[Congressional Record (Bound Edition), Volume 149 (2003), Part 11]
[Senate]
[Pages 14446-14454]
[From the U.S. Government Publishing Office, www.gpo.gov]




                       ENERGY POLICY ACT OF 2003

  The ACTING PRESIDENT pro tempore. Under the previous order, the 
Senate will resume consideration of S. 14, which the clerk will report.
  The legislative clerk read as follows:

       A bill (S. 14) to enhance the energy security of the United 
     States, and for other purposes.

  Pending:

       Feinstein amendment No. 876, to tighten oversight of energy 
     markets.
       Reid amendment No. 877 (to amendment No. 876), to exclude 
     metals from regulatory oversight by the Commodity Futures 
     Trading Commission.

  The ACTING PRESIDENT pro tempore. The Senator from the great State of 
Idaho.
  Mr. CRAIG. Mr. President, we are now resuming debate on S. 14, the 
national energy policy for our country. I have been on the floor 
several times over the last number of weeks as we have debated 
different amendments. Yesterday, there were a couple of critical votes 
as it related to nuclear. We have a derivatives amendment at this time 
by the Senator from California, and I think the Senator from Nevada has 
a second degree on it.
  A fundamental question again emerges, and emerged yesterday at a 
hearing on the Hill, with the statement of our Federal Reserve Chairman 
Alan Greenspan as to the importance of a national energy policy.
  Why is the Chairman of the Federal Reserve, who is interested in the 
prime rate and the management of monetary supply of our country, 
concerned about energy? It is fundamental why he is concerned about 
energy. He is concerned about the economy of our country and its 
strength, stability, and ability to grow and provide jobs for the men 
and women who currently do not have them, and to strengthen and 
stabilize those jobs for the men and women who currently do have jobs.
  What was he talking about yesterday? He was talking about one of the 
primary feed stocks for energy in our country, natural gas; the 
problems that we currently have with the supply of natural gas because 
this country has not effectively explored and developed, for a variety 
of reasons, our natural gas supply.
  In the context of not providing supply, we have provided 
extraordinary demands on the current supply. Under the Clean Air Act, 
to meet those clean air standards, and out in the Western States and 
those air sheds specifically, the only way you can meet those standards 
and bring a new electrical generating plant on line is to choose to use 
gas to fire a turbine, to generate electricity. That is a tremendously 
inefficient way to use the valuable commodity of natural gas, but that 
is exactly what the Federal Government has told our utilities over the 
last two decades: If you are going to bring a new generation on line, 
it will be a gas-fired electrical turbine. Coal has problems; we are 
working on clean coal technology. This legislation embodies trying to 
get us to a cleaner technology to fire the coal electrical generation 
in our country.
  As a result, what are we talking about? What has been said and what 
we believe to be true is that there is now rapidly occurring a major 
shortage in natural gas. As a result, that is not only going to drive 
up the cost to the consumer in his or her individual home--and I will 
read from an article: Another witness, Donald Mason, head of the Ohio 
Public Utilities Commission, predicted that the average residential 
heating bill next winter will be at least $220 higher per household 
than last winter.
  That is a real shock to an economy and to a household and why Alan 
Greenspan is obviously worried that you spread that across a consuming 
nation, and we are talking about hundreds of millions of dollars pulled 
out of the economy to go to the cost of heating when it had not been 
the case before. That was one of the concerns.
  The other concern is the tremendous price hike we are seeing at this 
time and the impact that will have. Gas prices have nearly doubled in 
the past year to about $6.31 per Btu, and there is a 25-percent change 
expected. We expect prices to peak and we have seen one instance, about 
3 months ago, over a 200-percent increase in the price of natural gas 
as a spike in the market.
  S. 14 is legislation to help facilitate the construction of a major 
delivery system out of Alaska. In Alaska at this moment we are pumping 
billions of Btu's of gas back into the ground because we simply cannot 
transport it to the lower 48 States, and we do not want to flare it 
into the atmosphere as has been the approach in the past in gasfields. 
It is too valuable a commodity, and we do not want to do that to the 
environment.
  We have also looked at other opportunities for access. Part of the 
difficulty today is delivery systems and building gas pipelines across 
America. This legislation has provisions to help facilitate more of 
that as it relates to right of way and, of course, the recognition of 
the environmental need and the consequence and appropriate adjustment 
there.
  What Alan Greenspan underlines in his comments, what Donald Mason 
from the Ohio Public Utilities Commission underlines, was what Spence 
Abraham said last Friday when he called for a June 26 meeting of the 
National Petroleum Council to talk about this impending gas shortage 
crisis: Our country needs a national energy policy.
  I hope all of my colleagues rally to that reality. Why should we 
force upon the American consumer a $200- or $300-increase in their 
energy costs next year simply because this Senate and this Congress 
will not do its work or can't do its work? We debated mightily a year 
ago an energy policy. We got it to a conference. The differences were 
too great. Ultimately, we could not arrive at a final product to go to 
our President's desk.
  What Senator Domenici has done as chairman of the Energy and Natural 
Resources Committee is craft a broad-based national energy policy that 
is as much production as it is conservation. It is as much new 
technology as it is

[[Page 14447]]

the advancement and the improving of existing technology. It is truly a 
broad-based national energy policy for our country. More gas? Yes. More 
coal usage? Yes. More wind usage? Yes. More photovoltaic or sunlight 
usage? You bet. The development of new, safe, clean, more effective 
utilization of nuclear? Absolutely. Why shy away from any energy source 
at this moment when we are forcing them on the American consumer and 
the economy of this country is increasing costs in the area of energy?
  Lastly, when we do all of that and we drive up the costs of the job 
itself and the cost of the product produced by that job, we make 
ourselves increasingly less competitive around the world.
  I was out in the Silicon Valley this weekend. I met with 50 CEOs of 
high-technology companies in San Jose. They are interested in a lot of 
issues, but their No. 1 issue is energy and the ability to know that 
when they build a plant in this country, whether it is in California or 
in any other State, they are going to be guaranteed a supply of high-
quality constant energy. The reality is when they do not have it, they 
will shop elsewhere to build that plant. If they can't get quality 
sustainable energy in this country, then they will go elsewhere. That 
means U.S. jobs go to some other country.
  Shame on us as a country for having failed for the last decade to 
produce a national energy policy, and in failing to do so, bringing 
Alan Greenspan to the Hill to talk about an impending energy crisis 
again in domestic supply of gas, and to have a utility commissioner 
talk about a $220-per-year increase in the cost of heating the average 
American home by natural gas.
  Less food on the table, less money in the college trust fund for the 
children--all of those could be the consequence of a home that is 
unemployed, a home that has to choose between staying warm and doing 
other things. In a cold winter, ultimately, they will want to stay warm 
and they will have to pay their heating bill. We should not ask 
Americans to make that choice if it is our failure to produce a 
national energy policy and to produce energy that has caused them to 
have to make that choice. That is the issue.
  I hope the Senate will expedite the passage of S. 14. We have been on 
it now nearly 4 weeks, 3 weeks to be exact. We are being told there are 
hundreds of amendments out there. There are not hundreds of amendments 
on this side of the aisle. There are a few. We ought to ask, and I hope 
we can get by the end of business this week, a finite list and a 
unanimous consent that will bring this issue together so we can say to 
our colleagues and to the American people: The Senate is ultimately 
going to vote on this legislation, help produce a national energy 
policy, get it into conference with the House, and get it on the 
President's desk as soon as we possibly can.
  Not only does the absence of a national policy have a negative impact 
on our economy, the presence of one--this legislation--could have a 
tremendously positive impact. Many have said in the analysis of S. 14, 
there are 500,000 new jobs in this legislation alone. That could be 
more jobs that would be created over the next 10 years by this 
legislation than could be created by the economic stimulus package, 
although we believe that will have a tremendously positive impact.
  That is why we are here in the Chamber debating it. I am frustrated 
by those who say: Oh, no, not now; we can't do this; we can't do that; 
or we have hundreds of amendments; or we are obstructing or dragging 
our feet.
  Let's get a unanimous consent agreement. Let's get Senators to bring 
those amendments to the floor. I am certainly willing to debate them. I 
think we ought to vote on them. The American people ought to sort us 
out and see who is for energy production in this country, who is for 
driving down the projected costs to the average home when it comes to 
their heating bill, who is in favor of creating hundreds of thousands 
of new jobs in clean technology, environmentally sound technology, and 
making this Nation once again self-reliant in the area of energy.
  S. 14 is critical legislation. We ought to be voting on it now. We 
ought not be dragging our feet or, in some instances, obstructing. The 
debate is critical. Senators, bring your amendments to the floor. The 
chairman has pleaded with us time and time again to craft a unanimous 
consent agreement. The Senator from Nevada, the whip for Democrats, has 
worked with us to try to get a unanimous consent agreement. If, on 
Friday, we cannot produce a unanimous consent agreement of the body of 
amendments that will finally be offered and debated on this bill, then 
it begins to look as if somebody is obstructing this process, somebody 
simply does not want it to go forward in an effective way to finalize 
and produce for this country a national energy policy.
  I certainly hope we can get on with the business that the Senate does 
best--get to the floor, debate the issues, offer the amendments, vote 
on them, and ultimately get this legislation to our President's desk so 
our country can once again stand tall and strong in the field of 
energy.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Nevada.
  Mr. REID. Mr. President, I say to the distinguished Senator from 
Idaho, we will, as I indicated to the majority leader today, have a 
list sometime today, a finite list of amendments on our side. I would 
also say the holdup, the slowdown on this bill in the last 24 hours is 
not anything that we on this side have done. Senator Feinstein has 
offered an amendment. That amendment needs to be disposed of before we 
move forward. I hope the majority will make a decision in the near 
future as to what they want to do with that amendment.
  As indicated, I filed an amendment--I am confident my friend from 
Idaho would agree with it--to exempt from her amendment minerals, which 
are such an important part of the American West. They have agreed to 
accept that amendment. Senator Feinstein has agreed to accept the 
amendment--not, I am sure, because she likes the amendment a lot but 
because she realizes what happened when there was a vote on this last 
year.
  I hope that amendment will be accepted, the majority will allow that 
amendment to be accepted, and we can move forward on the Feinstein 
amendment with an up-or-down vote or move to table, whatever they 
decide to do on it, but let's move on.
  Senator Feinstein, for example, has other amendments she wishes to 
offer. She has one dealing with CAFE standards. That was debated last 
time, but I am sure we will have to debate it this time. But we should 
move forward on this legislation.
  I want the record simply to reflect we are not holding up this 
legislation. I have made public statements here, with the full 
knowledge of the Democratic leader, that we are cooperating on this 
Energy bill in the very best way we can. As we know, last year when we 
had this bill up, there were 8 weeks of debate, approximately 125 
amendments, and we had 35 recorded votes. I hope we need not do that 
this time. I hope we can condense things and do it in fewer than 8 
weeks.
  I also said publicly I appreciate very much how Senator Frist has 
handled the bills generally since he has taken the leadership of the 
Senate--not filing cloture immediately. As long as we are cooperating, 
which we are on this, offering substantive amendments, he has been very 
good about allowing debate to go forward.
  We continue, on this measure, to cooperate with the majority. We will 
move forward with this most important legislation. I agree with the 
Senator from Idaho, this country needs an energy policy. I underline, 
underscore this. I didn't hear all his remarks, I was called off the 
floor, but I did hear some of his statements regarding alternative 
energy. The State of Nevada is the Saudi Arabia of geothermal. We are 
waiting for that development. We need certain tax incentives included 
in the tax portion of this bill.
  We would thrive on more solar energy production. That can be done 
with tax incentives that are in the underlying tax part of this bill. 
Of course,

[[Page 14448]]

the Senator from Idaho and I know how much the wind blows in parts of 
Idaho and Nevada, and we should be using that wind to our own benefit. 
It is renewable energy.
  Even though there are certain things in the bill the Senator from New 
Mexico produced that I was not wild about, that is what the process is 
about. Amendments are offered. The Senator from New Mexico had strong 
feelings about the nuclear portions of this legislation. We had a good 
debate on that yesterday and a very close vote. That is what the Senate 
is all about. There are other parts of the bill we are going to try to 
amend. No one at this stage is trying to stall--I should not say no 
one. I am sure some people would love this legislation never to come 
about, but the general belief of the people on this side of the aisle 
is we should have an Energy bill, and we are going to work toward that 
end.
  Mr. CRAIG. Will the Senator yield?
  Mr. REID. I am happy to yield.
  Mr. CRAIG. I appreciate those comments. I think we are all 
frustrated, when we have an issue as mature as this issue is, not to be 
able to define an arena of amendments and get a unanimous consent 
agreement that sets a course of action for us. To me, that is what 
defines progress and ultimate conclusion of what we do on the floor.
  As I said earlier, I welcome all amendments that Senators want to 
have come to the floor. Let's get at the business of debating them and 
voting on them. When I see an hour quorum call because we cannot get 
somebody to come to the floor to offer an amendment--and I know the 
manager of the bill, the chairman of the Energy Committee, has worked 
mightily to get that done--I have to begin to question what is our 
intent here.
  I am extremely pleased that the Senator from Nevada has recognized 
the possibility of getting a unanimous consent with a group. I did 
mention in my remarks that I know the Senator worked to accomplish 
that, and I appreciate that. But in the absence of doing that, it 
appears we are wandering a bit in a wilderness of undefinable 
amendments and no determination as to when we can conclude this 
process.
  It is extremely pleasing to hear we may ultimately get that done 
because this is a critical issue.
  Mr. REID. I will respond to my friend from Idaho. No. 1, we hope to 
have a list of amendments today sometime before the close of business. 
No. 2, as the Senator from Idaho knows, as the Senator from New Mexico 
knows, the lull in the proceedings here is not any fault of the 
minority. We are waiting for the majority to make a decision as to what 
they are going to do on the derivatives amendment filed by the Senator 
from California and the Senator from Illinois.
  We are here to do business. We are simply waiting, until a decision 
is made on derivatives, as to what is the next amendment before us. We 
have lots of people willing to offer amendments on this side.
  The PRESIDING OFFICER (Mr. Graham of South Carolina). The Senator 
from New Mexico.
  Mr. DOMENICI. Mr. President, first I thank the distinguished Senator 
from Idaho for his remarks this morning and for his assistance on this 
bill. I thank him very much.
  This morning I want in particular to thank the distinguished minority 
whip, the Senator from Nevada, for his comments on the floor and his 
commitment. We are working on a list on our side. We will certainly be 
ready at the same time or sooner, which means whether we finish by this 
Friday or not, although we will try mightily once we have the list to 
wean them down and to move with dispatch. Obviously, we will be on a 
course to get an Energy bill this year, which is clearly what we want 
to do. From listening to the minority leader, I have no doubt 
whatsoever that is what the minority desires to do. I thank him very 
much for the comments here this morning.
  As far as the pending amendment is concerned, it is in our hands at 
this point. The Senator from California has her prerogative of not 
wanting to set it aside. We have an obligation to decide what we are 
going to do with it. We ought to do that pretty soon. Our leadership 
will make that decision. It is not directly within the jurisdiction of 
this committee, or I would be making decisions with the leadership. It 
is more within the jurisdiction of the Agriculture Committee, and the 
leadership is taking a look.
  I understand we have a vote this morning on a judge. Is that correct? 
That will give leadership a chance to be here in the Chamber, I say to 
my friend from Nevada, after which time we will make a decision on what 
we want to do with the pending amendment.
  In the meantime, the Senator from New Mexico yields the floor knowing 
there are others who want to speak to this issue. The junior Senator 
from Idaho desires to speak. I will yield at this point so he may 
proceed.
  The PRESIDING OFFICER. The Senator from Idaho.


                           Amendment No. 876

  Mr. CRAPO. Mr. President, I rise to address the Feinstein amendment 
dealing with derivatives. I think it is a very bad idea. It is one we 
debated last year and one which is dangerous to our economy.
  In order to understand, we have to go back 2 years. Several years 
ago, Congress wanted to know exactly how our country should approach 
the regulation of derivatives. As a result of that, and after a few 
years of study and debate in which a precise time was put together to 
evaluate the issue, that team came back with recommendations. Those 
recommendations were enacted by Congress in the Commodity Futures 
Modernization Act of 2000. This landmark legislation provided certainty 
with respect to the legal enforceability and regulatory status of swaps 
and other off-exchange derivatives--what we call over-the-counter 
derivatives--under the Commodity Exchange Act. The Feinstein amendment 
would undermine that certainty for OTC derivatives and would impose a 
new persuasive and unnecessary regulatory regime with respect to OTC 
derivatives based on energy or on other nonfinancial, nonagricultural 
commodities.
  This act gets complicated, but these commodities are called ``exempt 
commodities.'' The term is a little bit confusing because it creates 
the impression sometimes that these commodities are not regulated at 
all. They are covered fully by the Commodity Futures Modernization Act 
and by the Commodity Exchange Act. The point is that they are not 
regulated in the same way that other securities are regulated.
  OTC derivatives, including those based on energy, are critical risk 
management tools. Congress, key financial regulators and others 
recognize that OTC derivatives are critical tools that are used by 
businesses, government, and others to manage the financial, commodity, 
credit and other risks inherent in their core economic activities with 
a degree of efficiency that would not otherwise be possible.
  It is important to state at the outset as we are discussing this 
issue that we are not talking about transactions that many people think 
of in securities where they think about investing in a stock in the 
stock market, a stock that may be regulated under our securities 
regulations system. These are not transactions that are engaged in by 
unsophisticated buyers or sellers. These are very sophisticated 
transactions. Those engaging in these transactions are sophisticated 
buyers and sellers. They are not the kinds of transactions most people 
think of when they think of investing in the stock market.
  OTC derivatives based on energy products are an especially important 
tool, allowing market participants to manage risk. In fact, last year 
when we had Alan Greenspan testify at the Banking Committee, I asked 
him directly about whether he believed the management of derivatives, 
the regulation of derivatives, was being properly handled today and 
whether there was any aspect of our approach to regulating derivatives 
that led to the Enron debacle or any of the other problems California 
faced.
  At that time, the answer I got from Mr. Greenspan was that he was not 
aware of any evidence that indicated

[[Page 14449]]

the problems we faced in the Enron circumstance were as a result of our 
regulatory regime for derivatives, and also that it was his opinion the 
use of derivatives was a very important tool to help to allocate risk 
in our economy in such a manner that it helped us stabilize and 
strengthen our economy.
  In fact, he even went so far as to say he believed that one reason 
our economy had not dipped further as we faced a lot of the economic 
trials and tribulations we have faced in the last couple of years was 
because of our ability to utilize derivatives and to share and allocate 
risk in these complicated transactions.
  Today, for example, airlines use over-the-counter derivatives to 
manage their risks with respect to the price and availability of jet 
fuel. Energy-intensive companies such as aluminum producers use OTC 
derivatives to hedge their risks of change in the cost of electricity, 
and energy producers likewise use OTC derivatives to minimize the 
effects of price volatility.
  Again, I reiterate the point that these are complicated, 
sophisticated transactions being engaged in by very sophisticated 
participants in the market.
  A Wall Street Journal article dated March 10, 2003, entitled ``U.S. 
Airlines Show Disparity in Hedging for Jet-Fuel Costs,'' illustrated 
the impacts of using derivatives to hedge in the U.S. airline industry. 
The article noted that jet fuel, now more than twice as expensive; as a 
year ago, is emerging as a major factor in survival and bankruptcy for 
airlines, as several carriers, including some of the weakest, find 
themselves with few protective price hedges in place.
  In other words, these airlines did not effectively utilize the 
hedging tool, and now they are facing a doubling in the cost of their 
fuel prices against which they could have hedged. They could have 
spread that risk if they had used these hedging tools.
  Congress should avoid actions that unnecessarily deter the use or 
increase the cost of these risk management tools.
  Key financial regulators also oppose legislation such as this 
amendment. As I indicated earlier, Alan Greenspan indicated his 
opposition to increasing or changing the regulatory regime with regard 
to transactions in OTC derivatives. We are expecting anytime today to 
get a brandnew response from all of our financial regulators. But last 
year when this same debate was held, the Chairman of the Board of 
Governors of the Federal Reserve, the Secretary of the Treasury, the 
Chairman of the Securities and Exchange Commission, and the Chairman of 
the Commodity Futures Trading Commission, collectively known as the 
President's Working Group on Financial Markets, opposed the earlier 
versions of the amendment we debated.
  In a September 18, 2002, letter to Senators Crapo and Miller, these 
regulators highlighted the benefits of OTC derivative noting that ``the 
OTC derivatives markets in question have been a major contributor to 
our economy's ability to respond to the stresses and challenges of the 
last two years.'' The President's working group also observed ``while 
the derivatives markets may seem far removed from the interests and 
concerns of consumers, the efficiency gains that these markets have 
fostered are enormously important to the consumers and to our 
economy.'' They urged Congress to protect these markets' contributions 
to the economy and to be aware of the potential unintended consequences 
of legislative proposals to expand regulation of the OTC derivatives 
markets, and changing the President's working group proposals which we 
enacted into law in 2000.
  Federal Reserved Chairman Alan Greenspan told the Senate Banking 
Committee in March of last year that there was:

       a significant downside if we regulate [OTC derivatives 
     based on energy] where we do not have to . . . because if we 
     step in as government regulators, we will remove a 
     considerable amount if the caution that is necessary to allow 
     these markets to evolve. [W]hile it may appear sensible to go 
     in and regulate, all of our experience is that there is a 
     significant downside when you do not allow counterparty 
     surveillance to function in an appropriate manner.

  The CFTC does not need new authority to address acts of manipulation 
that appear to have occurred in California.
  One of the arguments we often hear in favor of jumping in and 
increasing the regulatory scheme with regard to derivatives is that 
Enron destroyed the energy markets in California and if we had had a 
tough regulatory regime, that wouldn't have happened.
  The CFTC's recent enforcement action against Enron demonstrates that 
it has adequate tools under the CFMA to address situations such as 
those, which arose in California. The following enforcement actions 
have been brought forth by the CFTC this year: No. 1, CFTC charges 
Enron with price manipulation, operating an illegal, undesignated 
futures exchange and offering illegal lumber futures contracts through 
its internet trading platform; No. 2, energy trading company agrees to 
pay the CFTC $20 million to settle charges of attempted manipulation 
and false reporting; and No. 3, former natural gas trader charged 
criminally under the Commodity Exchange Act with intentionally 
reporting false natural gas price and volume information to energy 
reporting firms in an attempt to affect prices of natural gas 
contracts.
  The point here is, there is law in place prohibiting the kinds of 
things that happened in the Enron situation, and those laws are being 
enforced with criminal penalties being imposed. The fact they are 
already regulated is apparent. The fact that the acts that occurred in 
California are the subject of intense regulatory review and criminal 
enforcement conduct shows we do have regulatory protections in place. 
The fact there are bad actors who violate the law does not always mean 
we should necessarily increase the regulatory burdens we face in this 
country, that our economy deals with in this country.
  The CFTC's Division of Enforcement continues to work closely with 
other Federal law enforcement officers across the country on 
investigations of possible round-trip trading, false reporting, and 
fraud and manipulation by energy companies, their affiliates, their 
employees, or their agents. Again, the point is, there is no evidence 
that any aspect or lack of aspect in our regulatory regime for the 
regulation of derivatives had anything to do with the actions of Enron 
and the occurrences in California that caused such a difficult problem 
in their energy economy.
  There is no evidence that enactment of the CFMA, for example--the 
2000 reforms, the modernization of our regulatory system--contributed 
to the collapse of Enron. Enron's collapse was caused by a failure of 
corporate governance and controls which, when it became public, led 
others to refuse to do business with them. As in the case of 
California, neither the CFTC nor any other key financial regulators has 
suggested more restrictive regulation of derivatives or derivatives 
dealers would have prevented the fall of Enron or is needed to prevent 
future similar events in the future.
  The Feinstein amendment would cause more problems than it would cure. 
This amendment, among other items, would create jurisdictional 
confusion between the Federal Energy Regulatory Commission and the 
Commodity Futures Trading Commission. It would impose problematic 
capital requirements to facilities trading in the OTC energy 
derivatives markets. It would require futures-like reporting and 
recordkeeping requirements.
  It would create both legal and regulatory uncertainty for brokered 
trading in OTC energy derivatives, as well as OTC derivatives based on 
other nonfinancial, nonagricultural commodities. It would subject to 
new regulation a broad range of market participants that have not 
traditionally been subject to the more intensive CFTC regulation. It 
would allow the CFTC to regulate any exempt commodity transaction and 
presumably any market participant that engages in such a transaction in 
a dealer market. Again, I repeat, these are sophisticated transactions 
between sophisticated actors in these markets. This proposal would 
create the very sort of uncertainty

[[Page 14450]]

that Congress and the Commodity Futures Trading Commission have worked 
for more than a decade to avoid.
  This amendment, in my opinion, is a solution in search of a problem. 
Since the collapse of Enron and the actions of some market participants 
to improperly exploit the weaknesses in the California energy price 
deregulation scheme, remedial actions have occurred on all fronts. The 
CFTC, the FERC, and others have initiated civil and criminal actions. 
The Financial Accounting Standards Board has aggressively pursued 
necessary changes in accounting rules, and private-sector groups have 
developed and implemented ``best practices'' rules and improved the 
techniques of managing credit and other risks in the OTC energy 
derivatives transactions.
  The lessons of Enron and of California have been learned. The 
misdeeds and regulatory violations involving Enron and California have 
challenged regulators under the existing regulatory structure. Law 
enforcement agencies and private litigants are dealing with it under 
the existing regulatory structure. The energy markets are beginning to 
rebound, and they are becoming less volatile, notwithstanding the 
current uncertain economy. As a result and because of all this, the 
Feinstein amendment is little more than a solution in search of a 
problem, but for reasons I have already mentioned, it is a solution 
that is dangerous and unnecessary and will put more rigidity into our 
economy at a time when we need the flexibility and the resilience that 
will make our economy more dynamic in these difficult times.
  Mr. President, there are a lot of other aspects of this debate we 
need to review before we vote on this amendment. I am hopeful by the 
end of the day we are going to be in a position where we can, as a 
Senate, deal with this amendment, as we dealt with it last year, by 
rejecting it and telling our energy derivatives markets, and all of our 
OTC derivatives markets, that the current modernized regulatory 
structure we put into place in 2000, as we follow the President's 
working group recommendations as to how to deal with these issues, will 
be maintained and will not be changed, and they can continue to utilize 
these important financial tools to keep our economy strong and dynamic.
  Mr. President, I yield the remainder of my time.
  The PRESIDING OFFICER. Who seeks recognition?
  Mr. REID. I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. REID. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. REID. Mr. President, what is the matter now before the Senate? Is 
it the Reid amendment to the Feinstein amendment?
  The PRESIDING OFFICER. The Reid amendment is the pending question.


                     Amendment No. 877, As Modified

  Mr. REID. Mr. President, I have a modification to my amendment which 
I send to the desk.
  The PRESIDING OFFICER. The amendment is so modified.
  The amendment (No. 877), as modified, is as follows:
       On page 18, strike line 1 and insert the following:
       ``(10) Metals.--Notwithstanding any other provision of this 
     subsection, an agreement, contract, or transaction in 
     metals--
       ``(A) shall not be subject to this subsection (as amended 
     by section __04 of the Energy Policy Act of 2003); and
       ``(B) shall be subject to this subsection and subsection 
     (h) (as those subsections existed on the day before the date 
     of enactment of the Energy Policy Act of 2003).
       ``(11) No effect on other authority.--

  Mr. REID. I state, Mr. President, I did this with no one from the 
majority being here, but it does not take unanimous consent, so I was 
not trying to take advantage of anyone.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. ENZI. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. ENZI. Mr. President, I rise to address the overlying amendment 
pending before us concerning the issue of energy derivatives. I know 
there is a second-degree amendment to that. I am a little disappointed 
there is a second-degree amendment to it. I understand why it was done. 
I know the Senator from California wants to separate off those people 
who are interested in metals derivatives from those who are interested 
in energy derivatives. She knows there is considerable interest on both 
of those parts. So this is a divide-and-conquer strategy, where later 
they will pick up the metals folks, thinking it will probably work 
better, because we debated this last year. We debated the same issue. 
We are back to an amendment that is slightly revised but still not good 
enough to make it through this body before.
  We voted on this and we defeated this. One significant change is the 
second-degree amendment that takes the metals derivatives out of it. 
That is clever, but I hope the metals folks don't fall for it because 
they are next on the list.
  The proponents of the amendment believe the trading of derivatives--
especially in the energy area--was the cause of energy problems faced 
by Western States in recent years. The proponents believe energy 
trading of derivatives by Enron contributed significantly to the energy 
problem. Unfortunately, the problems that caused Enron to fail were 
based upon failures in corporate governance and outright fraud. 
Chairman Greenspan has testified several times before congressional 
committees that derivatives did not cause the collapse of Enron.
  Last year we debated the same issue and we voted it down. The issue 
of derivatives trading is one of the most complicated and detailed 
issues to come before us. I have been tempted to see how many of us 
could even spell derivatives, and we are being called on here to make 
some major judgments on the issue. If you are a derivatives dealer or a 
small company that uses derivatives to stabilize revenues, or you are a 
purchaser of derivatives, this would probably be a stimulating debate. 
But it is one of those detailed ones, and I think that is why I get to 
speak on it. It is more the accounting type of thing. Consequently, 
most people will not be able to understand the implications or even how 
it operates other than in general details, and I am including myself in 
that.
  I must admit that as chairman of the Securities and Investment 
Subcommittee of the Banking Committee, I have encountered especially 
complex market structure orders. However, the issue of derivatives goes 
beyond those issues. This may have been the most complicated matter I 
have looked at since I have been in the Senate.
  Nobody really knows what a derivative is, including myself. They are 
very complicated, tailored instruments, each one being unique, which 
explains why, from the beginning of the trading of derivatives, it has 
been deregulated. It has never been regulated. In very basic terms, the 
selling of derivatives is a way for companies that cannot afford risk 
to pass it on to companies that are willing to accept the risk, to buy 
the risk. It is a form of corporate insurance. However, beyond this 
simple definition, the experts should be left to structure and 
negotiate the instruments. I want to mention that each instrument is 
unique. That is why it is not traded on the stock market. However, 
beyond this simple definition, we do need to leave it to the 
professionals, the ones who understand how this works. And there are 
professionals out there working on it.
  While the amendment before us is very similar to last year's 
amendment, the changes made to the amendment do not completely solve 
the underlying problems. In fact, the amendment may have cause for 
greater confusion as to the jurisdiction of derivatives between the 
Commodity Futures Trading Commission, the Securities and Exchange

[[Page 14451]]

Commission, the Office of the Comptroller of the Currency, and the 
Federal Energy Regulatory Commission.
  In 2000, during the debate on the Commodity Futures Modernization 
Act, we discussed extensively the oversight and regulation of energy 
derivatives. We concluded that the proper amount of oversight for a new 
and emerging business had been put into law. I believe we took the 
proper course. That law gave the Commodity Futures Trading Commission 
additional powers to regulate market manipulation where appropriate.
  One argument that was made over and over during the debates last year 
and is being made this year is that somehow the 2000 legislation 
exempted these derivatives and swaps from regulation. That argument is 
not true. They never have been regulated. In fact, Congress acted in 
passing the Futures Trading Practice Act in 1992 to give the Commodity 
Futures Trading Commission specific power to exempt these derivatives 
and swaps as being inappropriate for regulation under the Commodity 
Futures Trading Commission, which has the job of regulating futures--
not regulating tailored swaps between sophisticated customers.
  The Congress passed the Futures Trading Practice Act in 1992 that 
directed the Commodity Futures Trading Commission to grant these 
exemptions. Those exemptions were granted in the previous 
administration, and the issue was not controversial until we started 
looking for a scapegoat. Nor have these swaps and derivatives ever come 
under Federal regulation in terms of an ongoing regulatory process.
  Taxpayers take a dislike to the addition of programs to increase tax 
burden or regulation. This one is regulation. I am reminded of a poem 
from the play ``Big River'' that describes the emotions of a taxpayer. 
It goes:

     Well you sole selling no-good
     Son-of-a-shoe-fittin' firestarter
     I ought to tear your no-good
     Perambulatory bone frame
     And nail it to your government walls
     All of you, you Bureaucrats.

  There is a concern across this country for bureaucrats setting up 
regulation, particularly regulation if it is not needed and regulation 
that is not understood by the regulators.
  During his testimony before the Senate Banking Committee last March, 
Chairman Greenspan reiterated it was crucially important that Congress 
and Federal regulators permit the derivatives market to evolve amongst 
professionals who are the most capable of protecting themselves far 
better than Congress, the Federal Reserve, CFTC, or the Office of the 
Comptroller of the Currency. Unfortunately, there is a considerable 
downside for the Federal Government to get involved where the 
individual private parties are already looking at the economic events 
of their trading partners.
  With respect to the Enron matter, there is no indication that the 
trading of energy derivatives contributed in any way to the collapse of 
Enron. Proponents of the amendment argue that Enron had such a large 
market share of this business that they were able to have undue 
influence over energy trading. However, to the contrary, during and 
after Enron's collapse, there were no interruptions of trading. If it 
had been a disaster, there would have been interruptions, but there 
were no interruptions of trading. The market continued.
  One fear that existed in earlier debates, and still exists today, was 
that the CFTC did not have the regulatory power to correct abuses in 
trading of derivatives. However, on page 43 of the Senate companion 
bill, S. 3283, to the Commodity Futures Modernization Act of 2000, 
paragraph (4)(B) gives the Commodity Futures Trading Commission the 
power to intervene and enforce any action where fraud is present.
  In listening to proponents of this amendment, one would believe that 
Federal regulators were powerless in the energy trading markets. Not 
only does the power exist, but it was strengthened in the 2000 
legislation by a provision written into the energy section of the bill 
in the House of Representatives. In paragraph (4)(C) is a provision 
relating to price manipulation and that grants the Commodity Futures 
Trading Commission the power to intervene in cases where price 
manipulation occurs.
  It should be noted that the Commodity Futures Trading Commission on 
April 9 of this year issued a ``Report on Energy Investigations,'' 
which details civil and criminal enforcement actions brought in energy-
related markets since the passage of the Commodity Futures 
Modernization Act in 2000. The powers granted to the Commodity Futures 
Trading Commission appear more than sufficient to oversee market 
manipulation and, therefore, make the unwieldy regulatory scheme 
proposed by this amendment unnecessary.
  I ask unanimous consent that the entire ``Report of the Energy 
Investigations'' be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

        Commodity Futures Trading Commission's Report on Energy 
                     Investigations--April 9, 2003

       The Commodity Futures Trading Commission (the Commission or 
     CFTC) has launched an extensive investigation of alleged 
     misconduct in energy-related markets. To date, the Commission 
     has investigated over 25 energy companies, including Enron 
     and its affiliates, interviewed or taken testimony from over 
     200 individuals and reviewed in excess of 2 million 
     documents. The Commission's efforts have already resulted in: 
     the filing of three major enforcement actions, two of which 
     were settled with civil monetary penalties totaling $25 
     million (see discussion below in Section I); related criminal 
     filings (Section II); cooperative enforcement with Federal 
     law enforcement officers; and public outreach efforts 
     (Section IV).
       The Commission has devoted significant resources to this 
     investigation, including committing the full-time efforts of 
     30 staff members, which represents 25 percent of its total 
     enforcement program staff. Through the first six months of 
     fiscal year 2003, above and beyond its human resource costs, 
     the Commission has spent $122,000 on expenses for its energy 
     investigation, which is 30 percent of its enforcement 
     program's total expenses during this time period. The 
     Commission estimates its total energy investigation costs for 
     the entire fiscal year should likely exceed $250,000.
       Commission Chairman James E. Newsome, who is a member of 
     the President's Corporate Fraud Task Force, remarked in 
     connection with the commission's filing of an action against 
     two energy companies in December 2002: ``My philosophy has 
     been, and will continue to be, that the Commission has a 
     responsibility to investigate alleged wrongdoing in a 
     comprehensive and timely fashion. And, when violations are 
     found, the Commission will come down hard. Over the course of 
     the past year, the news has been peppered with admissions, 
     accusations, and speculation of wrongdoing in the energy 
     markets and, as a result, I have committed the Commission's 
     resources to finding and punishing the wrongdoers. It is my 
     belief that with the filing and simultaneous settling of this 
     enforcement action, the Commission sends a clear message to 
     all companies that engaged in similar behavior . . . a 
     message that their actions will not be tolerated and that 
     they will be prosecuted and subjected to the full 
     consequences of the law.''

          I. Civil Injunctive Actions Filed by the Commission


  A. Enron and Former Enron Vice President Charged With Manipulating 
 Prices in Natural Gas Market; Enron Charged Further With Operating an 
  Illegal, Undesignated Futures Exchange and Offering Illegal Lumber 
        Futures Contracts Through Its Internet Trading Platform

       On March 12, 2003, the Commission filed a complaint in 
     federal district court in Houston, Texas, charging defendants 
     Enron Corp. (Enron), an Oregon Corporation headquartered in 
     Houston, and Hunter S. Shively (Shively) of Houston, Texas, 
     with manipulation or attempted manipulation, and charging 
     Enron with operating an illegal futures exchange, and trading 
     an illegal, off-exchange agricultural futures contract.
       Until its bankruptcy in December 2001, Enron was one of the 
     largest energy companies in the United States. Its natural 
     gas trading unit was based in Houston and managed several 
     natural gas over-the-counter (OTC) products. Enron's natural 
     gas trading unit was divided into geographical regions and 
     included a natural gas futures desk. Shively was the desk 
     manager for Enron's Central Desk from May 1999 through 
     December 2001.
       From November 1999 through at least December 2001, Enron 
     Online (EOL) was Enron's web-based electronic trading 
     platform for wholesale energy, swaps, and other commodities, 
     including the Henry Hub (HH) natural gas next-day spot 
     contract that was delivered at the HH natural gas facility in 
     Louisiana. The HH is the delivery point for the natural gas 
     futures contract traded on the New York Mercantile Exchange 
     (NYMEX),

[[Page 14452]]

     and prices in the HH Spot Market are correlated with the 
     NYMEX natural gas futures contract. During its existence, EOL 
     became a leading platform for natural gas spot and swaps 
     trading.
       The complaint charges that on July 19, 2001, Shively, 
     through EOL, caused Enron to purchase an extraordinarily 
     large amount of HH Spot Market natural gas within a short 
     period of time, causing artificial prices in the HH Spot 
     Market and impacting the correlated NYMEX natural gas futures 
     price.
       The complaint also charges Enron with operating EOL as an 
     illegal futures exchange from September through December 
     2001. According to the complaint, in September 2001, Enron 
     modified EOL to effectively allow outside users to post bids 
     and offers. Enron listed at least three swaps on EOL that 
     were commodity futures contracts. The complaint further 
     alleges that with this modification, Enron was required to 
     register or designate EOL with the CFTC or notify the CFTC 
     that EOL was exempt from registration. Enron failed to do 
     either of these things, and the complaint charges that, 
     because of this failure, EOL operated as an illegal futures 
     exchanged.
       Finally, the complaint charges Enron with offering an 
     illegal agricultural futures contract on EOL. According to 
     the complaint, between at least December 2000 and December 
     2001, Enron offered a product on EOL it called the US 
     Financial Lumber Swap. The complaint alleges that the EOL 
     lumber swap was an agricultural futures contract that was not 
     traded on a designated exchange or otherwise exempt, and 
     therefore was an illegal agricultural futures contract. The 
     CFTC is seeking against each defendant a permanent 
     injunction, civil monetary penalties and other remedial and 
     ancillary relief.


  b. el paso merchant energy, l.p. settles claims under the commodity 
exchange act that it intentionally reported false natural gas price and 
 volume information to energy reporting firms in an attempt to affect 
                    prices of natural gas contracts

       On March 25, 2002, the Commission issued an administrative 
     order settling charges of attempted manipulation and false 
     reporting against energy company El Paso Merchant Energy, 
     L.P. (EPME), a division of El Paso Corporation (El Paso). The 
     CFTC settlement order finds that from at least June 2000 
     through November 2001, EPME reported false natural gas 
     trading information, including price and volume information, 
     and failed to report actual trading information, to certain 
     reporting firms. According to the order, price and volume 
     information is used by the reporting firms in calculating 
     published indexes of natural gas prices for various hubs 
     throughout the United States. The order finds that EPME 
     knowingly submitted false information to the reporting firms 
     in an attempt to skew those indexes for EPME's financial 
     benefit. According to the order, natural gas futures traders 
     refer to the published indexes for price discovery and for 
     assessing price risks. The CFTC found that EPMS's false 
     reporting conduct violated the Commodity Exchange Act (CEA).
       The order also finds that EPME's employees provided false 
     trade data because they believed it benefited their trading 
     positions or derivative contracts. In addition, the order 
     finds that EPME did not maintain required records concerning 
     the information that it provided to the reporting firms or 
     the true source of the information related to those firms, as 
     required by Commission regulations. As a result of its 
     actions, EPME violated the CEA and Commission regulations.
       The order further finds that EPME specifically intended to 
     report false or misleading or knowingly inaccurate market 
     information concerning, among other things, trade prices and 
     volumes, and withheld true market information, in an attempt 
     to manipulate the price of natural gas in interstate 
     commerce, and that EPME's provision of the false reports and 
     failure to report true market information were overt acts 
     that furthered the attempted manipulation. According to the 
     order, EPME's conduct constituted an attempted manipulation 
     under the CEA, which, if successful, could have affected 
     prices of NYMEX natural gas futures contracts.
       The CFTC order imposed the following sanctions: required 
     EPME to cease and desist from further violations of the EA 
     and Regulations; required EPME and El Paso, jointly and 
     severally, to pay a civil monetary penalty of $20 milliion--
     $10 million immediately and $10 million plus post-judgment 
     interest within three years of the entry of the order; and 
     obliged EPME and El Paso to comply with various undertakings, 
     including an undertaking to cooperate with the Commission in 
     this and related matters, including any investigations of 
     matters involving the reporting of natural gas trading 
     information.
       EPME provided significant cooperation in the course of the 
     Commission's investigation by, among other things, conducting 
     an internal investigation through an independent law firm, 
     waiving work product privilege as to the results of that 
     investigation, and compiling and analyzing trading data which 
     detailed all reported and actual trades in the natural gas 
     markets. The Commission took that significant cooperation 
     into consideration in its decision to accept EPME's 
     settlement offer.


c. dynegy marketing & trade and west coast llc settle claims under the 
 commodity exchange act that the intentionally reported false natural 
   gas price and volume information to energy reporting firms in an 
           attempt to affect prices of natural gas contracts

       On December 19, 2002, the Commission issued an 
     administrative order settling charges of attempted 
     manipulation and false reporting against energy companies 
     Dynegy Marketing & Trade (Dynegy) and West Coast Power LLC 
     (West Coast). The CFTC settlement order finds that from at 
     least January 2000 through June 2002, Dynegy and West Coast 
     reported false natural gas trading information, including 
     price and volume information, to certain reporting firms. 
     According to the order, price and volume information is used 
     by the reporting firms in calculating published surveys or 
     indexes (indexes) of natural gas prices for various hubs 
     throughout the United States. The order finds that Dynegy 
     knowingly submitted false information to the reporting firms 
     in an attempt to skew those indexes for Dynegy's financial 
     benefit. According to the order, natural gas futures traders 
     refer to the published indexes for price discovery and for 
     assessing price risks. The CFTC found that Dynegy's false 
     reporting conduct violated the CEA.
       The order further finds that in an effort to ensure that 
     its reported information would be used by the reporting 
     firms, Dynegy caused West Coast to submit information 
     misrepresenting that West Coast was a counterparty to 
     fictitious trades. In addition, the order finds that Dynegy 
     did not maintain required records concerning the information 
     which it provided to the reporting firms or the true source 
     of the information relayed to those firms, as required by 
     Commission Regulations. As a result of their actions, 
     Respondents violated the CEA and Commission Regulations.
       The order further finds that Respondents specifically 
     intended to report false or misleading or knowingly 
     inaccurate market information concerning, among other things, 
     trade prices and volumes, to manipulate the price of natural 
     gas in interstate commerce, and that Respondents' provision 
     of the false reports and their collusion, which was designed 
     to thwart the reporting firms' detection of the false 
     information, were overt acts that furthered the attempted 
     manipulation. According to the order, Respondents' conduct 
     constitutes an attempted manipulation under the CEA, which if 
     successful, could have affected prices of NYMEX natural gas 
     futures contracts.
       The CFTC order imposed the following sanctions: required 
     Dynegy and West Coast to cease and desist from further 
     violations of the CEA and Regulations; required Dynegy and 
     West Coast, jointly and severally, to pay a civil monetary of 
     $5,000,000; and obliged Dynegy and West Coast to comply with 
     their undertakings, including an undertaking to cooperate 
     with the CFTC in this and related matters.

                      II. Related Criminal Actions


  a. enron's former chief energy trader pled guilty to conspiracy to 
        commit wire fraud in scheme to manipulate energy market

       On October 17, 2002 the Office of the United States 
     Attorney for the Northern District of California announced 
     that Timothy N. Belden, who was Enron's Chief Energy Trader, 
     had agreed to plead guilty to conspiracy to commit wire fraud 
     in a scheme with others at Enron to manipulate California's 
     energy market. Specifically, Belden admitted that beginning 
     in approximately 1998, and continuing through 2001, he and 
     others at Enron conspired to manipulate the energy markets in 
     California by: (1) misrepresenting the nature and amount of 
     electricity Enron proposed to supply in the California 
     market, as well as the load it intended to serve; (2) 
     creating false congestion and falsely relieving that 
     congestion on California transmission lines, and otherwise 
     manipulating fees it would receive for relieving congestion; 
     (3) misrepresenting that energy was from out-of-state to 
     avoid federally approved price caps, when in fact, the energy 
     it was selling was from the State of California and had been 
     exported and re-imported; and (4) falsely represented that 
     Enron intended to supply energy and ancillary services it did 
     not in fact have and did not intend to supply. A sentencing 
     date has yet to be scheduled for Belden, but a status hearing 
     in his case is set for April 17, 2003. In announcing the plea 
     agreement, the efforts of the Commission, Federal Energy 
     Regulatory Commission (FERC) and Federal Bureau of 
     Investigation (FBI) were recognized.


  b. former head of enron's short-term california energy trading desk 
pled guilty to criminal charges based upon his and other enron traders' 
         criminal manipulation of the california energy markets

       On February 4, 2003 the Office of the United States 
     Attorney for the Northern District of California announced 
     that Jeffrey S. Richter, who was the head of Enron's Short-
     Term California energy trading desk, had agreed to plead 
     guilty to conspiracy to commit wire fraud in a scheme with 
     others at Enron to manipulate California's energy markets and 
     also to making false statements to investigators. 
     Specifically, Belden admitted to

[[Page 14453]]

     making false statements to the FBI and U.S. Attorneys Office 
     during the continuing investigation into fraudulent trading 
     practices in those markets. Specifically, Richter admitted 
     his participation on behalf of Enron in two fraudulent 
     schemes devised by Enron traders, known internally within 
     Enron as ``Load Shift'' and ``Get Shorty.'' Enron's ``Load 
     Shift'' trading scheme involved the filing of false power 
     schedules to increase prices by creating the appearance of 
     ``congestion'' on California's transmission lines, which 
     permitted Enron to profit through its ownership of 
     transmission rights on the lines and by offering to 
     ``relieve'' the congestion through subsequent schedules. 
     Enron's ``Get Shorty'' trading scheme involved the company's 
     traders fabricated and sold emergency back-up power (known as 
     ancillary services) to the California Independent Service 
     Operator, received payment, then cancelled the schedules and 
     covered their commitments by purchasing through a cheaper 
     market closer to the time of delivery. In announcing the plea 
     agreement, the efforts of the Commission, FERC, FBI, and the 
     Antitrust Division of the Department of Justice were 
     recognized.


   C. Former Dynegy National gas Trader Charged Criminally Under the 
 Commodity Exchange Act With Intentionally Reporting False Natural Gas 
Price and Volume Information to Energy Reporting Firms in an Attempt to 
                 Affect Prices of Natural Gas Contracts

       On January 27, 2003 the Office of the United States 
     Attorney for the Southern District of Texas, Houston 
     Division, unsealed a seven count federal indictment charging 
     Michelle Valencia, a former Senior Trader at Dynegy, with 
     three counts of false reporting under the CEA. Additionally, 
     Valencia was charged with four counts of wire fraud. The 
     indictment alleges that on three separate occasions in 
     November 2000, January 2001 and February 2001, Valencia, 
     responsible for trading natural gas through Dynegy's ``West 
     Desk'' caused the transmission of a report which include 
     price and volume data to certain publications knowing that 
     the trades had not actually occurred. In announcing the 
     indictment, the efforts of the Commission and the FBI were 
     recognized.

   III. Cooperative Enforcement--Commission Seminar With Federal Law 
                 Enforcement Officers on Energy Markets

       On February 12, 2003 the Commission hosted forty federal 
     criminal law enforcement officers at a cooperative 
     enforcement session on current issues in energy 
     investigations. Attending were Assistant United States 
     Attorneys, Federal Bureau of Investigation agents, and United 
     States Postal Inspectors. The Commission's Division of 
     Enforcement, which coordinated the program, has been working 
     closely with other federal law enforcement officers across 
     the country on investigations of possible round-trip trading, 
     false reporting, and fraud and manipulation by energy 
     companies and their affiliates, employees and agents. The 
     meeting was designed to share expertise, and to discuss ways 
     for federal enforcers to cooperate in these inquiries.

                          IV. Public Outreach

       In carrying out its regulatory and enforcement 
     responsibilities under the CEA, the Commission relies upon 
     the public as an important source of information. A 
     questionnaire, available by clicking on the Enron Information 
     link on the CFTC's homepage at www.cftc.gov, has been 
     prepared by the CFTC's Division of Enforcement to assist 
     members of the public in reporting suspicious activities or 
     transactions involving Enron, its subsidiaries, affiliates, 
     or related entities. The Division is also interested in 
     receiving information relating to suspicious activities or 
     transactions that may have affected West coast electricity or 
     natural gas prices, particularly in January 2000 through 
     December 31, 2001. Interested persons can also call the 
     Commission's toll-free voice mailbox and leave relevant 
     information at (866) 616-1783.

  Mr. ENZI. Mr. President, I believe the amendment is overly broad and, 
if adopted, will likely decrease market liquidity because of increased 
legal and transactional uncertainties. Additionally, energy companies 
may be discouraged from using derivatives to hedge price risks, 
resulting in increased volatility in the energy markets. In the end, I 
believe this will hurt the very consumers the legislation seeks to 
help.
  The amendment appears to grant the Federal Energy Regulatory 
Commission primary jurisdiction over energy derivatives, but if the 
Federal Energy Regulatory Commission determines that the derivative or 
financial instrument is not under its jurisdiction, then the Federal 
Energy Regulatory Commission should refer the derivative or financial 
instrument to the appropriate Federal regulator. Unfortunately, this 
will create great uncertainty for market participants as to which 
agency's regulatory scheme the derivative would fall under.
  I recently was involved in some pipeline questions and ran into the 
circular path of fingerpointing where each agency said the other agency 
and the other agency and the other agency was responsible until it 
pointed back to the first agency, and nobody would look at the problem. 
That is the kind of circular problem we are creating with this 
amendment.
  In addition, it goes without saying that Federal agencies want to 
expand their jurisdiction and get bigger. It should be noted that while 
the Federal Energy Regulatory Commission seeks to expand its authority 
to regulate these energy derivatives markets, other Federal agencies, 
particularly the financial regulatory agencies, believe such a 
regulatory scheme would be detrimental to the market.
  The amendment also would subject to regulation a broad class of 
``covered entities,'' including both electronic trading facilities and 
``dealer markets'' that are not otherwise trading facilities. As 
discussed above, this definition may be too broad as to deter 
participants from entering the trading markets.
  In addition, the amendment would permit CFTC to impose notice, 
reporting, price dissemination, recordkeeping, among other 
requirements. Not only would these requirements apply to dealer 
markets, but also to exemption commodity transactions on such an 
entity.
  The secondary amendment that would exempt metals from the proposed 
regulatory scheme of the underlying amendment is not a good idea. 
Congress should be very cautious about carve-outs without fully 
understanding the implications. With regard to metals, Congress may 
start down a slippery slope where this initial carve-out is for the 
metals industry and then move on to other industries. I believe we need 
to explore this in the committees before having it considered on the 
floor. Therefore, I urge Members to resist the free vote without 
knowing all the consequences.
  Letters were recently sent to the Senate Energy Committee by the 
Chicago Board of Trade, the Chicago Mercantile Exchange, and the New 
York Mercantile Exchange opposing legislation introduced this Congress 
that is very similar to the amendment before us.
  Various other groups have been outspoken about this amendment, 
including the National Mining Association, the International Swaps and 
Derivatives Association, and the Bond Market Association, just to name 
a few. In addition, during last year's debate on the Energy bill, the 
President's working group, comprised of the Chairman of the Board of 
Governors of the Federal Reserve, the Secretary of the Department of 
the Treasury, the Chairman of the SEC, the Chairman of the CFTC, 
opposed a similar amendment and we defeated it. Individually, the 
Chairman of the CFTC and the then-Chairman of the SEC sent letters 
directly to me opposing the energy derivative amendment.
  On the overall topic of derivatives, Chairman Greenspan stated:

       Although the benefits and costs of derivatives remain the 
     subject of spirited debate, the performance of the economy 
     and the financial system in recent years suggests that these 
     benefits have materially exceeded the costs.

  If the proponents of this amendment are attempting to remedy the 
problems caused by Enron, I do not believe this amendment will make a 
difference to prevent future Enrons. However, if last year's Sarbanes-
Oxley Act had been in place sooner, then the corporate governance 
requirements of the act may have served as an early warning system to 
Enron's audit committee and have covered the fraudulent activities 
early in the process.
  What I am saying is, we corrected the fraudulent problem. I am very 
concerned that if we adopt this amendment, we may fundamentally change 
the emerging derivatives market. Once the structure is in place, it may 
place such a burden on the market participants that it may not be 
worthwhile to pursue. In addition, the amendment may have caused 
unintentional confusion as to which regulator may or may not oversee 
individual participants or

[[Page 14454]]

components of the marketplace. Before we make any fundamental change, 
we should, at a minimum, try to understand the ramifications first.
  I am afraid this amendment might fit under the congressional precept 
that if it is worth reacting to, it is worth overreacting to, and that 
is something we have to avoid if we want to make sure that the markets 
continue to exist. Like Chairman Greenspan, I believe the derivative 
trading, even in the energy derivative area, has been extremely 
beneficial to our economy and I hope we continue it.
  I request that Members vote against the overlying amendment.
  I ask unanimous consent that a letter from Jack Gerard of NMA be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                  National Mining Association,

                                    Washington, DC, June 11, 2003.
     Hon. Mike Enzi,
     U.S. Senate, Russell Senate Office Building, Washington, DC.
       Dear Senator Enzi: The National Mining Association opposes 
     attempts by Senator Feinstein or Senator Levin to further 
     regulate the derivatives OTC market. Over the Counter 
     derivatives including those based on energy and metals are 
     critical risk management tools.
       We appreciate Senator Reid's positive work to exclude 
     metals from the pending amendment, but continue to oppose the 
     Feinstein or Levin amendments which unnecessarily increases 
     regulation of the OTC energy derivatives.
       Attached are additional talking points generated by us and 
     our partners in the financial community. Thank you for your 
     interest.
           Sincerely,
     Jack Gerard.
                                  ____

     Hon. Bill Frist,
     Majority Leader, U.S. Senate,
     Washington, DC.
     Hon. Tom Daschle,
     Democratic Leader, U.S. Senate,
     Washington, DC.
       The Honorable Bill Frist and the Honorable Tom Daschle: We 
     urge you to oppose any financial derivatives, energy 
     derivatives, metals derivatives and energy trading market 
     provisions contained in S. 509 that may be offered as 
     amendments by Senator Feinstein to H.R. 6, the Energy Policy 
     Act of 2003.
       The provisions of S. 509 (introduced by Senator Feinstein 
     in March and referred to the Senate Agriculture Committee) 
     include, in addition to other problematic provisions, 
     language that would expand FERC jurisdiction, creating 
     uncertainty and unnecessary jurisdictional confusion between 
     the FERC and CFTC for financial and energy derivatives 
     transactions. The amendment also contains specific provisions 
     to expand FERC jurisdiction over ``other financial 
     transactions.'' In addition to creating legal uncertainty 
     within the OTC derivatives markets, this provision would 
     potentially call into question the CFTC's exclusive 
     jurisdiction over futures and options on futures.
       Provisions contained in S. 509 are similar to the Feinstein 
     amendment, which was offered to last year's Senate energy 
     bill. The amendment was defeated in a cloture motion on April 
     10, 2002. In addition, key financial regulators have also 
     opposed these types of provisions. The Chairman of the Board 
     of Governors of the Federal Reserve, the Secretary of the 
     Treasury, the Chairman of the Securities and Exchange 
     Commission and the Chairman of the Commodity Futures Trading 
     Commission, collectively known as the President's Working 
     Group on Financial Markets (PWG), all opposed earlier 
     versions of the proposed legislation.
       We ask that you preserve the legal activity achieved with 
     passage of the Commodity Futures Modernization Act of 2000 
     and oppose any amendments relating to financial derivatives 
     and the energy trading markets.
           Sincerely,
         American Bankers Association, ABA Securities Association, 
           Association for Financial Professionals, The Bond 
           Market Association, Emerging Markets Trade Association, 
           Financial Services Roundtable, The Foreign Exchange 
           Committee, Futures Industry Association, International 
           Swaps and Derivatives Association, Managed Funds 
           Association, National Mining Association, Securities 
           Industry Association.


                        1. what are derivatives?

       The term ``derivatives'' refers to a wide array of 
     privately negotiated over-the-counter (``OTC'') and exchange 
     traded transactions. Over the last decade, OTC derivatives 
     transactions have grown to include not only interest rate and 
     currency swaps, but also interest rate caps, collars and 
     floors, swap options, commodity price swaps, equity swaps, 
     credit derivatives, weather derivatives and other financial 
     derivative products.


                2. what is the over-the-counter market?

       The OTC market is the principals' market whereby business 
     is transacted directly between the buyer and seller. There is 
     no middleman, exchange or clearinghouse involved. The OTC 
     market now sees most of the derivative activity, and dwarfs 
     the exchanges.


                  3. why do companies use derivatives?

       Companies use derivatives to manage risk and enhance profit 
     potential. Derivatives have been around since the 1970s and 
     generally have been regarded as efficient tools that lend 
     stability to business operations. Corporations typically use 
     them to reduce risk from swings in currency values or 
     interest rate movements.


          4. are derivatives important to the mining industry?

       Since 1974, when the Commodity Exchange Act (CEA) was 
     enacted by Congress, derivatives have become very important 
     to the metals mining industry as a method to protect against 
     market volatility. Many of these products did not exist when 
     the Act was first adopted. These derivatives play a key role 
     in the metals hedging programs that gold producers have used 
     in periods of declining gold prices to sell their production 
     forward. Miners of other metals commodities also use 
     derivatives to manage the risk of fluctuating prices. Since 
     their creation, these metals derivatives products have always 
     been sold over-the-counter, mainly because the transactions 
     occur between or among large institutions and high worth 
     companies and the products can be customized for the 
     particular needs of the parties.


         5. how have derivatives benefited market participants?

       The growth of the derivatives market has been of 
     considerable benefit to users individually. In the gold 
     sector, central banks have been able to earn income on gold 
     holdings, while gold fabricators have been able to insulate 
     themselves from the impact of fluctuations in the price of 
     gold on their inventory holdings. Hedging has enabled 
     producers to develop new mines using project finance.


 6. how would a company use derivatives to hedge their mine production?

       A hedging program will typically include a mix of over-the-
     counter derivative products, including ``Forward Sales'' and 
     ``Spot Deferred Contracts.'' For example, in a spot deferred 
     contract a bullion dealer borrows gold from a central bank, 
     and sells it into the spot market at a price of $350 per 
     ounce. The proceeds are placed on deposit and earn interest 
     of 4%. A fee of 1% is paid by the bullion dealer to the 
     central bank. The interest difference of 3.0% is called 
     ``contango.'' The mining company receives the original 
     proceeds from the spot sale ($350) plus the five years of 
     accrued interest ($56) for a total amount of $406 per ounce.

      Talking Points for Feinstein Amendment to Senate Energy Bill

       Senator Feinstein is offering an amendment to the 
     comprehensive energy bill which is now being considered on 
     the Senate floor. This amendment would subject OTC energy 
     derivatives to comprehensive, exchange-type regulation 
     including capital requirements.
       Although Senator Feinstein has made some changes to her 
     original legislation as introduced, these are not significant 
     and do not address the concerns we have raised with you and 
     others.
       The legislation still contains inappropriate layers of 
     regulation, including capital requirements for electronic 
     exchanges that only bring parties together and have no role 
     in any resulting transactions. This amount of regulation 
     sends the business offshore.
       The legislation creates legal uncertainty by giving the 
     CFTC vastly expanded and undefined jurisdiction over all 
     types of commodities transactions, not just futures 
     contracts. The clarity of CFTC jurisdiction, and accompanying 
     legal certainty that transactions will not be deemed illegal 
     and voidable, created by the CFMA enacted in 2000 is 
     destroyed.
       Legal uncertainty is compounded by the fact that FERC now 
     has a role that is supposedly dependent on whether energy is 
     actually delivered. However, the decision whether to deliver 
     energy may be made years after the transaction is entered 
     into, leaving the parties uncertain during the life of the 
     contract which agency has jurisdiction.
       Message: Oppose the Feinstein Amendment. If action needs to 
     be taken, it should be done in a thoughtful, deliberate 
     manner through the Committee process, not as a floor 
     amendment.
  Mr. ENZI. I yield the floor.

                          ____________________