down as much as they 
speculate on them going up. In fact, most of what Amaranth was 
doing, I believe, was betting on the price going down as 
opposed to the settlement prices going up. So to say that all 
speculation is one way is kind of as false as saying that a 
market can operate with only hedgers and no speculation.
    Mr. Walden. All right, Mr. LaSala, can you comment on Mr. 
Lukken's findings?
    Mr. LaSala. Yes, sir. We conducted a similar analysis as 
the Commission, and just broadly speaking, what it showed is 
the hedge funds tended to chase volatility, not necessarily 
create it. In our analysis, I think that most of the arithmetic 
behind that was similar to the Commission's.
    Mr. Walden. OK, now I am going to probably get to you all 
later on that point, but I want to go back to Mr. LaSala. In 
your testimony, you point out that NYMEX has experienced a 40 
percent reduction in trading volume of natural gas futures on 
the last day of each month because, I think you said, traders 
wanted to avoid complying with your February 16, 2007, rule 
change requiring open books.
    Now, the chart I put up earlier today showed that overall, 
year-to-date, the volumes were staying about the same. Given 
that you think there is this pick-up that occurs the last day 
of the month, or last 30 minutes of trading, or whatever, is 
the volatility that is evidenced there the right index to be 
setting the next month's price for natural gas in the market?
    Mr. LaSala. Well, I think that the marketplace has found 
that to absolutely be the case. The market has come to rely on 
the NYMEX settlement price. We have seen, as you stated in 
reference to my testimony earlier, there has been an exodus of 
trading in the last 30 minutes. I don't know. I mean, there is 
less volume now setting the price.
    The volatility on that last day, you have the data, has 
come in. There are other factors that might have affected. 
Storage is up slightly. I am not sure what caused it, and I am 
not sure--meaning that did the change in the policy create a 
lower volatility, or is it a byproduct? It is a chicken and 
egg. I am not sure what the cold of winter is going to do on 
those 30-minute closes yet. We haven't seen them.
    Mr. Walden. I get back to some of the oversight hearing we 
did in this committee on Enron and the volatility of the 
electric market, electricity market on the West Coast, where we 
saw prices spike $1,000 or so. I mean, I would hate to have 
thought that last bid, that last set of bids, was going to set 
the price for the market for the next month, because it was 
totally out of whack with the bulk of the market.
    So help me understand that last 30 minutes that is setting 
the, if I am correct, setting the price for the next month. How 
much volume is there versus overall volume of gas sold? Does 
that last 30 minutes represent the bulk of sales contracts, or 
tell me how that part works.
    Mr. LaSala. Just as a note, the 30-minute closing range, to 
my knowledge, for purposes of rendering the final day 
settlement, like some of our other energy contracts, is the 
longest in the industry. There are other contracts that use the 
median of the last bid or offer or the last bid or offer. The 
volume in the 30-minute closing range is certainly less than 
you would typically see over the course of the whole day on the 
last day. And obviously we trade back months significantly more 
volume.
    I am not sure if I am completely following your question. 
Forgive me.
    Mr. Walden. Right, and you got to bear with me because I 
don't do what you do in the industry. What I am trying to 
figure out is, is that an accurate snapshot of the real price 
in the market?
    Mr. LaSala. We believe it is. I think the industry----
    Mr. Walden. Ms. Campbell, do you agree with that? Mr. Cota?
    Ms. Campbell. Absent any manipulation, yes. And I am 
sitting here thinking, if not NYMEX, what would we use? And 
really, the other things that we have at our----
    Mr. Walden. I am not arguing whether or not it is NYMEX. I 
am arguing whether or not that last 30 minutes is the right 
look, and I realize--well, I am beginning to fully understand 
how complex this market situation is and need for proper 
regulation. But is that the right look?
    Ms. Campbell. Well, it is certainly disconcerting to hear 
that there are lower volumes in the last 30 minutes, but I 
would say that so far we have not had an issue, other than what 
we have seen in arrears from the actions that Amaranth was 
taking in the last 30 minutes to try to manipulate the price.
    Mr. Cota. What makes a difference about NYMEX is that when 
you are in the physical market, you actually have to deliver 
it. In the whole futures game and the physical market is a big 
game of chicken, and whoever can hold out the last has the best 
advantage. Amaranth, through its forced reduction in hedges, 
had to get out of its trades early, so it was a blood bath.
    What happens in the heating oil market, which is the one I 
am most familiar with, is that the people that are playing out 
those financial contracts in order to maintain the value as 
high as possible, the money center banks, they will take 
physical delivery of those markets. So they will take that 
product, put it into storage, deliver it to the wholesale 
market or to other contracts that they need to deliver because 
they can play the game all the way out.
    And that is good from a supply standpoint. From a pricing 
standpoint, it all depends on the market. It is how bad is the 
direction going at that particular time, and that is where the 
large trader positions really make the biggest difference in my 
opinion.
    Mr. Walden. All right. Mr. LaSala.
    Mr. LaSala. Just a point of clarity for the record. Number 
one, all the prices that you are having in that 30-minute 
closing range are all transparent. They are disseminated. The 
other point being just by way of history, NYMEX doesn't 
determine--I said before, we think it is accurate--the 
marketplaces determine that. It is not necessarily my position 
or NYMEX's. I am just going back 10 years. I recall when the 
contract was first launched, the industry relied upon the 
average of the last 3 days. It migrated to the last 2 days. It 
migrated to the last day. Nowhere in there did NYMEX take a 
position and say----
    Mr. Walden. I wasn't alleging that at all.
    Mr. LaSala. I know. I just want to be clear.
    Mr. Walden. But as that window narrows, are you going to be 
down to the last 30 seconds here?
    Mr. Cota. Well, that has to do more with the physical 
delivery rather than with the financial transaction. In my 
segment of the business, we get re-priced all the time. I have 
price changes three times a day, and if you are in the 
wholesale segment of our market, what you will do is, you will 
actually open trades and close trades. Whatever you think your 
volume of storage is, you buy and sell that every day. And the 
only thing you don't sell is what you think you are going to 
sell that day.
    So from a pricing standpoint, it is always priced in a 
relationship to other futures contracts in the next traded 
month for the spot month. So you are not locked into that price 
in the last 30 minutes. You are locked into that supply. So if 
you are relying on that supply for the next month, it is very 
important. But from a pricing standpoint, there are a lot of 
other ways to price the product.
    Mr. Walden. OK. All right. Thank you, Mr. Chairman. Thank 
you for your testimony.
    Mr. Stupak. Mr. Green, for questions. Second round.
    Mr. Green. No further questions for the panel.
    Mr. Stupak. Let me welcome Mr. Shimkus, who is going to be 
the new Ranking Member of O&I. Would you like to ask a few 
questions on this? I know you are up to speed on it.
    Mr. Shimkus. Yes, that is right. I can talk about mercury, 
but, no, I just look forward to working with you, Bart, and I 
look forward to working with those you call before this 
Committee. And we want good government to operate, and we have 
a great relationship. And I think we can do good things. Yield 
back. Look forward to it.
    Mr. Stupak. Mr. Barrow is not a member of the subcommittee, 
but he has been here all day, and he is part of the Energy and 
Commerce Committee. If you would like to ask some questions, 
now would be the appropriate time.
    Mr. Barrow. No question, Mr. Chairman. I want to thank you 
for your consideration in allowing me to audit these 
proceedings, and I thank the witnesses for their patience. I 
have been running back and forth between here and markups in 
other committees. Thank you, sir.
    Mr. Stupak. Thank you. Mr. Burgess, if you have questions, 
please.
    Mr. Burgess. Let me just, if I could, get a point of 
clarification from Mr. Vice. Does the market need speculators, 
or do speculators bring anything of value to the marketplace?
    Mr. Vice. Absolutely. I mean, the marketplace is all about 
people that have risk and want to get rid of it, giving it to 
people that are willing to take that risk on for a price. That 
is how a market functions.
    Mr. Burgess. So speculation in and of itself is not an evil 
practice?
    Mr. Vice. It is critical that it be part of the market, 
yes.
    Mr. Burgess. Does speculation bring any measure of 
liquidity into the market?
    Mr. Vice. Absolutely. It is essential.
    Mr. Burgess. So it would be more difficult for the market 
to function without some degree of speculation. Is that 
correct?
    Mr. Vice. That is correct.
    Mr. Burgess. So it is more collusion between speculators 
than it is the act of speculation itself that may cause a 
difficulty?
    Mr. Vice. I wouldn't use the word collusion, but it may be 
periods of time for whatever reason that there is a majority of 
opinion, speculative opinion, that prices are going up long 
term or that prices are going down. And I am not smart enough 
to say that is where energy is right now, but it is one 
possible explanation.
    Mr. Burgess. Well, is it possible that the transparency 
brought by the entirely electronic platform would raise those 
red flags more quickly than the floor activity or the voice 
systems?
    Mr. Vice. There is no question the electronic--it is fair 
in the sense that everyone gets the same information at the 
same time as opposed to paying for the rights to be on the 
floor and getting the information early. So that, whether you 
are Memphis Gas or you are Goldman Sachs or anybody else, you 
are getting the same quality of information, the same depth, at 
the same time, and the ability to act on it. And if you are the 
first one that hits that bid, you get the trade.
    Mr. Burgess. So the speed of information transfer is 
actually in some ways transforming your business. Is that 
correct?
    Mr. Vice. That is correct.
    Mr. Burgess. And again I would just offer the observation 
that we need to be careful that we don't construct regulations 
that in fact damage that transformation. In Congress, we are 
inherently transactional. In my brief experience, sometimes the 
transactional can become the enemy of the transformational, and 
again I hope, Mr. Chairman, that we are careful about that.
    Let me just take what little time I have left, and I know 
we have had the report, the Excessive Speculation Staff Report 
from June of 2007 placed into the record. I just want to read 
the paragraph from the minority report because it is way at the 
end of the report, and people may not get to that part. It 
reads, and I am quoting, ``while we join with the majority in 
making these recommendations, we are unable to reach some of 
the same factual findings with the same degree of certitude.
    For instance, although a number of facts presented in the 
report support the conclusion that Amaranth's trading activity 
was the primary cause of the large differences between winter 
and summer futures prices that prevailed throughout 2006, other 
facts seem to indicate the opposite, that the market 
fundamentals and price changes influenced Amaranth's positions.
    These facts suggest that, at least at times, Amaranth was 
responding to the market rather than driving it. For example, 
although the price of natural gas declined substantially after 
Amaranth's demise, this alone does not prove that Amaranth's 
ability to elevate prices above supply-and-demand fundamentals, 
rather that the market may have simply reevaluated those 
fundamentals in light of the hurricane season ending without a 
major event and the prediction of a warm winter.
    It is clear that different conclusions can be drawn from 
the same set of facts.''
    Thank you, Mr. Chairman. I will yield back the balance of 
my time.
    Mr. Stupak. Thank you. Let me ask one question, Mr. LaSala. 
Regarding NYMEX's self-regulatory efforts, are they being 
hamstrung when evaluating questionable activity or assessing 
whether trades have a bona fide for exceeding accountability 
limits or position limits by ICE, by trades on ICE? Are you 
being hamstrung by their activities?
    Mr. LaSala. By ICE's activities?
    Mr. Stupak. Yes.
    Mr. LaSala. The only way to respond to that is that I can't 
firsthand see their activity.
    Mr. Stupak. Correct.
    Mr. LaSala. Can't see their activity, and I certainly can 
conduct business. But one of the issues is by not having a 
Federal regulator who also looks at it, I mean, I can be 
misrepresented to by someone. For example, Amaranth. In the 
Commission's case against Amaranth, there is a clear assertion 
that they misrepresented to NYMEX certain things. Some of it, 
what their exposure was. So, I am taking this back. I don't 
know if----
    Mr. Stupak. Well, you are the chief regulator and officer. 
You have to look at things that are going on at NYMEX.
    Mr. LaSala. That is right.
    Mr. Stupak. Some things that may be questionable. You are 
trying to evaluate it. So I guess, what I am trying to say, 
when you are trying to assess whether traders have a bona fide 
reason for exceeding accountability limits or their positions 
limits and if they can go to ICE, does that hamstring you? Does 
that hurt your ability to regulate your own market, your own 
exchange?
    Mr. LaSala. When they can go to an unregulated venue?
    Mr. Stupak. Yes.
    Mr. LaSala. Absolutely, albeit I do believe that those 
positions on that exchange, which I think should be regulated 
further, are positions that have exposure, meaning that I would 
prospectively give them regard in evaluating some type of a 
position exemption or accountability level. I would regard them 
because I think that they are positions that are relevant.
    Mr. Stupak. And that was your position rule in, what, 
February 26, 2007, hearing in which you need that position rule 
to better evaluate what was happening?
    Mr. LaSala. That was the genesis of what that process was 
about.
    Mr. Stupak. OK, thank you. Further anyone?
    Mr. Greenberger. Mr. Stupak?
    Mr. Stupak. Yes.
    Mr. Greenberger. If I could just add two quick points.
    Mr. Stupak. Sure, Professor.
    Mr. Greenberger. First of all, I think what Mr. LaSala said 
should not be lost. It is not so much NYMEX not having that 
information as the CFTC not having that information. The CFTC 
has worked out an information sharing agreement, but an 
information sharing agreement alone is not going to solve the 
problem. With regard to the CFTC report that Mr. Walden 
referred to, I believe that was written before Amaranth 
collapsed and was only based--Mr. Lukken can correct me if I am 
wrong--was only based on looking at NYMEX, not looking at ICE 
where the speculation was excessive.
    Everybody today agrees the Enron loophole has to be ended. 
I think we are way over at the point of saying that there is 
not excessive speculation. And with regard to speculation, yes, 
there must be speculation. You can't have future markets 
without speculation, and they should be electronic. That is 
great, but the Act prevents excessive speculation.
    Now, true, that is a fine line, but when NYMEX told 
Amaranth to reduce its positions, it was saying, you are 
excessively speculating, and you may bring us down, stop. And 
they went over to ICE.
    So CFTC, if it regulates, causes ICE to put position limits 
in place that tell them to stop the excessive speculation. 
Again, farmers learned this at the turn of the century. They 
need speculation to hedge, but excessive speculation will kill 
them.
    And finally, with regard to the 2007 report and the 
minority opinion, the 2006 report had no minority opinion in 
it. And that was where the conclusion was reached that at least 
$20 is being added speculative to the price of crude oil.
    And both reports should be read, because the first one 
deals with crude oil. The second one deals with natural gas.
    Mr. Burgess. Mr. Chairman, I would just add in the final 
paragraph of the minority views, the recommendation is for a 
definition of what is excessive speculation, and they say 
without a clear unequivocal definition of that term, the CFTC 
and regulated exchanges will continue to have difficulty 
monitoring and preventing price distortions. If we extend CFTC 
oversight and regulation to the electronic, over-the-counter 
exchanges, we must avoid unintended consequences, namely 
creating incentives for traders to shift their business to the 
far less transparent and unregulated bilateral voice brokered 
markets. I will yield back.
    Mr. Stupak. With that last sentence, that means you are a 
cosponsor of my legislation in bilateral trades. Let me thank 
this panel. It was a very good panel. We enjoyed having you 
here, and, as you saw, for the given goal for members and 
overtime, people were very interested in what you had to say. 
And thank you for helping us in this complex, technical world.
    Thank you. I will dismiss this panel. We will call forward 
our second panel. Our second panel will be the Honorable Joseph 
Kelliher, Chairman of the Federal Energy Regulatory Commission, 
and the Honorable Walter Lukken, Acting Chairman of the 
Commodity Futures Trading Commission. I should also note in the 
audience is the Honorable Michael Dunne, Commissioner at the 
Commodity Futures Trading Commission. Commissioner Dunne, 
thanks for being here.
    Now, gentlemen, it is the policy of this subcommittee to 
take all testimony under oath. Please be advised that witnesses 
have the right under the rules of the House to be advised by 
counsel during their testimony. Do any of you wish to be 
represented by counsel? Both indicated they do not. Let the 
record reflect the two gentlemen have taken the oath and 
replied in the affirmative, and you are now under oath. We will 
begin with your opening statement. Mr. Kelliher, if would you 
begin, please, sir.

   STATEMENT OF JOSEPH T. KELLIHER, CHAIRMAN, FEDERAL ENERGY 
                     REGULATORY COMMISSION

    Mr. Kelliher. Thank you, Mr. Chairman. Mr. Chairman, 
members of the subcommittee, thank you for the opportunity to 
speak with you today about the Federal Energy Regulatory 
Commission's role in protecting energy consumers against price 
manipulation in wholesale energy markets. It is good to be back 
at the committee.
    My comments today will focus primarily on the steps FERC 
has taken to ensure the integrity of wholesale gas markets and 
prevent market manipulation under the new authorities granted 
to it by Congress in the Energy Policy Act of 2005. I thank the 
committee for supporting FERC's request for this additional 
authority 2 years ago and credit the committee for recognizing 
that FERC needed new regulatory tools to discharge its historic 
duty to guard the consumer.
    And particularly the Energy Policy Act amended our statutes 
in several significant ways to protect against market 
manipulation. First, it granted us expressed authority to 
prevent market manipulation. It also gave us authority to issue 
rules to assure greater price transparency and wholesale gas 
markets as well as jurisdictional power markets. It also gave 
the committee enhanced civil penalty authority.
    At this time, I do not believe that FERC needs any 
additional legal authority to protect consumers from market 
manipulation. You gave us the tools we needed 2 years ago, and 
we are using them. However, it is important that those tools 
not be taken away from us or diminished.
    The Energy Policy Act granted FERC express authority to 
prevent market manipulation. This provides a strong grounding 
for our efforts to oversee wholesale energy markets. Under our 
final anti-manipulation rules, it is unlawful for any entity, 
directly or indirectly, in connection with the purchase or sale 
of electric energy or transmission services subject to FERC 
jurisdiction or the purchase or sale of natural gas or 
transportation service subject to FERC jurisdiction to engage 
in duplicative or manipulative practices.
    In two recent cases, FERC issued orders to show cause and 
notices of proposed penalties in the course of market 
manipulation investigations. Under these orders, FERC made 
preliminary findings that two groups of companies and 
individual traders, collectively Amaranth and Energy Transfer 
Partners, may have manipulated energy markets. These orders do 
not represent final determinations and make no final 
conclusions. Both groups of respondents have been given the 
opportunity to rebut the preliminary conclusions set forth in 
the orders. However, if the final conclusions reflect the 
preliminary findings, we propose to impose penalties that 
approach the maximum for certain violations, $291 million for 
the Amaranth entities and $167 million for the Energy Transfer 
Partners entities for total civil penalties of $458 million.
    Before I discuss the Amaranth and Energy Transfer Partners 
investigation, it is important to recognize that natural gas is 
traded in a wide variety of products. That was made clear in 
the discussion on the earlier panel. Some of these products are 
physical products, potentially subject to FERC jurisdiction. 
Other products are futures or financial products subject to 
CFTC jurisdiction.
    However, month indexes used to price physical gas sales are 
constructed using transactions with prices set in part by 
futures prices. This is particularly true in the Eastern United 
States and the Gulf Coast, as shown by the map that is attached 
to my testimony. As a result, futures prices determine, in 
part, the price of physical natural gas purchased by customers 
and the effects on physical markets of changes in futures 
prices are direct and significant.
    Based on the evidence developed in the investigation, we 
made a preliminary finding that Amaranth may have deliberately 
obtained and then sold large futures positions in the last half 
hour of trading on the settlement date and number of months in 
order to manipulate prices downward. Thus, Amaranth may have 
benefited from even larger opposing positions that they held on 
ICE, and they did this full well knowing that their actions 
would affect physical prices as well.
    The Energy Transfer Partners investigation looked at a 
different scenario where we believe, based on preliminary 
conclusions, that Energy Transfer Partners may have manipulated 
physical prices, physical transactions, in order to benefit 
opposing positions they held in other physical products as well 
as CFTC jurisdictional financial products.
    Now, in both the Amaranth and the Energy Transfer Partners 
cases, FERC began an investigation. We shared our information 
fully with the CFTC, and the CFTC began its own investigations 
of both matters soon thereafter. The two agencies cooperated 
closely throughout these investigations. I think that is a 
credit to the memorandum of understanding that the two agencies 
entered into in October 2005, as directed by Congress.
    I think the MOU has worked very successfully over the past 
two years. Now, the MOU has worked very well and particularly 
during these investigations, during the 14 months of the 
Amaranth investigation as well as the 21 months of the Energy 
Transfer Partners investigations, and it continues to operate 
successfully. The two agencies conducted parallel 
investigations that were very closely coordinated.
    Now, this cooperation was significant. Market manipulation 
can cross jurisdictional lines. It can cross product lines, as 
shown by both the Amaranth and the Energy Transfer Partners 
investigations. In a sense, one of these investigations 
examined manipulation that may have occurred within CFTC 
jurisdiction but affected FERC jurisdictional sales. The other 
involved manipulation that may have occurred within FERC 
jurisdictional markets that affected other CFTC jurisdictional 
transactions.
    Both investigations involved possible manipulation that may 
have crossed the jurisdictional lines between the two agencies, 
and cooperation between FERC and CFTC is essential in order to 
police this kind of manipulation.
    Now the enforcement actions, as I indicated, were 
coordinated, very closely coordinated as were the 
investigations themselves, and both agencies publicly praised 
the investigations conducted by the other agencies when we took 
coordinated enforcement action in July.
    Now, since then Amaranth has raised arguments about whether 
FERC has jurisdiction over manipulation of the monthly futures 
price. Even before we issued our order to show cause in July, 
Amaranth's lead trader, Brian Hunter, filed in the U.S. 
District Court for the District of Columbia, seeking to enjoin 
issuance of our Order, claiming that FERC lacked jurisdiction. 
Judge Richard Leon denied their request for a temporary 
restraining order, and just on Monday of this week, he also 
denied the injunction.
    Now, within weeks of the order to show cause, Amaranth also 
filed a motion to stay FERC's action and civil action filed by 
the CFTC against Amaranth in the U.S. District Court for the 
Southern District of New York. Amaranth argued, among other 
things, that we lacked jurisdiction, and CFTC has sole 
jurisdiction over the conduct prescribed in our order to show 
cause. Although CFTC opposed Amaranth's motion to stay our 
order, CFTC maintained that it had exclusive jurisdiction over 
all trading and natural gas futures.
    This position would have the effect of preempting FERC's 
ongoing enforcement proceeding against Amaranth, and I consider 
this to have been a significant change in the CFTC position.
    Now, at this point, the two agencies, we have a difference 
of opinion about the proper interpretation of the anti-
manipulation provisions of the Energy Policy Act and how those 
provisions should be interpreted in concert with the Commodity 
Exchange Act, and this agreement will likely be resolved by the 
Courts. And I think that is appropriate.
    But I just want to emphasize that there is a great deal at 
stake in this legal dispute. The key issue, the central issue, 
is the reach of FERC's anti-manipulation authority, the extent 
of our ability to protect consumers. If the attack on our 
jurisdiction is successful, our ability to guard the consumers 
from exploitation would be significantly reduced.
    FERC and CFTC are different agencies with different duties. 
We are a consumer protection agency. The CFTC has a different 
mission. We have greater penalty authority than the CFTC and 
are more likely to order disclosure of profits in a market 
manipulation case, which holds out the promise to consumers 
that they might be made whole.
    It is also much harder for the CFTC to prove manipulation 
that FERC since they operate under a high statutory standard. 
And I think consumers see a difference between the agencies. I 
think that is why the National Association of State Utility 
Regulators and a host of individual state commissions have 
declared support for FERC's position. They have even gone so 
far as to enter the litigation, filing briefs in the New York 
District Court supporting FERC.
    But perhaps the best judge is the consumers themselves. 
Various consumers groups have filed briefs in support of FERC 
position, including one of the organizations represented on the 
first panel, American Public Gas Association.
    Now, at FERC, we recognize that CFTC has exclusive 
jurisdiction to regulate aspects of future trading. FERC 
respects the CFTC's exclusive jurisdiction in these areas, and 
we do not seek to regulate futures or regulate NYMEX. And I do 
not believe that our enforcement actions that we proposed 
against Amaranth constitute regulation.
    Now, FERC stands by our position that Amaranth's activities 
fall within our jurisdiction insofar as they affect physical 
sales of natural gas. We believe that the anti-manipulation and 
the anti-manipulation provisions in the Energy Policy Act 2005 
give FERC broad authority to sanction manipulative conduct when 
it significantly affects jurisdictional sales.
    Comments in floor debate on the Energy Policy Act clearly 
indicate Congress's intent that FERC implement the broadest 
possible prescriptions necessary to protect energy consumers.
    I believe that the words in the statute mean something, 
both the words that Congress chooses and the words it does not 
choose. Here, the choices are significant. The FERC anti-
manipulation authority applies to ``any entity'' rather than 
``a natural gas company'', a defined term set in Law 7 years 
ago, meaning a company that engages in jurisdictional sales. We 
are authorized by the statute the sanction manipulation that 
directly or indirectly affects jurisdictional sales. And we can 
sanction fraud and deceit in connection with jurisdictional 
sales.
    In addition, it is noteworthy that Congress included no 
saving clause in the anti-manipulation provision of the Energy 
Policy Act related to CFTC authority. I would be happy to 
discuss statutory interpretation at greater length if that is 
the will of the subcommittee.
    Now, the question has been posed whether FERC should have 
exercised its anti-manipulation authority. I think one of the 
lessons of the California Western power crisis is that 
manipulation can hurt gas and power consumers. That is why you 
gave us the anti-manipulation authority 2 years ago. You gave 
us the tools, and we have been using them.
    I think FERC has a duty to guard the consumer from 
exploitation, and exercise of our anti-manipulation authority 
is necessary to discharge that duty. And I respectfully suggest 
that if FERC had declined to use this anti-manipulation 
authority, the subcommittee should have held a hearing today to 
ask us why not.
    Now, I regret that this disagreement between FERC and CFTC 
has arisen in recent months, but I want to make it clear that 
this disagreement over jurisdiction has not impeded cooperation 
between the two agencies. We have a respectful disagreement 
over interpretation of the anti-manipulation provisions of the 
Energy Policy Act, a disagreement that, in my view, is best 
resolved by the Courts.
    But I also want to make it clear that I do not question 
CFTC's commitment to prevent market manipulation. They are as 
committed to preventing market manipulation as FERC. They have 
demonstrated that by continuing to cooperate with FERC on 
matters of mutual interest, notwithstanding their legal opinion 
on the scope of our jurisdiction.
    So I just want to reassure the subcommittee that this 
disagreement has not impeded cooperation between the two 
agencies on ongoing investigations in areas of mutual interest. 
The MOU continues in place, and we continue to coordinate our 
information gathering, and we continue to coordinate our 
investigations.
    Staff members from the two agencies continue to meet 
periodically to discuss more general ides of common interest, 
and the two agencies are discussing other ideas on how to 
improve cooperation investigations going forward.
    Now, in conclusion, the Energy Policy Act gave FERC the 
tools that we need to oversee physical natural gas and electric 
power markets. Over the last 2 years, we have moved both 
carefully and quickly to implement the relevant provisions of 
the Energy Policy Act, especially the anti-manipulation civil 
penalty and the transparency authorities.
    Our experience so far is that the new authorities gave us 
the tools we needed to penalize and deter price manipulation, 
and our track record shows how effective those authorities can 
be. But I do not anticipate that we would need further 
authorities. However, I do note that there is legislation being 
considered earlier today that would amend the Commodity 
Exchange Act. I think it is important, though, to make sure 
that FERC authority to look into ICE markets is not diminished 
by changes to the Commodity Exchange Act. And I ask the 
committee for your assistance in that.
    However, a legal question has arisen. Yes, sir.
    Mr. Stupak. I am going to need you to wrap up.
    Mr. Kelliher. Yes, sir.
    Mr. Stupak. We are 7 minutes over, and we got votes now. I 
want to get Mr. Lukken in yet before we go.
    Mr. Kelliher. Can I have 10 seconds?
    Mr. Stupak. Yes, quickly.
    Mr. Kelliher. A legal question has arisen regarding one of 
our most important new authorities. We think it is important to 
clarify the extent of FERC authority in this area. We think 
there is a great deal at stake, and we think the Court is the 
right place to settle it. Thank you.
    [The prepared statement of Mr. Kelliher follows:]
    [GRAPHIC] [TIFF OMITTED] T6477.122
    
    [GRAPHIC] [TIFF OMITTED] T6477.123
    
    [GRAPHIC] [TIFF OMITTED] T6477.124
    
    [GRAPHIC] [TIFF OMITTED] T6477.125
    
    [GRAPHIC] [TIFF OMITTED] T6477.126
    
    [GRAPHIC] [TIFF OMITTED] T6477.127
    
    [GRAPHIC] [TIFF OMITTED] T6477.128
    
    [GRAPHIC] [TIFF OMITTED] T6477.129
    
    [GRAPHIC] [TIFF OMITTED] T6477.130
    
    [GRAPHIC] [TIFF OMITTED] T6477.131
    
    [GRAPHIC] [TIFF OMITTED] T6477.132
    
    [GRAPHIC] [TIFF OMITTED] T6477.133
    
    [GRAPHIC] [TIFF OMITTED] T6477.134
    
    [GRAPHIC] [TIFF OMITTED] T6477.135
    
    [GRAPHIC] [TIFF OMITTED] T6477.136
    
    [GRAPHIC] [TIFF OMITTED] T6477.137
    
    [GRAPHIC] [TIFF OMITTED] T6477.138
    
    [GRAPHIC] [TIFF OMITTED] T6477.139
    
    [GRAPHIC] [TIFF OMITTED] T6477.140
    
    [GRAPHIC] [TIFF OMITTED] T6477.141
    
    [GRAPHIC] [TIFF OMITTED] T6477.142
    
    [GRAPHIC] [TIFF OMITTED] T6477.143
    
    [GRAPHIC] [TIFF OMITTED] T6477.144
    
    [GRAPHIC] [TIFF OMITTED] T6477.145
    
    [GRAPHIC] [TIFF OMITTED] T6477.146
    
    [GRAPHIC] [TIFF OMITTED] T6477.147
    
    [GRAPHIC] [TIFF OMITTED] T6477.148
    
    [GRAPHIC] [TIFF OMITTED] T6477.149
    
    [GRAPHIC] [TIFF OMITTED] T6477.150
    
    [GRAPHIC] [TIFF OMITTED] T6477.151
    
    [GRAPHIC] [TIFF OMITTED] T6477.152
    
    [GRAPHIC] [TIFF OMITTED] T6477.153
    
    [GRAPHIC] [TIFF OMITTED] T6477.154
    
    [GRAPHIC] [TIFF OMITTED] T6477.155
    
    [GRAPHIC] [TIFF OMITTED] T6477.156
    
    [GRAPHIC] [TIFF OMITTED] T6477.157
    
    [GRAPHIC] [TIFF OMITTED] T6477.158
    
    [GRAPHIC] [TIFF OMITTED] T6477.159
    
    [GRAPHIC] [TIFF OMITTED] T6477.160
    
    [GRAPHIC] [TIFF OMITTED] T6477.161
    
    [GRAPHIC] [TIFF OMITTED] T6477.162
    
    [GRAPHIC] [TIFF OMITTED] T6477.163
    
    [GRAPHIC] [TIFF OMITTED] T6477.164
    
    [GRAPHIC] [TIFF OMITTED] T6477.165
    
    [GRAPHIC] [TIFF OMITTED] T6477.166
    
    [GRAPHIC] [TIFF OMITTED] T6477.167
    
    [GRAPHIC] [TIFF OMITTED] T6477.168
    
    [GRAPHIC] [TIFF OMITTED] T6477.169
    
    [GRAPHIC] [TIFF OMITTED] T6477.170
    
    [GRAPHIC] [TIFF OMITTED] T6477.171
    
    [GRAPHIC] [TIFF OMITTED] T6477.172
    
    [GRAPHIC] [TIFF OMITTED] T6477.173
    
    [GRAPHIC] [TIFF OMITTED] T6477.174
    
    [GRAPHIC] [TIFF OMITTED] T6477.175
    
    Mr. Stupak. Thank you for your testimony. Mr. Lukken, 
please, if you would, your testimony. We have four votes on the 
floor, but we are going to get to this testimony, and then we 
would recess for a bit. And then we will come back for 
questions. Mr. Lukken, please.

  STATEMENT OF WALTER LUKKEN, ACTING CHAIRMAN, U.S. COMMODITY 
                  FUTURES TRADING COMMISSION.

    Mr. Lukken. Thank you, Mr. Chairman, members of the 
subcommittee. On behalf of the Commodity Futures Trading 
Commission, I appreciate the opportunity to appear before you 
today. The CFTC's mission is broadly two-fold: to protect the 
public and market users from manipulation, fraud, and abusive 
trading practices, and to promote open, competitive, and 
financially sound markets for commodity futures and options.
    Congress created the CFTC in 1974 as an independent agency 
with the mandate to regulate commodity futures and options 
markets in the United States. With the passage of the Commodity 
Futures Modernization Act in 2000, the CFTC became the only 
Federal financial regulator that operates under a principles-
based regulatory approach.
    A principles-based system requires markets to meet certain 
public outcomes in conducting the business operations. For 
example, registered futures exchanges, also known as designated 
contract markets, or DCMs, must comply with a set of core 
principles in order to uphold their good standing as a 
regulated exchange--ranging from maintaining adequate financial 
safeguards to conducting market surveillance. As technology and 
market conditions change, exchanges may discover more effective 
ways to meet a mandate principle and their self-regulatory 
responsibilities.
    The CFTC's regulatory approach is complemented with a 
strong enforcement arm. Robust enforcement is essential to 
effective market regulation in order to punish and deter 
abusive activity in our markets. I call this ``prudential 
regulation with a bite'' and our enforcement record reflects 
this bookends approach.
    During the past 5 years, the Commission has filed a total 
of 295 enforcement actions and obtained more than $1.8 billion 
in total monetary sanctions, including restitution, 
disgorgement, and civil monetary penalties. Protecting the 
energy markets is vital to our national interests because of 
the direct impact of energy prices on consumers and the economy 
in general. In the energy sector, during the last 5 years, the 
Commission has filed 39 enforcement actions, charging 64 
individuals and companies with manipulation, attempted 
manipulation, and/or false reporting.
    To date, these actions have resulted in civil monetary 
penalties of more than $434 million. Most recently, the CFTC 
and Department of Justice obtained a record settlement of $303 
million with BP for manipulating their propane gas market. 
Indeed, we maintain a zero-tolerance policy toward anyone who 
attempts to manipulate or disrupt prices in the energy markets.
    On this front, I would also note our continued positive 
working relationship with FERC on many enforcement matters. The 
CFTC and FERC share the common goal of ensuring that the energy 
markets remain free from manipulation.
    Since the CFTC and FERC entered into a 2005 memorandum of 
understanding on information sharing, our agencies have had a 
good collaborative relationship. I am committed to continuing 
to develop this cooperative relationship, given the inter-
relationship between futures and cash markets in the energy 
sector. As the MOU recognizes, Congress provided the CFTC 
exclusive jurisdiction over the futures markets. The policies 
that support this jurisdictional grant by Congress are as 
important today as they were when they were enacted 35 years 
ago.
    Exclusive jurisdiction of futures trading ensures that the 
futures markets, where many commodities also have a separate 
cash market regulator, will not face inconsistent and redundant 
regulation and the uncertainty of differing legal standards.
    But this does not mean that FERC and CFTC's respective 
enforcement authorities cannot exist in complement of each 
other, as evidenced by the solid working relationship we share 
with other Federal and State enforcement authorities. I am 
committed to striking this balance with FERC. Already, our 
staffs have met to discuss possible ideas that would further 
coordinate our missions. I am hopeful that these efforts will 
help to align the implementation of our mandates going forward.
    I would also like to touch on a recent CFTC proposal 
specifically aimed to reduce concern on exempt commercial 
markets or ECMs. Congress created the ECM category in 2000 to 
allow commercial participants to trade energy and certain other 
products in a light-touch regulatory environment. This spurred 
innovation and competition to the ECM platform, provided a low 
cost on-ramp to launch new ideas for contract design and 
trading methodologies.
    However, the success of this type of trading facility has 
also led policymakers to reexamine whether the regulatory 
requirements for these exchanges remain adequate. In September 
the CFTC conducted an extensive hearing on ECMs, several of the 
witnesses in the prior panel were part of those hearings. We 
found that certain ECM energy contracts were performing as 
virtual substitutes for regulated futures contract and may be 
serving a significant price discovery role.
    The Commission concluded that changes to our Act were 
necessary in order to detect and prevent manipulation involving 
ECM futures contracts that serve a significant price discovery 
function. To that end, the Commission recommended legislative 
changes in a report delivered to Congress that would require, 
one, large trader position reporting of non-significant price 
discovery contracts on ECMs; two, position limits or 
accountability levels for these contracts; three, self-
regulatory responsibilities for ECMs; and four, CFTC emergency 
authorities over these contracts.
    This proposal, crafted in full consultation with the 
President's Working Group on Financial Markets, has the support 
of the entire Commission. I am pleased to report that the House 
and Senate Agriculture Committees are actively considering 
these recommendations. In fact, the full House Agriculture 
Committee this morning marked up and passed out our 
recommendations as part of their reauthorization mark.
    With these important changes, I believe the CFTC's 
principles-based approach, in combination with its enforcement 
arm, will continue to be effective in policing our markets and 
allowing this industry to continue on its upward path of 
growth. With that, Mr. Chairman, I yield back the rest of my 
time, and I appreciate the opportunity to testify today.
    [The prepared statement of Mr. Lukken follows:]
    [GRAPHIC] [TIFF OMITTED] T6477.176
    
    [GRAPHIC] [TIFF OMITTED] T6477.177
    
    [GRAPHIC] [TIFF OMITTED] T6477.178
    
    [GRAPHIC] [TIFF OMITTED] T6477.179
    
    [GRAPHIC] [TIFF OMITTED] T6477.180
    
    [GRAPHIC] [TIFF OMITTED] T6477.181
    
    [GRAPHIC] [TIFF OMITTED] T6477.182
    
    [GRAPHIC] [TIFF OMITTED] T6477.183
    
    Mr. Stupak. Thank you, and thank both of you for appearing 
here today. Unfortunately, we have four votes on the floor 
right now. So I think we are going to recess until 
approximately 1:30, 1:35. We should be back by then, and 
hopefully we will have a chance to take questions, and more 
members will be back then.
    [Recess.]
    Mr. Stupak. We have had the opening statements. We are 
going to go on with questions. Mr. Kelliher, if I may start 
with you, sir. Your testimony says, ``legislative proposals 
intended to enclose the Enron loophole and give the CFTC 
jurisdiction over ICE and other electronic trading venues could 
affect FERC's ability to oversee natural gas and electric power 
markets. Many of the same venues trade physical as well as 
financial contracts, and any limitations on FERC's access to 
that information could reduce its ability to oversee 
jurisdictional market.'' What specific legislative proposals 
are you referring to, and what authorities are at risk in terms 
of FERC jurisdiction over trading in exempt commercial markets?
    Mr. Kelliher. Well, we do currently have ability to get 
information from ICE. First of all, we get information as a 
client. We buy information. That was discussed in the first 
panel. We actually think that information is very important to 
us, but we also occasionally issue a friendly subpoena to ICE. 
And we get additional information that is non-public from them, 
and that information is very important to us to monitor markets 
and look for possible market manipulation. If we were not able 
to get that non-public information, it would impair our ability 
to understand the market.
    Mr. Stupak. Well, if it a friendly subpoena, is the 
contents of the subpoena negotiated out before it is issued?
    Mr. Kelliher. The subpoena, I won't say they invite, but 
they--the information we get from them is very detailed market 
information. But the companies that are engaged in 
transactions, they are blind. They are Company X, Company Y.
    Mr. Stupak. OK.
    Mr. Kelliher. We sometimes want to know who Company X is, 
and so that--and it is necessary to issue a subpoena. And then 
they will identify the company. The information remains 
nonpublic, but that is what we can do currently. We don't want 
to lose that ability.
    Mr. Stupak. Well, is there any language you would suggest 
to us to ensure that there is no limitation on your ability to 
access information and bring enforcement actions?
    Mr. Kelliher. We can provide that information to you, sir.
    Mr. Stupak. OK, in the Energy Transfer Partners case 
brought by FERC, FERC alleged that the company used its market 
power in the Houston Ship Channel to drive down the physical 
price of natural gas and at the same time took a series of 
short positions on ICE which bet that the price of natural gas 
at that location would go down. FERC estimated $67 million in 
unjust profits in just nine trading periods. What is noteworthy 
is that FERC was alerted by a call to the enforcement hotline.
    So would this case of alleged market manipulation have been 
detected without your call to the hotline, without a call from 
the hotline?
    Mr. Kelliher. It might have, and FERC investigations, and 
probably similar with CFTC, begin a number of different ways. 
In the case of Amaranth, that investigation began by FERC staff 
monitoring transactions at NYMEX, and NYMEX is a very 
transparent market and just seeing some price movements that 
didn't seem to make sense based on our understanding of market 
fundamentals.
    But hotline calls also are a source of--can begin an 
investigation. Sometimes it is a FERC audit. Sometimes it is a 
referral from another Federal agency. There really are about 10 
different ways an investigation might begin, but in that case, 
it was a hotline call from----
    Mr. Stupak. Let me ask this. Has FERC initiated any 
manipulation cases where prices were manipulated upward?
    Mr. Kelliher. We have a number of nonpublic investigations 
that I am not at liberty to discuss.
    Mr. Stupak. Do you have a number of investigations going 
now on the upward----
    Mr. Kelliher. We have a good number of current 
investigations. Some of them may involve upward manipulation. 
Some of them may involve downward manipulation, but I actually 
legally cannot discuss them without authorization from the 
Commission. But I can offer a private briefing. I would be 
happy to provide a private briefing to you after getting that 
authorization.
    Mr. Stupak. I am sure some members would be interested. Mr. 
Kelliher, in the Amaranth case involving manipulation of 
futures and derivatives markets during the months of February, 
March, and April of 2006, which then drove down the prices paid 
in FERC jurisdiction markets, has FERC investigated price 
increases for 2006 and 2007 winter season that impacted prices 
in the spring and summer of 2006, which was connected to 
Amaranth trading standard strategies?
    Mr. Kelliher. We did look at Amaranth trading activity in 
other months, not just in those months.
    Mr. Stupak. OK.
    Mr. Kelliher. But we are not looking at manipulation of 
futures. We are looking at manipulation of futures products 
that affect physical gas consumers. It is entirely possible 
Amaranth might have--it is hypothetically possible a company--I 
want to be careful. A company could engage in manipulation of 
futures that actually has no effect on physical gas consumers, 
and we would have no interest in that manipulation.
    Mr. Stupak. OK, has FERC given thought to expanding its 
jurisdiction to cover enforcement of market manipulation 
outside its current jurisdictional markets involving pipes and 
wires such as heating oil, crude oil, propane, ethanol, or 
other?
    Mr. Kelliher. We have not requested that authority.
    Mr. Stupak. Have you given thought to it? Have you 
discussed it?
    Mr. Kelliher. I think the question has been raised about 
propane, and I think we have respectfully declined the request. 
We have not sought that authority over propane and other 
petroleum products in part because of the nature of our agency. 
Our authority, with respect to oil, is we set rates for oil 
pipelines. That is it, and so we have a fairly modest role in 
oil pipelines that goes back 100 years actually. And the idea 
of a dramatic expansion is----
    Mr. Stupak. Well, that is why I asked involving pipes and 
wires so the heating oil goes through pipes, crude oil, 
propane, ethanol. It is all going to be going through pipes. So 
I mean and if you are the agency that is there to protect the 
consumer, think the consumer would expect that protection to be 
extended.
    Mr. Kelliher. We do comprehensively regulate natural gas 
pipelines, and we do look for undo discrimination preference by 
natural gas pipelines as they provide transportation service.
    Mr. Stupak. Well, I am going to stop questions here. I will 
have questions for Mr. Lukken. We will probably go a second 
round, so I will turn to Mr. Barton for questions, please.
    Mr. Barton. Thank you. Mr. Lukken, do you know who the 
chairman of the Energy and Commerce Committee was in the last 
Congress?
    Mr. Lukken. I believe it was you, sir.
    Mr. Barton. OK, do you know who the chairman of the Energy 
Conference was that passed the Energy Policy Act of 2005 in the 
last Congress?
    Mr. Lukken. The same.
    Mr. Barton. OK, do you know who put in section 315 of the 
Energy Policy Act? What Member specifically wanted that 
language included in the Law?
    Mr. Lukken. I don't know.
    Mr. Barton. Well, it was the chairman of the committee and 
the chairman of the conference. Do you think that when it says, 
``shall be unlawful for any entity, directly or indirectly, to 
use or employ in connection with the purchase or sale of 
natural gas or the purchase or sale of transportation services, 
subject to the jurisdiction of the Commission, which is the 
FERC, any manipulative deceptive device or contrivance, as 
those terms are used in section 10B of the Security Exchange 
Act of 1934, 15 U.S. Code, 78J/B in contravision of such rules 
and regulations as the Commission may prescribe as necessary in 
the public interest or for the protection of natural gas rate 
payers'', do you think that any entity doesn't mean any entity?
    Mr. Lukken. We certainly support the broad grant of 
jurisdictional authority given to FERC in the EPACT of 2005. 
However, our mandate is to uphold the Commodity Exchange Act, 
which also has an exclusive jurisdiction provision enacted by 
Congress in 1974 to protect against duplicative regulation and 
differing legal standards in those markets.
    So we have to read those two statutes in context.
    Mr. Barton. Now, you are basically, if I understand your 
agency's position, is that the Congress didn't know what it was 
talking about here. I mean, you have no reason to know this, 
but this was put in specifically because of my concerns about 
this new exchange, the ICE exchange, and what they were doing. 
I mean, I wanted to go a lot further, but because of concerns 
from other committees and some of the stakeholders, we agreed 
in a bipartisan, bicameral basis on this language.
    So we have the FERC who gets this authority. They go out 
and try to use it, and your agency says they can't do it. I 
mean, do you think that Amaranth was--don't you believe that 
Amaranth was trying to manipulate markets?
    Mr. Lukken. Absolutely. That is why we have brought an 
action against Amaranth for manipulating the futures markets, 
and we have worked cooperatively with FERC to bring those 
actions. And indeed, in our Court order, where the Judge has 
asked our opinion on exclusive jurisdiction, we supported 
FERC's ability to go forward with the proceeding, but we felt 
compelled--it was the opinion of our general counsel and the 
Commission that we have exclusive jurisdiction over these 
contracts.
    Mr. Barton. Well, then, there is no way you can have 
exclusive jurisdiction with this statutory authority on the 
books, and what I want to inform you of, as the acting 
Chairman, is that this wasn't something serendipitous or 
inadvertent. It was put in directly because of what since has 
transpired, and Mr. Kelliher and his compadres at the FERC are 
doing exactly or at least attempting to do exactly what we 
hoped they would do, which is work with your agency but use 
their own authorities to ferret out the bad actors and try to 
make our markets more open and transparent and accessible in a 
non-biased way to any willing participant.
    So I don't see how your Agency or the Courts can rule, 
unless they assume that the members of Congress who passed this 
didn't know what we were talking about and didn't understand 
the English language. But I want to put on the record at this 
oversight hearing that this particular section was done at my 
express request, because of concerns I had at the time about 
speculation in the oil and gas markets, so that we could give 
the FERC some authority, which was ambiguous at that time.
    This is not ambiguous, and it is my understanding that the 
lower Court has ruled that because it is a Federal statute, it 
has to be decided at the Appellate Court. But I can't imagine 
the Appellate Court reading this language and saying that FERC 
can't do what they have been attempting to do. So I would 
encourage you to work with the FERC, and you all decide how to 
cooperate together instead of arguing on who should be doing it 
in the first place.
    There is more than enough work to go around. This is not an 
area that we have too many regulators and too many overseers. 
One could argue, given the budget problems that both of your 
agencies have had and the cutbacks, that you should be working 
much more closely together if the Law allows it to share 
resources.
    With that, Mr. Chairman, I am going to yield back. But 
thank you again for holding this hearing. And thank both of you 
gentlemen for participating.
    Mr. Stupak. Thank you. Mr. Whitfield, questions, please.
    Mr. Whitfield. Thank you, Mr. Chairman. Mr. Lukken, one 
question I would like to ask you. The American Public Gas 
Association has called for legislation that would require broad 
market transparency for larger trading positions throughout the 
exempt markets, including all over-the-counter and bilateral 
trading. And your recent legislative proposal does not really 
quite go that far, I believe.
    Do you think that the CFTC should implement a broad market 
transparency requirement throughout these exempt markets and 
bilateral trading and over-the-counter as well?
    Mr. Lukken. Well, what our proposal suggested to Congress 
was that in these exempt commercial markets, when a contract 
becomes a price discovery contract, a benchmark that others are 
utilizing in interstate commerce, that additional regulatory 
authority should occur in those areas. And we have recommended 
four things.
    One, large trader reporting system reports from that 
exchange regarding those contracts so that we, as a 
surveillance agency, can monitor the markets, make sure the 
positions can't be manipulated by certain positions of traders.
    Two, accountability and position limits, meaning that 
NYMEX, which is a regulated market, now has position limits on 
trading going into the closing of a contract. ICE will also 
have to put position limits on those products. They will also 
have to self-regulate themselves. They have to become their own 
watchdog with responsibilities to the Commission as well as 
give us emergency authority of those markets.
    Now, you talk about in addition the bilateral markets 
outside. It is our intention that our section 18.05 rule, 18.05 
authority, gives us the ability to go into those bilateral 
markets on a need-to-know basis to ask for that information. 
Anything that is traded on an ECM or a DCM are regulated 
markets and we are recommending those markets would also have 
to keep records on any things related to those bilateral 
transactions. So if you are holding a bilateral swap that may 
affect the futures position, you have to keep those records for 
5 years, and we would have the ability to go in and ask for 
them if we see an anomaly in pricing on the marketplace.
    Mr. Whitfield. Right, I came in as Joe Barton was asking 
some questions, and I think he touched on this a little bit. 
But on this Amaranth case, my impression is that FERC and your 
agency have worked closely on that case. Is that correct?
    Mr. Lukken. Correct.
    Mr. Whitfield. You have shared information, but it is still 
your agency's position that FERC really does not have legal 
jurisdiction. Is that true?
    Mr. Lukken. That is correct.
    Mr. Whitfield. OK, and now my understanding, Mr. Kelliher, 
that there has been some initial Court rulings on that very 
point. Is that correct?
    Mr. Kelliher. Yes, we have had at least three or perhaps 
four decisions by the Courts. There have been attempts to 
impose temporary restraining orders, stays, and injunctions on 
our enforcement action. All of which have been rejected, one as 
recently as Monday of this week.
    Mr. Whitfield. Right.
    Mr. Kelliher. And the decision Monday was interesting, 
because it actually did discuss the statutory interpretation of 
the anti-manipulation provision.
    Mr. Whitfield. But the decision on Monday--give me a 
synopsis of that Decision.
    Mr. Kelliher. It was rejecting a request for an injunction, 
and it was arguing that, I think in this case, I think it was 
Amaranth or Mr. Hunter. Was this Amaranth? Hunter was the lead 
trader at Amaranth, and he was seeking an injunction, and it 
rejected his petition because it argued that he had failed by 
quite a lot to demonstrate that there be any kind of 
irreparable harm.
    Mr. Whitfield. Right.
    Mr. Kelliher. But they also went a little bit further, and 
for them to grant an injunction, he would have to prove the 
likelihood of success on the merits. The Court actually 
discussed that to some extent and said, that would mean he 
would have to prove that FERC has no authority under the anti-
manipulation provision of the Energy Policy Act. Now, the Court 
had a brief discussion of that, suggesting that they thought 
that he had no basis for that argument.
    Mr. Whitfield. Well, I mean, I certainly agree with the 
Court, and I think it has been very clear that this committee 
feels like FERC does have jurisdiction. And certainly want to 
commend FERC for the aggressive action they took in this case 
and with that, Mr. Chairman, I will yield back the balance of 
my time.
    Mr. Stupak. Thank you. Mr. Lukken, let me follow up with 
something Mr. Whitfield asked you. You were talking about the 
bilaterals in rule 1805. That is sort of after the fact though, 
isn't it? I mean, you can't look at it while these things are 
going on. You get the information after the fact, correct?
    Mr. Lukken. Well, we would be able to find out--in order 
for a manipulation to occur, you need the means to manipulate 
but also the profit motive.
    Mr. Stupak. Right.
    Mr. Lukken. So you need the means being the benchmark, the 
pricing benchmark that we are looking at, and the profit center 
being maybe these bilateral trades that are occurring. And so 
what we have said is, if you are involved in the benchmark 
markets, if you are looking at significant price discovery 
markets and there is a pricing concern of ours, we have the 
ability to go ask for that information in the bilateral 
marketplace.
    Mr. Stupak. Well, let me ask you this, do bilateral 
markets, using standardized contracts, have an impact on the 
discovery or the price discovery process for energy 
commodities?
    Mr. Lukken. We did not find a strong correlation in the 
bilateral market as far as becoming a price discovery mechanism 
in the exempt commercial markets. I would say, though, that it 
is in our rule or the proposal we sent up to Congress, it does 
not limit these potential price discovery contracts to only 
clear trades. These could potentially go into bilateral 
contracts as well that are traded on ECM.
    Mr. Stupak. Yes, but our last panel, Mr. Cota, Professor 
Greenberger, and Ms. Campbell of the American Gas, they all 
thought that they do, in fact, have an impact, and they do have 
an impact on the price discovery process.
    Mr. Lukken. I believe they were referring to the ECM 
product, bilateral products being traded on the ECMs. I was not 
here for their entire testimony, but there are certainly 
bilateral contracts trading on an exempt commercial market that 
we will begin to see if those contracts become significant 
price discovery contracts.
    Mr. Stupak. In the book right there, go to tab No. 18, if 
you would, please. Let me ask you a question. Tab 18 should be 
the NYMEX large trader disclosure form. ``A NYMEX rule requires 
traders who want to hold more than 1,000 contracts in a final 
day of a trading of the prompt month to disclose all over-the-
counter and forward contract positions including those executed 
through bilateral trades.'' Since disclosure is required in 
this instance, is there a reason that large positions executed 
in bilateral markets cannot be routinely reported to the CFTC?
    Mr. Lukken. So this is them opening up their books? Well, I 
think----
    Mr. Stupak. Right, couldn't they do the same thing to you 
so you could really look at it? Do you have real-time numbers 
or at least a prompt month?
    Mr. Lukken. I think the focus of our report was to really 
look at where price discovery was occurring, which is on the 
electronic marketplace. You know, this would be a lot of 
information coming into our markets, and our surveillance 
economists. You know, the marginal beneficial nature of these 
bilateral contracts, we would be overwhelmed as far as an 
agency in trying to monitor and put them into systems that 
would be relevant for us. So I think for us the tailored focus 
concern was going to be the ECMs and making sure we got that 
information on an ad hoc basis to go into the bilateral markets 
and ask for that information. But certainly we would be 
overwhelmed if we were asked to receive information from the 
entire bilateral market.
    Mr. Stupak. Well, what is the size of the bilateral market?
    Mr. Lukken. It dwarfs the exchange rated market. It is very 
large.
    Mr. Stupak. Well, isn't that room for more speculation and 
more profit taking in the larger market as opposed to a small 
one, which you are looking at?
    Mr. Lukken. Well, again, if it starts to bleed into the 
price discovery contracts, that is when the public interests 
arise in our concerns and regulations.
    Mr. Stupak. But you wouldn't know that until after the 
fact. Wouldn't you have more current information if they were 
required to disclose this form as they do at NYMEX?
    Mr. Lukken. Well, they would be on our market's trading 
that we would see. It wouldn't be after the fact. We would see 
pricing anomalies on our marketplace.
    Mr. Stupak. Let me ask you this question. Has the CFTC 
assessed the risk of whether traders will move from ICE to 
bilateral trading on overseas markets once a discovery regime 
is imposed on trading of price discovery contracts? Do you 
think they will move to foreign bilaterals?
    Mr. Lukken. Well, in testimony at our hearing in September, 
this was one of the listed points we asked witnesses to 
address--the U.S. competitiveness issue, where the markets 
would move. It seemed to be the consensus that this tailored 
approach to regulation would be a way to get at the 
information, make sure that manipulation was not occurring on 
these ECM markets, but also ensure that markets didn't move 
overseas. So that was the balance that we tried to strike.
    Mr. Stupak. We heard concerns from the previous panel about 
foreign boards of trade. Do you consider the UK Financial 
Service Authority to have equivalent market rules as those 
imposed by the CFTC in its designated contract markets?
    Mr. Lukken. Equivalent may be too strong of a word, but 
comparable. Certainly, in the international regulatory 
community, they are one of the strongest regulators around, the 
Financial Services Authority. In fact, they are quoted by many 
in our Government and in the private sector as the model we 
should be going towards.
    Mr. Stupak. Does FSA, the Financial Services Authority in 
the UK, do they require position limits on financially settled 
contracts to prevent excessive speculation?
    Mr. Lukken. They do not, but they also have different 
requirements that our agency does not require. So again, this 
is how these regulatory authorities have grown up and the 
history of all with that.
    Mr. Stupak. Then why would the CFTC then approve no-action 
letters allowing foreign boards of trade to operate in the 
U.S.? You said they are not equivalent. They are comparable. I 
guess that is sort of a subjective standard. If they don't 
require position limits on financially settled contracts, then 
why would we give them these no-action letters, as you call it?
    Mr. Lukken. The no-action letter, this is something we 
debated at length at the Commission last year--we held hearings 
on this. We looked into this, and no action, you must 
understand, is almost the registration of these exchanges. They 
have to come in, show us how these rules are comparable in the 
UK to our rule books here at the exchanges. We go through a 
broad analysis of the regulatory system in the United Kingdom 
in making our----
    Mr. Stupak. But isn't it sort of like, hold us to what we 
say, not what we do?
    Mr. Lukken. No, we condition the no-action arrangement with 
receiving large trader information from these markets. So it is 
not that these are outside of our view. In fact, one could 
argue they have two regulators looking at these markets, both 
the United Kingdom and our surveillance staff because we are 
getting large trader reporting on a weekly basis, leading up to 
the final week of expiration, and then on a daily basis.
    Mr. Stupak. Well, you have a memorandum of agreement, don't 
you, with the financial services in England?
    Mr. Lukken. Yes.
    Mr. Stupak. So what information is specifically shared 
between you and the CFTC and FSA?
    Mr. Lukken. It is large trader reporting information, 
similar to what we get from market participants and exchanges 
here in the United States. We also hold quarterly meetings with 
them to discuss enforcement cases. Our surveillance economists 
talk to them all the time on these issues.
    Mr. Stupak. Let me ask you this, because Professor 
Greenberger brought it up--has the CFTC assessed whether 
trading on ICE futures for financial energy commodities, such 
as the New York Harbor Reformulated Gasoline, New York Harbor 
Heating Oil, or West Texas Intermediate Crude Oil, has an 
impact on the price discovery on the NYMEX?
    Mr. Lukken. ICE futures in Atlanta or ICE futures----
    Mr. Stupak. In Atlanta.
    Mr. Lukken. In Atlanta. What we looked at, and this is what 
our rulemaking will go to and what the House Agriculture 
Committee today marked up, is that if any of these products 
become a significant price discovery contract traded on ICE on 
the exempt market, we would be able to get this information 
from them, once that occurs. So certainly we understand that 
there can be an influence from these exempt markets on 
regulated markets. And once that price discovery threshold is 
met, regulation would occur.
    Mr. Stupak. Would that same answer hold true if it was the 
futures in the UK, ICE futures in UK, being closed out in UK?
    Mr. Lukken. Well, they are a fully regulated exchange, so 
they are being regulated by the United Kingdom.
    Mr. Stupak. Can trading on ICE futures be used as part of a 
strategy to manipulate energy prices?
    Mr. Lukken. Sure, and we have brought cases on that.
    Mr. Stupak. And why is the CFTC's approving no-action 
letters, which allow U.S. traders to trade financial energy 
commodities such as New York Harbor Gasoline, Heating Oil, or 
West Texas Intermediate Crude Oil without requiring the trading 
platform to become a designated contract market and subject to 
your jurisdiction, the CFTC's jurisdiction?
    Mr. Lukken. Well, it is a very good question, but these are 
global commodities. Even though West Texas is in the name, the 
oil is traded as a global commodity. It is relied on around the 
world, and so we want to make sure that, as a world product, 
that other nations around the world are also being open to our 
markets. So by allowing access to the UK of our traders, with 
conditions and full review by our staff, we also ensure that 
our markets have access to other overseas so that our markets 
here in the United States can grow.
    Mr. Stupak. And without requiring the trading platform to 
become a designated contract market, aren't you sort of only 
hurting the integrity of the market?
    Mr. Lukken. Well, this is the mutual recognition concept 
that is currently being debated on the securities side right 
now. In fact, the Securities and Exchange Commission is looking 
into whether to adopt a similar, comparable, but not identical, 
type of mutual recognition system that would most likely 
recognize the UK FSA. So this is something that is the global 
standard of how regulators talk to each other around the world 
and interact. And we are certainly a leader in this area.
    Mr. Stupak. My time has expired. Mr. Walden, for questions, 
please.
    Mr. Walden. Thank you, Mr. Chairman. Appreciate that. I 
wanted to follow up with Mr. Lukken, with you. You heard me ask 
Professor Greenberger about your report, and he said that your 
report really was done before the collapse of Amaranth. Is that 
accurate, and do you still stand by the conclusions of your 
report that this speculative market isn't substantively driving 
up the price of oil gas?
    Mr. Lukken. Our report was done on crude oil. It was not 
done on natural gas, which is the subject matter of the 
Amaranth investigation. But it was dealing with a similar 
commodity and how hedge funds and other speculative interests 
behave in those markets. And it was the conclusion of our chief 
economist and his staff that published the paper, that these 
were really price followers more than price makers in those 
markets. It has been updated. We have updated it up until most 
recently, I think, through November I believe. Is that correct? 
So it is updated to even account for the recent run-up in oil 
prices as well.
    Mr. Walden. And the conclusion remains the same?
    Mr. Lukken. I think the conclusions have remained exactly 
the same. Is that correct?
    Mr. Walden. All right, Mr. Kelliher.
    Mr. Lukken. Having said that, we do have controls in place 
on speculation. We recognize it can be excessive, and we do 
have certain things that we put into place to control against 
that excessive speculation.
    Mr. Walden. So I just want to clarify. You don't think it 
is a $20 to $30 a barrel part of the margin in oil right now 
then, speculation?
    Mr. Lukken. I could only speculate. Sorry.
    Mr. Walden. Have you had experience, or that is what I want 
to know. And is there somebody making money through a 
derivative through the--never mind. Go ahead.
    Mr. Lukken. But we have looked into that claim that there 
is a $30 premium. We don't know any economic basis on which we 
are trying to figure out who said that. I think some of this 
might be sort of gut feels of traders involved and analysts. 
And those are real feelings that should be brought to light, 
but we have based our findings on economic data that we have 
through the positions of traders. And we feel more comfortable 
talking about those positions.
    Mr. Walden. All right. Yes, it is Professor Greenberger who 
said in his testimony $20 to $30 a barrel. Mr. Kelliher, do you 
have any comment on that?
    Mr. Kelliher. No, I am not familiar with the CFTC analysis, 
but I don't have any reason to dispute Chairman Lukken.
    Mr. Walden. But from your own agency's perspective?
    Mr. Kelliher. No, our authority in oil is just limited to 
oil pipeline rates.
    Mr. Walden. What about natural gas?
    Mr. Kelliher. Natural gas, we have jurisdiction over 
wholesale gas markets, pipelines, LNG projects.
    Mr. Walden. But do you see speculation in that market as 
described by some of the other witnesses today?
    Mr. Kelliher. There is speculation, and there is risk 
management. And I think similar to CFTC we view use speculation 
by itself as harmful.
    Mr. Walden. Right.
    Mr. Kelliher. It is a necessary part of markets.
    Mr. Walden. And so you don't see evidence of harmful 
speculation then? Is that what you are saying?
    Mr. Kelliher. We look for manipulation. Manipulation is 
what we look for. We look for undo discrimination and 
preference. Those are the evils that we are focused on. So we 
are not looking for excessive speculation per se.
    Mr. Walden. OK, so let me get the term right then. Let us 
use manipulation of the market. You do see some of that 
happening, has happened?
    Mr. Kelliher. Yes.
    Mr. Walden. And that more regulation is needed over ICE?
    Mr. Kelliher. I will defer to CFTC on regulation of 
futures. We think we have the authority we need at FERC to 
regulate in our jurisdiction. We think you gave us the right 
tools 2 years ago, and I defer to CFTC on what authority they 
need.
    Mr. Walden. And you think, Mr. Lukken, that the legislation 
that came out of the Ag Committee today while we were holding 
this hearing just coincidentally gave you the authority you 
need?
    Mr. Lukken. We believe, yes.
    Mr. Walden. OK, I don't think I have any other questions, 
Mr. Chairman. I again want to thank you for holding this 
hearing. It is a very important issue. Thank you.
    Mr. Stupak. Thank you. Mr. Green, for questions.
    Mr. Green. Thank you, Mr. Chairman. Mr. Kelliher, the CFTC 
has said it is exclusive regulator over futures markets. 
Frankly, this is for both of you because our interest on the 
committee is to see--we want the regulation, and we just happen 
to have jurisdiction over FERC and obviously the Agriculture 
Committee, I guess, has it over CFTC.
    But the exclusive regulator of the futures market, do you 
believe FERC's exercise of the anti-manipulation authority 
weakens the CFTC's role? And adding into that, I have a 
question about the memorandum of understanding. Is there some 
way that--because energy is easier understood in FERC whereas 
CFTC has so many other commodities they deal with other than 
energy? And just appreciate an answer from both of you.
    Mr. Kelliher. Go ahead.
    Mr. Lukken. OK.
    Mr. Green. Has it weakened CFTC's role if FERC exercises 
the anti-manipulation authority under EPACT 2005?
    Mr. Lukken. You know, one of our mandates is to make sure 
that the markets are open, competitive, and transparent to 
ensure the integrity of the market. And any time there is 
confusion on differing legal standards, duplicative regulators 
in the space, I think there is cause for concern that these 
markets may choose other alternatives that they may have to 
trade. So that is what we try to minimize.
    I completely agree with Joe. We share the goal of 
preventing manipulation no matter where it occurs. We hope that 
there are no gaps, try to minimize duplication when we can. But 
we think that these markets deserve legal certainty, and 
certainly the exclusive jurisdiction provides that for these 
markets.
    Mr. Kelliher. And we don't think that our enforcement 
action interferes with CFTC regulation. We don't think there is 
a dual regulation here because there is one regulator. It is 
the CFTC. There are two investigations that really have been 
announced in recent months that are--they are not joint 
investigations strictly speaking, but they are coordinated and 
parallel investigations.
    The other one, as I mentioned in my testimony, was the 
Energy Transfer Partners investigation. In that case, that 
involved, we believe, involved manipulation in FERC 
jurisdictional markets, physical gas sales that affected other 
physical gas products as well as financial products. So 
manipulation occurred in our space, if you will, we think and 
then extended to CFTC space.
    Now they are conducting enforcement action of their own 
that involves an area where FERC has exclusive jurisdiction. We 
don't view that their enforcement action undermines or 
threatens or impairs FERC's exclusive jurisdiction over 
physical natural gas because they are not regulating in the 
sense that we regulate that market. They are not setting a 
rate. They are not revoking a blanket certificate. They are not 
doing the things that are regulation under the Natural Gas Act. 
So we don't see that their enforcement action undermines our 
authority, and we similarly don't see why our enforcement 
action undermines their authority. But it is an honest 
disagreement.
    Mr. Green. Well, how does MOU working if we can, we ought 
to have the two agencies who complement each other really in 
the energy markets that there can be--can there be a joint 
effort? I mean I have never heard of agencies, Federal agencies 
doing that. But it would seem like it would be needed in this, 
particularly the sensitivity of the price fluctuations for my 
industrial consumers but also for my constituents.
    Mr. Lukken. Well, I think the original intent of the MOU 
was on information sharing, making sure each of us could uphold 
the mandate of their act. We have different legal 
interpretations of what our acts require of us, so it is 
difficult for an MOU to try to change what we believe the Law 
to be, each of us respectively. So it is something, I think, we 
are looking at. Our staff have talked about ideas of trying to 
approach this to coordinate better, going forward to try to 
avoid, as best we can, these situations in the future. But 
again this is an honest legal dispute between the two agencies 
that the Courts are currently and actively considering.
    Mr. Green. Well, and that is my next question. Energy 
Transfer Partners, CFTC is prosecuting alleged manipulation of 
physical markets which was under FERC's jurisdiction because of 
their effect on the futures market, which are under CFTC's. How 
is that going to balance out? Because I guess I have an 
interest because Energy Transfer Partners is doing things in my 
area. I mean sure, nationwide, but at home.
    Mr. Lukken. Our statutory mandate on manipulation covers 
the futures markets, but Congress granted us also cash market 
action. And up until 2005, we were the only people in that 
space, so we brought lots of cash market authorities in light 
of the western energy crisis and Enron debacle. So this is 
something we are still trying to work out, how to best divide 
the authority between the two agencies. But you raise a good 
point, that maybe we should think about where the expertise of 
each regulator lies and how that might help us to guide where 
we divide jurisdiction.
    Mr. Kelliher. And I would just like to comment. I really 
don't think it is unusual that more than one Federal agency 
might prosecute the same underlying offense. I mean it happened 
a few years ago where CFTC was prosecuting false reporting with 
respect to natural gas sales, and the Justice Department also 
was taking fraud actions against the same companies and 
individuals. So I don't think it is unusual that the same 
activity might violate two different Laws that are administered 
by two different agencies.
    And we are not, for example, charging anyone with violating 
the Commodity Exchange Act. CFTC is not charging anyone with 
violating the Natural Gas Act. We both are given these 
different duties by Congress, different responsibilities. 
Sometimes the same behavior violates more than one Federal Law.
    Mr. Green. Mr. Chairman, I know my time is up, but I don't 
know what the bill is doing that has come out. It was just was 
reported out today in Ag Committee, but I would hope it would 
foster that relationship so, again, the beneficiary are the 
citizens and whether it be corporate citizens or individuals 
ones. And I know we don't have jurisdiction over that, but we 
definitely have it on the floor and to be able to have an 
interest in it, particularly when you come from energy-
producing areas or chemical-producing areas. So thank you, Mr. 
Chairman.
    Mr. Stupak. Thank you. Mr. Lukken, you indicate that, 
besides Professor Greenberger, you don't know of anyone else 
who agreed with the idea it is $20 to $30 more per barrel of 
oil in the price that we are paying right now. Do you know a 
Mr. Gatt of Oppenheimer and Company? Are you familiar with him?
    Mr. Lukken. I understood he testified yesterday before the 
Senate.
    Mr. Stupak. He has indicated in a couple of articles, LA 
Times, New York Times, it is $20 to $30 excess speculation 
brings to the price of a barrel of oil. Are you familiar with 
Ms. Foss, the chief energy economist at the Center for Energy 
Economics at the University of Texas?
    Mr. Lukken. I am not. I am sorry.
    Mr. Stupak. OK, in the ENE News, Energy Environment News, 
she also indicates $20 to $30. So there is a lot of support out 
there. Kyle Cooper from the IAAF advisor out of Houston, Texas, 
and Miami Herald they report the same things. So there is a lot 
of authority besides Professor Greenberger. But let me ask you 
this. Do you agree with Professor Greenberger's testimony that 
the CFTC proposal will lead to further regulatory arbitrage 
because once subject to CFTC regulation traders will simply 
move their trading to other contracts which are exempt from 
regulation?
    Mr. Lukken. I don't agree with that. I think our proposal 
is trying to get at the electronic exchange like facility, 
which is the exempt markets. Now, people go to those markets 
because of the benefits that these type of multilateral trading 
facilities provide. Clearing, creditworthiness that those 
markets provide, transparency of what the pricing might be 
provided in the bilateral marketplace.
    Mr. Stupak. Yes, but didn't NYMEX provide the same thing?
    Mr. Lukken. Correct.
    Mr. Stupak. So why did people move to ICE?
    Mr. Lukken. Well, I am talking once our proposal is put 
into place. Then we will have the ability to see these markets 
to get the information----
    Mr. Stupak. So you don't think they will move to bilaterals 
either, through the phone or electronics?
    Mr. Lukken. It is a different trading environment in the 
multilateral space. I think those markets are beneficial, and 
people come to them for a reason not purely regulation.
    Mr. Stupak. Well, they go there to avoid regulation.
    Mr. Lukken. Again, this is something we discussed as part 
of our hearing in September, and these are the recommendations 
we made.
    Mr. Stupak. Mr. Kelliher, let me ask you this. In your 
testimony, and we are talking about the exclusive jurisdiction 
on future markets and your testimony, CFTC contends that FERC 
lacks legal authority to prosecute Amaranth, you know, been all 
through that. But in your testimony, you state, and I am 
quoting now, ``it is much harder for CFTC to prove manipulation 
than FERC.'' Why is this the case? Could you explain that a 
little bit further? The way I look at it, why would the futures 
industry rather have CFTC prosecuting their case as opposed to 
FERC other than fines?
    Mr. Kelliher. Well, there is a difference in penalty 
authority, which you----
    Mr. Stupak. Right.
    Mr. Kelliher. I think our penalty authority is something 
like eight times larger than CFTC. The one proposed change in 
the Commodity Exchange Act, I will express an opinion, is in 
the penalty provisions, and CFTC has proposed to have the same 
kind of penalty authority we have, and I think that is 
completely appropriate.
    Mr. Lukken. And that was passed this morning.
    Mr. Stupak. Congratulations.
    Mr. Kelliher. So I think that is one reason why some 
participants in the futures industry might prefer that FERC not 
have any authority to pursue manipulation, the difference in 
penalty authority, which may soon be eliminated. But we each 
have an intent standard on manipulation. They have a specific 
intent standard, which is my understanding. We have a lower 
intent standard, and reckless disregard can constitute intent 
for purposes of a FERC manipulation.
    Mr. Stupak. So you have a broader standard?
    Mr. Kelliher. Excuse me?
    Mr. Stupak. A broader standard?
    Mr. Kelliher. We have, I think it is fair to say, a lower 
standard, where reckless disregard is sufficient to constitute 
intent for a FERC manipulation case. That is because Congress 2 
years ago gave us securities Laws to model, not commodities 
Law.
    Mr. Stupak. OK. Mr. Walden, anything further?
    Mr. Walden. I do, Mr. Chairman. I think we are all trying 
to figure out how much speculators may or may not--
manipulation. I will get the term correct here. How much 
manipulation may or may add to the price of natural gas or oil. 
And these Energy Information Administration testified recently, 
I guess it was yesterday, and said they believe supply and 
demand fundamentals, including strong world economic growth 
driving and increasing consumption, moderate non-organization 
of petroleum-exporting countries, OPEC supply growth, OPEC 
members' production decisions, low OPEC spare production 
capacity, tightness in global commercial inventories, worldwide 
refining bottlenecks, and ongoing geopolitical risk, and 
concerns about supply availability have been the main drivers 
of oil price movements over the past several years. Do you 
concur with that statement?
    Mr. Lukken. Well, our staff that look at these markets 
agree that fundamentals are very tight right now in these 
markets. You look at supply, storage, geopolitical risk where 
those production facilities are, demand from India and China. 
There are lots of reasons fundamentally why those markets are 
tight and why prices are high. Having said that, we still make 
sure that controls are in place to look for excessive 
speculation by any individual that tries to take advantage of 
this tightness and move the markets, try to manipulate them.
    That is why we have position limits. That is why we get 
position trader data on a daily, real-time basis from these 
folks, to see if this is occurring. So, yes, the fundamentals 
are tight. We follow speculation closely, and we have controls 
in place to make sure manipulation does not occur.
    Mr. Walden. Let me ask you this, because I believe it was 
Mr. Cota, is that right, who testified earlier, said that we 
were at 5-year highs in supply. Is that accurate, and is it 
that demand is also still exceeding even that 5-year estimate? 
I may have gotten the data wrong. Maybe it is 5-year supply in 
storage.
    Mr. Lukken. I have just been informed by our chief 
surveillance economist that crude oil storage is actually going 
down. I think Mr.--was it Kato?
    Mr. Walden. Cota.
    Mr. Lukken. Cota, I am sorry.
    Mr. Walden. I am sorry. My apologies.
    Mr. Lukken. I should know that. I think he was talking 
about heating oil. But as far as crude oil, storage has been 
going down.
    Mr. Walden. And natural gas? Where are we in terms of the 
supply/demand curve on that?
    Mr. Lukken. We actually have lots of natural gas right now. 
We are at record highs, predictions of a warmer winter, no 
hurricanes activity coming into last year has allowed supplies 
to increase. So, it's a much more comfortable situation on the 
natural gas.
    Mr. Walden. So is the price going down then?
    Mr. Lukken. Prices are at a lower level than historically 
for natural gas.
    Mr. Walden. Do you know what they are at right now in the 
U.S.?
    Mr. Kelliher. Seven-dollar range.
    Mr. Walden. That is still a lot higher than it used to be, 
right? I mean it seemed to me we ran a $2 to $3 natural gas for 
a long time. I mean, I am glad it is down, but I hate to think 
we are cheering at $7.
    Mr. Kelliher. It is lower than what it was before the 
hurricanes. Before Hurricanes Katrina and Rita, natural gas 
prices had climbed significantly, and then they went very high 
after the hurricanes. But they haven't quite retreated to where 
they were a number of months before the hurricanes.
    Mr. Walden. And when do we think that might happen, if 
even?
    Mr. Kelliher. It may not happen.
    Mr. Walden. And the reason for that?
    Mr. Kelliher. North American natural gas supply is no 
longer sufficient to meet North American gas demand.
    Mr. Walden. And what happens if Congress enacts some sort 
of cap and trade system on especially coal? Do you see a shift 
then to natural gas as a replacement source of power for coal? 
I read a story recently that the number of coal plants that 
have been put on hold that were planned to be constructed. Are 
you seeing that trend?
    Mr. Kelliher. We are seeing that as well. Some coal plants 
are still being considered. Some are being approved, but there 
has been very wide scale cancellation of coal plants. And the 
Commission looked at this actually fairly recently, and we have 
looked at under any scenario, any climate change scenario. 
Well, under any climate change scenario, natural gas use will 
go up in the United States. And it----
    Mr. Walden. And that is because the pressure will be to 
reduce coal as a fuel source for electricity?
    Mr. Kelliher. For a number of reasons. First of all, if you 
look at nuclear plants, they have a long lead time, for 
example. Coal plants, some of the technology is not yet 
available. Some of, you know, the sequestration.
    Mr. Walden. Compression.
    Mr. Kelliher. Some of the technologies are not available 
now.
    Mr. Walden. Right.
    Mr. Kelliher. Wind, a lot of the wind potential is tied to 
transmission expansions.
    Mr. Walden. Right.
    Mr. Kelliher. If you want to see wind expansion in this 
country, we need to build a lot more transmission.
    Mr. Walden. Thank you.
    Mr. Kelliher. And transmission has a long lead time. So if 
you add it all up, it really means we are placing a very big 
bet on natural gas prices for the next 10 years, the 
availability of supply as well as the price of supply, and that 
is something that is important to understand as Congress----
    Mr. Walden. And have your economists projected, given us 
some models about what we can anticipate natural gas prices to 
be based on different scenarios of cap-and-trade.
    Mr. Kelliher. We have not. I think there probably are other 
estimates, but we have not estimated that.
    Mr. Walden. OK, I think that is something eventually we are 
going to need, especially if Congress is going to mark up some 
sort of cap and trade climate change legislation, whether it is 
the straight carbon tax like Mr. Dingell, our Chairman, 
proposed at 50 cents per gallon of gasoline, or whether it is 
some other shift.
    And then I think we have to remember--I understand that 
electricity produced from natural gas still emits about two-
thirds the amount of carbon that coal-produced electricity 
emits. So I mean you are reducing a third, but you are really 
shifting the market to a commodity that is in great demand now. 
And its resource is far more limited than coal, correct?
    Mr. Kelliher. Yes, sir, I think that is true.
    Mr. Walden. All right, are you starting to see in the 
market any speculation, the good speculation--I won't go to 
manipulation--but using your terms, to begin to hedge for what 
may happen either globally or nationally when it comes to 
carbon and carbon emissions and some sort of restrictions on 
them?
    Mr. Lukken. Well, I think part of the carbon gets to the 
energy question, which is what you are referring to. And we are 
seeing greater liquidity in out months of exchanges so that 
people are now trading further into the future to hedge that 
risk, which is beneficial for the marketplace. They can lock 
down prices in order to manage their risk.
    We also regulate an exempt market in this space, the 
Chicago Climate Exchange, which is a voluntary exchange 
organization. It gets participants who produce carbon to sign 
up and to trade that carbon on a volunteer contractual basis. 
And certainly that is a working example going forward that 
Congress should study when they are looking at these type of 
cap-and-trade systems.
    Mr. Walden. All right. Thank you, Mr. Chairman. You have 
been most generous with the excess time.
    Mr. Stupak. One more, if I may. Mr. Lukken, CFTC's 
principles include position limits for look-alike contracts on 
ICE, such as natural gas swaps. And that is what was marked up 
today, you said, in the Ag Committee?
    Mr. Lukken. It is product neutral, so whatever the contract 
might be.
    Mr. Stupak. OK, explain the economic rationale for 
including position limits then on financially settled 
contracts. Is that so you don't have excess speculation?
    Mr. Lukken. Well, because they can influence the physical 
contract, they are based somewhat on the price of the physical 
contract, that is why we require accountability limits, I 
think, on the financials actually and position limits on the 
physical contracts in New York. So this would treat these 
contracts comparable to how they are treated on a regulated 
exchange currently.
    Mr. Stupak. OK. Go to tab 16 there in the book there. So we 
talked about ICE, and it is basically a UK trading there. It is 
foreign boards of trade receiving staff no-action letters 
permitting direct access from the U.S. And there is a number of 
them. Like the first one, Montreal. Do they have position 
limits?
    Mr. Lukken. I might have the wrong tab here.
    Mr. Stupak. 16.
    Mr. Lukken. I have the----
    Mr. Stupak. You got the wrong one.
    Mr. Lukken. Report on enforcement. I will double check 
here.
    Mr. Stupak. Hang on. We may have the wrong one for you. We 
will have someone bring it down to you. We will have Kyle bring 
it down to you, Mr. Lukken.
    Mr. Lukken. OK.
    Mr. Stupak. I am not sure you have the right one. We have 
two binders up here, investigative binder and exhibit binder. 
So all these have no-action letters. So I think we pretty much 
established that ICE, probably about the eighth one down, ICE 
Futures Europe, they have--that is UK--they have similar as us.
    But what about the other ones, like Montreal here, Dubai, 
Frankfort, Zurich, Amsterdam, Paris, Leipzig, Hong Kong. You go 
to the next page. You go Sydney, Australia, Singapore, Tokyo, 
Alberta, Mexico City, Barcelona. Do they have position limits?
    Mr. Lukken. I think some do, some don't. This is again, 
these have been issued over a series of over 10 years since 
1996, I think was the first one. Again, we go through a full-
blown analysis by our staff looking at the regulatory regime 
that is requesting this as well as the exchange itself, whether 
it has rules in place to prevent manipulation and look for this 
type of activity. Many of these are conditioned on certain 
authorities that we receive, most recently the FSA document. We 
require them to give us large trader information.
    So we can tailor these to make sure that they are based on 
risk that we are getting the information we need to conduct our 
mandate.
    Mr. Stupak. Well, I started to say that if they are large 
traders and there is no position limits, it opens it up for 
possibly more speculation, correct?
    Mr. Lukken. Well, even though there are no position limits, 
we still see the positions. So we have the ability, if we see a 
large position that concerns us--it may not be a per se 
violation, more than 500 contracts, but if it is above a level 
that may draw concern by our economists, we are willing to call 
these people up, talk to the UK authorities about it. We are 
looking at this. It is just that the position limits, the hard 
limits that some of our exchanges have in place aren't in place 
in the UK.
    Mr. Stupak. Well, how do you set that? How do you determine 
under section 6A that we talked about earlier in the first 
panel, speculation if you don't have the jurisdiction over 
them? You see what I am trying to say? If they have the 
letters, then you really don't have a lot of jurisdiction over 
it. Then how do you know if you get to that excessive 
speculation?
    Mr. Lukken. We do have jurisdiction over these entities. We 
are able to go in and take enforcement action against a U.S. 
trader, performing a manipulation on a different market that 
may affect our markets. That is within the reach of our 
jurisdiction.
    Mr. Stupak. Even on the foreign boards of trade?
    Mr. Lukken. Yes.
    Mr. Stupak. But they have to have some kind of action in 
the U.S., do they not?
    Mr. Lukken. Well, normally that is when our interests 
arise, yes. If there is a U.S. customer trader----
    Mr. Stupak. Or use a computer terminal in United States?
    Mr. Lukken. Well, the computer terminal in this case, I 
mean it is mostly U.S. access so it is U.S. participants. We 
have not been given a situation where it is only a U.S. 
computer terminal.
    Mr. Stupak. So the access of the U.S. would be if it was 
intended to reach the U.S. shores, the product?
    Mr. Lukken. If it had an impact on our markets, we work 
closely with the United Kingdom to try to go after that 
activity.
    Mr. Stupak. Well, I know UK, but I am talking about the 
other ones like Dubai or Singapore.
    Mr. Lukken. We just sent a couple of employees from our 
enforcement staff to Dubai to investigate some dealings there. 
So it certainly is something that we closely correlate with all 
these jurisdictions.
    Mr. Stupak. So any trade, future trade, as long as it has 
some nexus to the United States would be subject to your 
jurisdiction and enforcement?
    Mr. Lukken. I am not sure legally how far we have tested 
this. But certainly if we have a nexus to our markets or U.S. 
customers, we will try to pursue that. And if not, we will work 
closely with our foreign regulatory counterparts to go after 
that activity.
    Mr. Stupak. I was thinking more if this committee wrote 
something that gave you very, very broad nexus, computer 
terminal and intended shipment started for U.S., to give as 
much jurisdiction as we can to have enforcement action to take 
the excessive speculation out of these prices.
    Mr. Lukken. I would be cautious. I mean, you have to 
understand that many of the products traded here in the United 
States, the largest product traded in the United States is the 
Chicago Mercantile Exchange Euro Dollar contract, a product 
that is based on the London, the Libor rate of interest rate. 
Certainly any action that we try to impose--jurisdictional 
authorities over things traded elsewhere, there may be the 
possibility of reciprocal action by foreign authorities 
limiting access to those products.
    Mr. Stupak. Understood. Mr. Walden, anything further?
    Mr. Walden. No.
    Mr. Stupak. With that, let me thank both of you for your 
time and your patience today with us. And thank you for your 
testimony.
    That concludes our questions. I want to thank all of our 
witnesses for coming today and for your testimony. I ask 
unanimous consent that our hearing record remain open for 30 
days for additional questions for the record.
    Without objection the record will remain open. I ask 
unanimous consent that the contents of our document binder be 
entered into the record. Without objection, they will be 
entered.
    That concludes our hearing. This meeting of the 
subcommittee is adjourned.
    [Whereupon, at 2:38 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 

                                 
