[Congressional Record (Bound Edition), Volume 149 (2003), Part 20]
[Senate]
[Pages 27133-27157]
[From the U.S. Government Publishing Office, www.gpo.gov]




             RURAL UTILITIES SERVICE BROADBAND LOAN PROGRAM

  Mrs. CLINTON. Mr. President, I support the effort spearheaded by my 
colleagues, Senator Burns and Senator Dorgan, and have serious 
objections to the Bush administration's proposal to gut the only 
national program we've ever enacted to get broadband high speed 
Internet connectivity deployed across our country.
  It was just last year that Congress passed, as part of the farm bill, 
the only national broadband deployment incentive I am aware of that has 
been enacted by the Federal Government--a program that was supposed to 
provide over $700 million in loans a year to help get broadband to all 
parts of the country--$700 million in loans a year to help create and 
bring jobs to rural parts of the country--$700 million a year to help 
improve health care and education delivery to places like Upstate New 
York, rural Montana, North Dakota, Alaska, Iowa, and all across the 
country--$700 million a year to help improve emergency communications 
systems so that our first responders can actually receive those calls 
for help.
  From a fiscal perspective, you couldn't ask for a better deal. It 
takes just $20 million in Federal resources to leverage over $700 
million in loans--$700 million in loans plus at least another 20 
percent in investment from the private sector. Has the program been 
popular? You better believe it has. In just 9 months since the Rural 
Utilities Service published regulations for the broadband loan program, 
the RUS has received applications that total over $1 billion. Our rural 
communities across the country recognize the promise of new 
telecommunications technologies.
  Our rural communities and the coalition of Members from Congress that 
helped create the RUS broadband loan program in last year's farm bill 
aren't the only ones who recognize the promise of broadband. Look what 
other countries are doing.
  A recent study by the International Telecommunications Union, the 
UN's telecommunications agency, confirmed what many of us already know. 
South Korea is leading the world in numbers of high-speed Internet 
connections per capita, with Hong Kong and Canada coming in at second 
and third. Where is the U.S. a distant 11th.
  And these other countries are outspending us on broadband 
infrastructure. Sweden has set aside some $800 million on broadband 
deployment in rural areas of the country. France is following suit, 
having announced not long ago its plans to invest $1.5 billion on 
broadband infrastructure over 5 years. In Japan, through the majority 
government owned Nippon Telegraph and Telephone, the country is in the 
middle of a huge fiber-to-the-home project across the country. In 
Korea, the government is laying out some $15 billion to provide an 
optical fiber connection to 84 percent of homes by 2005.
  We are falling behind. I don't know about the rest of my colleagues, 
but I think that's a huge problem. People in upstate New York know it's 
a huge problem. There is little disputing that a nation with ubiquitous 
broadband will be more efficient and productive than a nation without 
it. Just a couple weeks ago, the Wall Street Journal had a story 
titled, What's Slowing Us Down?, with the byline, ``Broadband is seen 
as a critical part of the national economy. Yet the U.S. lags behind 
other countries.''
  The Wall Street Journal piece points out that, ``Rising rates of 
high-speed Internet access are expected to trigger everything from 
increased sales of new computers to a massive rise in worker 
productivity.'' A recent Brookings Institution study found that 
universal broadband access could add $300 billion a year to the U.S. 
economy. Forgoing a major broadband rollout, the Wall Street Journal 
notes, might not only hinder economic growth, but also worsen an 
already bleak picture for battered telecommunications and high-tech 
industries.
  That explains the letter that a host of companies and high-tech 
associations have sent to Senators Bennett and Kohl, the managers on 
this important bill. This letter pleading to restore funding of the RUS 
broadband loan program is signed by 3M, Alcatel, Cisco Systems, 
Corning, Intel, Nortel Networks, Siemens, and so many others who 
recognize the importance of this modest investment.
  But they are not the only ones we're hearing from. I am hearing from 
small carriers across New York who need assistance to get broadband 
deployed to their rural areas--companies like Castle Cable Television 
in Alexandria Bay, NY who want to do the right thing--who recognize the 
potential of broadband to bring jobs and better services to their 
communities.

[[Page 27134]]

  So what is our plan, our national strategy to help ensure broadband 
gets deployed across America? What is our plan to ensure America's 
competitiveness? Well, the administration's plan and the one that's 
come out of committee in the Senate is to crush the one permanent 
broadband deployment program the Federal government has ever enacted.
  I understand that we have replaced $10 million that would leverage 
over $350 million in broadband loans with $10 million in grants. That 
doesn't make any sense. I am not suggesting we not do grants--but it 
doesn't make fiscal sense to saw off $10 million that will leverage 
over $350 million in loans for a simple $10 million in grants.
  And it certainly doesn't make sense to take away the Rural Utilities 
Service's administrative funding and capacity to process and review the 
pending applications. Rural communities across the country, like Alex 
Bay in New York, need these resources to create and attract jobs. And 
our country needs to make these investments if we're to stay ahead of--
or at least competitive with--South Korea, Hong Kong, Japan, and our 
neighbors to the north, Canada, who are making the investments in 
broadband to move ahead.
  I commend my colleagues, Senators Burns and Dorgan, for their 
leadership in helping restore the full funding level for the RUS 
broadband loan program, and I ask the managers of this bill and for the 
administration to join in what should be a national strategy to deploy 
broadband across America.
  Mr. KOHL. I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. ROCKEFELLER. 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. ROCKEFELLER. I ask unanimous consent to speak as if in morning 
business.
  Mr. BENNETT. Mr. President, reserving the right to object, could I 
ask the Senator from West Virginia how long he intends to speak?
  Mr. ROCKEFELLER. I would say 15 to 18 minutes.
  Mr. BENNETT. I have no objection.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. ROCKEFELLER. Mr. President, I thank my distinguished friend and 
colleague.


                        LEAK OF STAFF DRAFT MEMO

  Mr. ROCKEFELLER. There have been statements made on the floor today--
which I was not here to listen to because I was in a Commerce Committee 
meeting--expressing concern, outrage, et cetera, about what is 
happening with the Senate Intelligence Committee's inquiry into the 
prewar Iraqi intelligence. We have heard charges that a draft memo 
taken from the Intelligence Committee spaces and provided to the media 
somehow represents a plan to discredit what the Intelligence Committee 
is doing and to politicize the inquiry. These charges are inaccurate 
and unfortunate. I wish to speak to them as vice chairman of that 
committee.
  I would suggest to my colleagues that there is in fact reason for 
concern today, but it is not because of the content of this draft staff 
memo--a memo which, for the record, was not approved by me, was not 
given to any other member of the Senate Intelligence Committee, nor to 
any other staff person, my own staff on the Intelligence Committee, nor 
to any other member of the Senate, nor anybody else. It was an internal 
draft memo. It happens all the time in the Senate. At some point very 
soon the committee and the Senate are going to have to explore the 
chain of events surrounding this draft memo since it raises serious 
questions about whether the majority is obtaining unauthorized access 
to private internal materials of the minority, and who made the 
decision in this case to leak the draft of an unofficial memo to the 
press.
  It is disturbing that individuals are seeking, perhaps or perhaps 
not, to score political points with a draft paper describing the rights 
of the minority to push for a full and fair review of the issues of the 
committee and that the memo is being so grossly mischaracterized to try 
to deflect attention from the real issue.
  More importantly, the concern this body should feel today is that the 
Intelligence Committee is not conducting a thorough and in-depth 
inquiry into all aspects of the intelligence process leading up to the 
war in Iraq. This body should be disturbed that 5 months after we 
started asking questions, we are still going, in essence, hat in hand 
to the administration to try to get the documents we need to conduct 
this review.
  I most sincerely regret the impression that the draft memo has 
apparently given to some of my Republican colleagues, but it clearly 
reflects staff frustration that the Senate Intelligence Committee's 
investigation has not tackled all of the tough issues, and frustration 
with the difficulties we have had in obtaining information from the 
administration. It should come as no surprise to anyone that there is 
tension on the committee. I have said publicly for months that the 
committee must review not only the accuracy of prewar intelligence on 
weapons of mass destruction and terrorism but also the use or misuse of 
that intelligence by senior policymakers in this administration. This 
is fundamental to answering the questions the American people have 
about how we got into this war. But at every turn, the chairman has 
made it clear that the inquiry will be limited to reviewing the prewar 
intelligence against the low threshold of a standard called 
reasonableness. We have a basic disagreement. These kinds of things 
happen in the Senate.
  I was pleased last week ended with the chairman and myself standing 
side by side, as we should, insisting on the committee's need for 
evidence wherever it might be located. But the information we have 
requested to date is only part of our work. It should be obvious to all 
that our committee still has much to do to assure that our inquiry into 
prewar intelligence about Iraq's weapons of mass destruction and links 
to terrorism fulfills our responsibilities to the Senate and to the 
American public.
  I want to take a minute--it is important for me to do so--to describe 
these responsibilities because I am not sure all of our colleagues 
know. The committee's responsibilities come to us from the Senate. We 
don't make them up. The Senate created the Senate Select Committee on 
Intelligence in 1976. The measure that established it, S. Res. 400 of 
the 95th Congress, remains the Senate's charter to us as a committee. 
It is very specific.
  S. Res. 400 was not a casual measure. It was the product of years of 
interest in improving oversight of intelligence, a major investigation 
chaired by Senator Church, reports of several standing committees, 
about eight or nine, and extensive floor consideration. It is not up to 
the 17 of us who happen now to be on that committee to make up the 
boundaries of our responsibility. They are given to us and written out 
very clearly.
  S. Res. 400 begins by stating its purpose: To create a Senate select 
committee ``to oversee and make continuing studies of the intelligence 
activities and programs of the United States Government.''
  The Senate did not leave the term ``intelligence activities'', the 
object of oversight, to the imagination of generations of members of 
the Intelligence Committee. Instead, the Senate carefully defined the 
term ``intelligence activities'' in section 14 of the resolution to 
include ``the collection, analysis, production, dissemination, or use 
of the information.''
  The five elements of intelligence activity--that is collection, 
analysis, production, dissemination, and use--represent the full cycle 
with which the committee must be concerned. That is our charter. If we 
examine analysis of information without considering the collection of 
it, we fail in our responsibility. If we examine both of them but not 
the production of reports and the dissemination of information, we fail 
in our responsibility. If we stop at dissemination and do not examine 
the use

[[Page 27135]]

of intelligence, we will equally fail in our responsibility. That 
examination is what I have been pushing for and it is what I will 
continue seeking.
  I have heard it said that policy is the responsibility of other 
committees. Of course, other committees have responsibilities relating 
to national security policies. But so do we. Our mandate from the 
Senate is clear. S. Res. 400 also says the information which is subject 
to the committee's oversight includes information relating to foreign 
countries and to ``the defense, the foreign policy, the national 
security, or related policies of the United States.'' It is broad. It 
is thorough.
  We should be committed as a committee to developing a full record. 
The joint letters the chairman and I wrote last week insisting the 
administration provide us with the necessary documents and interviews 
are a step in the right direction which I very much appreciate. But 
there is a lot more to be done. Even if we might disagree about the 
evaluation of evidence, we should put the full weight of the committee 
behind obtaining all the facts our members believe to be necessary for 
a complete inquiry. For me, that means all communications, not just a 
limited list, about Iraqi weapons of mass destruction and terrorism 
intelligence between the Intelligence Committee and policymakers, 
including the White House.
  Without those, our record will not be complete. We cannot assess, for 
example, whether intelligence agencies were pressured to conform to the 
views of policymakers unless we know what policymakers were asking of 
these agencies. This is a key objective of this inquiry, and we are in 
danger of completely missing it.
  Albeit in strong language, what staff suggests in the draft memo--
which, again, nobody on the committee saw and nobody else had seen it 
until it was leaked, and then everybody has it--is that the minority 
work with the majority to get as far as we can in this effort. That was 
our purpose--to work as far as we can and be as successful as we can in 
this effort, and if the majority continued to refuse, then the minority 
should be prepared to point out shortcomings consistent with the rules.
  It is misleading to suggest this possible approach comes as a 
surprise to anyone in this body. I have been clear with the chairman 
for months that there is growing interest among many members of the 
committee in pursuing a separate investigation. It is not a course I 
choose to follow. Many Senate Democrats are on record in support of an 
independent commission. We voted it down the other day. I voted against 
it, but many Members did not; they voted for it. I am on record 
opposing that approach and I continue to oppose it. But, it is an 
option that cannot be ruled out.
  Exploring or asserting the rights of the minority under the 
Intelligence Committee rules in no way amounts to politicizing 
intelligence. A substantive disagreement is not grounds for charges of 
partisan politics; it is a difference of approach, a difference of 
opinion.
  I have worked for months within the committee to try to get these 
critical questions answered. It was not until the committee Democrats, 
in fact, exercised their rights under the rules and forced a meeting in 
June that the committee first discussed the parameters of a review. 
Democrats, some of them, wanted a formal investigation and ultimately 
agreed to the majority's less formal, less structured approach because 
the issue was too important to descend into political bickering.
  In August, I wrote the chairman with a list of 14 areas where I 
thought the committee needed to do more work. I got no response. In 
September, after press reports that the chairman was planning to wrap 
up the interim investigation by the end of September, I wrote again to 
express my belief that we had more work to do and set out a framework 
for how we should approach the task we faced. I got no response. I met 
with the chairman on numerous occasions and got no response.
  Then, 2 weeks ago, after reading press stories from the chairman 
describing a committee report that I had not seen and a deadline I knew 
we could not meet, I sat down with the chairman--again, we are good 
friends, and we will remain that way--to talk about where the inquiry 
was and what was left to do. In that meeting, I provided him with draft 
letters to the different agencies that owed us documents and interviews 
which the committee staff, under the control of the majority, had long 
since asked for, months ago. I cosigned a tough letter, along with the 
chairman, to the head of the Central Intelligence Agency, pressing him 
to provide materials requested by the committee staff--fundamentally 
one which his staff director directs. When I provided the majority with 
a list of nine examples of the use of intelligence we must have to 
understand the interplay between policymakers and the intelligence 
community, I was turned down.
  The fact is that I have approached the majority in every way I know 
how--in private letters, in meetings, in committee meetings, in public 
statements, on the Senate floor, imploring the majority to work 
together with us and imploring the majority to meet the committee's 
fundamental responsibility to investigate the potential misuse of 
intelligence by policymakers leading up to the war in Iraq. My 
entreaties have been to no avail, eliciting either no response or, 
worse yet, public statements by the chairman unilaterally announcing 
that the committee will, in fact, not pursue the critical issue of use.
  The majority has left the Senate minority with two choices: Either 
abandon what we believe is a fundamental obligation in this body to the 
American people as is laid out in the Senate resolution creating us, 
or, reluctantly, part ways and use our rights as a minority to get the 
job done on our own. I prefer not to do that. It is not my nature. I 
prefer not to do that. That calls for members working together and 
calls for following committee rules and following our charter.
  Throughout this difficult situation, I have remained committed to the 
committee's investigation. I have been vocal in my appreciation of the 
absolutely excellent job done to date by the staff on the aspects of 
the investigation they have been asked to perform, which is reviewing 
the prewar Iraqi intelligence. They have done a superb job, absolutely 
superb job.
  I still strongly believe the committee can and should do this job. I 
am confident that, presented with the facts, the American people can 
and will judge this administration fairly. For my part, I have and I 
will continue to support the President when I believe he is right. I 
had the same approach with the previous President, President Clinton. 
When I believed he was wrong, I went after him really hard, on steel 
and other things. But when he was right, I said so. On the other hand, 
I will also challenge and question the President and his administration 
when I think they are in error. That is my duty. I am an elected 
Senator and I represent my people. That is my job as a Senator. It is 
my responsibility as vice chairman of the Senate Intelligence 
Committee.
  I conclude by saying I am also confident that the members of the 
Intelligence Committee can put aside their differences and continue 
with the tough tasks facing members. Maybe it took this to somehow 
embarrass all of us enough to bring us together. I want the result to 
be that we do this together under the Senate resolution. I hope we can 
put this behind us.
  I suggest to the chairman that the full committee meet again this 
week to bring us to a point of consensus. We must pursue this inquiry 
to the end. These are extraordinarily important matters we are 
discussing, not to score political points on either side but because we 
must make sure we fix problems and provide our country with the best 
intelligence possible. That is our job.
  I yield the floor.
  Mr. BENNETT. Mr. President, we are back on the bill. I see some 
Senators have come to the floor and I ask those who are here if they 
intend to offer amendments.
  Mr. DORGAN. Mr. President, in response to the Senator from Utah, it 
is

[[Page 27136]]

my intention to offer an amendment. I would like to speak about a 
subject that is going to prompt the amendment and then discuss with my 
colleague, Senator Burns from Montana, who will be joining me with an 
amendment. There are several ways we might offer this amendment. I 
would like to have a discussion with Senator Burns and also with 
Senator Kohl and Senator Bennett about the specific amendment because 
my hope is we can work things out as this bill is on the floor.
  It is my intention to offer an amendment with my colleague, Senator 
Burns from Montana. I would like to speak about it, and he would 
probably want to speak as well.
  Mr. REID. Mr. President, if I may respond, the Senator from 
California is here. In fact, she left a very important conference 
committee to come here because she feels strongly about her amendment. 
She has an amendment to offer and she is not in a position to agree to 
any time. She will probably take an hour, an hour and a half. So it 
will be the first lengthy amendment on this bill.
  Mr. BENNETT. I understand the Senator from California had the desire 
to offer her amendment, and I encouraged her to come to the floor to do 
so. Now she has come.
  I ask the Senator from North Dakota how long he might want to take 
because I want to accommodate the Senator from California. I say that 
as if I control the time, which I clearly do not, but the Senator from 
Nevada has suggested the Senator from California be allowed to offer 
her amendment and I want to be as accommodating as I can be to all 
Senators.
  Mr. DORGAN. Might I inquire of the Senator from Utah? First of all, I 
would like to speak for perhaps 5 to 7 minutes initially. I guess the 
Senator from Montana may want to speak for a very short time. Following 
the presentation by Senator Feinstein and perhaps after a meeting I 
will attend, I will speak at greater length, if I could be recognized--
I would be very brief--in order to describe to the Senator from 
Wisconsin and the Senator from Utah what Senator Burns and I want to 
try to achieve this afternoon on this piece of legislation.
  I think we can introduce that very shortly and then perhaps discuss 
it at greater length at a later time.
  Mr. BURNS. If the Senator from North Dakota will yield.
  Mr. DORGAN. I yield.
  Mr. BURNS. It is a good idea to give us time to work it out to the 
agreement of both sides. This can be done. We are going to have to 
offset it. We would work with the chairman and the ranking member.
  I don't need any time prior to Senator Feinstein speaking. We can do 
that after because she has come, with all good intentions, to offer her 
amendment, and I think she should be allowed to do so.
  The PRESIDING OFFICER. The Senator from Utah.
  Mr. BENNETT. In that case, Mr. President, I ask unanimous consent 
that the Senator from North Dakota be recognized for 7 minutes and, 
further, that he be followed by the Senator from California.
  The PRESIDING OFFICER. Is there objection?
  Without objection, it is so ordered.
  The Senator is recognized for 7 minutes.
  Mr. DORGAN. Mr. President, as I said, I will speak about this at 
greater length this afternoon, but I did want to advance the topic 
Senator Conrad Burns and I wish to advance, an amendment on this bill 
dealing with something called the Broadband Loan Program.
  Let me describe what that is. Let me describe it by telling you I was 
recently in my hometown, a town of fewer than 300 people, in 
southwestern North Dakota. I visited a home there. I stopped by to say 
hello, and there was a woman in that home who had a little device on 
her counter. It looked different to me. It had a camera mounted on it. 
It was no bigger than a shoe box. She had a bracelet hanging on a 
little round projectile on it.
  I said: Well, what are you doing there? She said: I am taking a 
picture of this bracelet. I said: Why are you doing that? She said: I 
sell on eBay.
  Here in my hometown is a woman who sells on eBay, and she takes a 
picture of those products and puts them on her computer. She told me 
she has been supplementing her income by doing business on eBay.
  It describes the need, even in a town of 300 people, for computer 
access, the need for broadband, the need for the big pipes in which you 
can do business on the Internet in a way that does not take you a day 
to download something others are downloading in 5 minutes.
  So the question of the building out of broadband to rural communities 
all across this country, including rural areas especially, is a very 
important question. Because if you do not build out broadband 
capability, then what happens is you leave some parts of the country 
behind. You have an Internet divide. You have people on the right side 
of it and you have people on the wrong side. The people on the wrong 
side will never have any economic development opportunities because 
when you talk to somebody about building a business in this town, they 
will ask: Do you have the capability to connect us by computer with 
some reasonable speed? When you say: No, we don't, they will say: Well, 
so long. We're going elsewhere. That is why this is so important.
  Let me describe quickly what we did. In the farm bill, a group of 
us--Senator Burns, myself, and others--included a provision that deals 
with a broadband loan program. It is the first and the only program in 
this country designed to spur the development of the buildout of 
broadband capability to rural areas. It was scheduled to use $100 
million in direct spending to subsidize $3.5 billion of loans over the 
6 years of the farm bill.
  Pursuant to that, RUS, down at the Department of Agriculture, put 
together the first 2 years $40 million, and they announced they would 
make $1.4 billion in loans available. As a result of that, they set a 
July 31 deadline. They received $1 billion in loan applications because 
we have people with interests and businesses really interested in 
building out this broadband capability to rural areas, very much like 
the old REA program.
  Prior to REA, there was no electricity on America's farms. They were 
dark. When the Sun went down, you could not plug into anything because 
no one built electricity infrastructure out to America's farms. We 
created the Rural Electrification Act, and all of a sudden America's 
farms got electricity. It created dramatic explosions in productivity 
on America's farms. That is what this is about: the buildout of the 
infrastructure for broadband to our small rural communities and to our 
farms.
  So what happened was the USDA put together this program. The loans 
were requested. We have applications for loans. They came in by July 
31. What happened, however, is the language that is included now in 
this appropriations bill eliminates the broadband section of the farm 
bill--it eliminates it--and in its place puts a $9.1 billion 
appropriation, which is less than half the amount that should have been 
available this year.
  If we move down this road, it appears to us the money that has been 
applied for, for loans will not be at this point continued. They will 
have to start over. You will have half the money. There is no assurance 
the additional money will be available in future years because this 
will be an appropriated amount rather than being in the farm bill which 
authorized this for 6 years.
  This is very important. This is about the haves and have-nots in this 
country with respect to access to the Internet and with respect to 
broadband capability. If we decide that access to the Internet, with 
pipes that are of reasonable circumference so you get some decent 
speed, does not matter to rural areas, we will have, in my judgment, 
economic development only in areas of the country where we have 
broadband, and small towns and rural areas are going to be told: So 
long, Charlie. Just tough luck. You are not going to be developed 
because we have a digital divide, and we support that digital divide. 
That is a terrible message to come from the Congress.

[[Page 27137]]

  What I would like to do, with my colleague, Senator Burns, is to work 
with Senator Bennett and Senator Kohl to try to deal with this problem 
that is created in the appropriations bill. We have two problems. One 
is a language problem. We need to restore the language that existed in 
the farm bill that calls for this Broadband Loan Program. We should not 
kick that out in this appropriations bill, No. 1.
  No. 2, we should restore the funding that was there that was promised 
and upon which applicants now have applied for $1 billion in investment 
funds to build out broadband capability to rural areas of the country.
  I know rural areas are sometimes looked at as kind of the ``back 
40.'' Well, it is not the ``back 40.'' It is a wonderful part of this 
country. It is small towns and good families trying to make a living, 
often in circumstances where they are losing population. These are 
places with strong schools, places in which you can raise kids without 
worrying about their safety, with good neighbors, good places to be. 
But if we decide, as a country, in the age of information technology 
and information revolution, that only the big cities are going to have 
the aggressive, robust buildout of broadband, then we are consigning 
rural America to a pretty desperate struggle for their future. That is 
not what we want. That is not what Congress decided.
  Congress already made this judgment when it passed the farm bill. It 
said: Rural America matters as well. Small towns matter, too. That is 
what the Congress decided. As a result of that decision, it made a 
specific, deliberate investment to say we are going to fund, through 
loans, and we are going to encourage, through loans, the buildout of 
broadband infrastructure to help small towns and family farms in this 
country.
  That promise was well underway, and now what has happened is, in this 
bill, we have a problem that derails it. We want to fix it. I want to 
work with my colleagues, Senator Bennett and Senator Kohl, to do that. 
I will return this afternoon to see if we can do that.
  I yield the floor.
  The PRESIDING OFFICER (Mr. Cornyn). The Senator's time has expired.
  The Senator from California is recognized.
  Mrs. FEINSTEIN. Thank you very much, Mr. President.


                           Amendment No. 2083

         (Purpose: To improve the operation of energy markets)

  Mrs. FEINSTEIN. On behalf of Senators Lugar, Levin, Harkin, Cantwell, 
Boxer, Leahy, Wyden, Durbin, and Hollings, I send an amendment to the 
desk.
  The PRESIDING OFFICER. Without objection, the pending amendment is 
set aside. The clerk will report.
  The bill clerk read as follows:

       The Senator from California [Mrs. Feinstein], for herself, 
     Mr. Lugar, Mr. Levin, Mr. Harkin, Ms. Cantwell, Mrs. Boxer, 
     Mr. Leahy, Mr. Wyden, Mr. Durbin, and Mr. Hollings, proposes 
     an amendment numbered 2083.

  Mrs. FEINSTEIN. I ask unanimous consent that reading of the amendment 
be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (The amendment is printed in today's Record under ``Text of 
Amendments.'')
  Mrs. FEINSTEIN. Mr. President, this amendment has to do with 
providing some regulatory oversight over energy trading. It has to do 
with closing the Enron loophole. It has to do with providing 
transparency. Energy trades today are not subject to the 2000-passed 
Commodity Modernization Act. Rather, these energy trades take place 
electronically, take place in secret, without transparency, with no 
records kept, with no audit trail available, and with no regulatory 
oversight to prevent fraud and manipulation in energy trading.
  I would like, first of all, from the Derivatives Study Center, to 
indicate and read a couple of paragraphs from the letter they have 
sent, which I think defines the issue very well.
  I quote:

       This regulatory assistance comes at a critical time. 
     According to the Federal Energy Regulatory Commission's 
     Director of the Office of Market Oversight, ``energy markets 
     are in severe financial distress.'' Along with the decline in 
     credit quality in these markets, the loss of confidence and 
     trust has led to a ruin in the liquidity and depth of these 
     markets. This legislation will go a long way to address this 
     problem.

  Then he defines what derivatives are. This is important for Members 
to know. It is complicated. We went through this once before. I would 
like to give you this definition because it is a good one:

       Derivatives are highly leveraged financial transactions, 
     allowing investors to potentially take a large position in 
     the market without committing an equivalent amount of 
     capital. Moreover, derivatives traded in over-the-counter 
     markets are devoid of the transparency that characterizes 
     exchange-traded derivatives, such as futures, and this lack 
     of transparency introduces a greater potential for abuse 
     through fraud and manipulation.

  That is exactly what happened. He goes on to say:

       Derivatives are often combined into highly complex, 
     structured transactions that are difficult, even for the 
     seasoned securities trader and finance professionals, to 
     understand and price in the market. Enron used such over-the-
     counter derivatives extensively in order to hide the nature 
     of their activities from investors. The failure of Enron and 
     the demise of other energy derivatives dealers has had a 
     devastating impact on the level of trust in energy markets.

  That is a good definition of what we are trying to do, why we are 
trying to do it, and what we are trying to involve.
  Now I would like to read into the Record a portion of a letter from 
Eliot Spitzer. Mr. Spitzer is the attorney general of the State of New 
York. That is the place where many of these cases are now coming to 
trial.
  He says:

       I firmly support your efforts to make energy markets 
     competitive and protect those markets from fraud and 
     manipulation. The bill sponsored by Senators Feinstein, 
     Levin, and Lugar, and under consideration as an amendment to 
     the proposed 2004 agricultural appropriations bill, is a 
     major step toward both goals.

  He goes on to say:

       The amendment makes a major contribution to competitive 
     energy markets by initiating an electronic information system 
     to be operated through the Federal Energy Regulatory 
     Commission. This system will provide open access to 
     comprehensive, timely, and reliable wholesale electricity and 
     transmission, price and supply data, greatly expanding the 
     choices of both buyers and sellers. In addition, the 
     reliability of market information would be markedly improved 
     by the amendment's general prohibition on manipulation of the 
     purchase or sale of electricity or the transmission services 
     needed to deliver electricity, and by specific prohibition of 
     the round-trip trading manipulation used so effectively to 
     inflate electricity prices to the public's injury.

  This is a letter from the attorney general of the State of New York. 
As such, it places an imprimatur of correctness, of need, and of value 
on the amendment that we introduce today.
  Now, what is in that amendment? Specifically, the amendment would 
improve price transparency in wholesale electricity markets. The 
amendment directs the Federal Energy Regulatory Commission to do just 
what Mr. Spitzer said it would do: to establish an electronic system to 
provide information about the price and availability of wholesale 
electricity to buyers, to sellers, and to the public. This provision is 
actually similar to the transparency provision offered by my colleague 
from New Mexico, Senator Domenici, in the Energy bill.
  Secondly, this legislation would prohibit round-trip electricity 
trades. What is a round-trip trade? It is the simultaneous buying and 
selling of the same quantity of electricity at the same price, in the 
same location, with no financial gain or loss. In other words, no 
commodity ever changes hands. Again, this is similar to a provision 
that Senator Domenici offered during consideration of the Energy bill. 
Round-trip or wash trades are bogus trades. No electricity changes 
hands but the profits from the trades enrich the bottom line of a 
company's financial report.
  In fact, I think we had one company--I believe it was CMS--say that 
80 percent of their balance sheet in a given year was from bogus 
trades. And there is nothing we can do about it? Does anyone believe 
that is right? I think not. I don't think the American

[[Page 27138]]

people do, and that is one of the reasons these markets are so 
decimated.
  Next we would increase penalties for violations of the Federal Power 
Act and the Natural Gas Act. Maximum fines for violations of the 
Federal Power Act would be increased from $5,000--that is nothing to a 
big company--to $1 million. And maximum sentences are increased from 2 
to 5 years. Remember, these rip-offs were tremendous. Just look at the 
people plea-bargaining from Enron, look at what they did, look at the 
amounts of money they fraudulently compromised.
  This language is identical to section 209 of the Senate-passed Energy 
bill. Current fines are extraordinarily low and, therefore, provide no 
deterrence to illegal activity.
  We also amend the Natural Gas Act to do essentially the same thing. 
Senator Domenici, in his substitute electricity title to the Energy 
bill, increased the fines in the Gas Act but he did not do so in the 
Federal Power Act. We would do both in this amendment.
  Next the amendment would prohibit manipulation in electricity 
markets. Manipulation is prohibited in the wholesale electricity 
markets, and FERC is given discretionary authority to revoke market-
based rates for violators.
  Strangely enough, manipulation of energy markets is not prohibited in 
current law. Can you believe that? Manipulation of energy markets is 
not prohibited in current law. This would add language to part 2 of the 
Federal Power Act to do just that.
  Most importantly, this bill would repeal the Enron exemption and 
allow the Commodities Futures Trading Commission, which has oversight 
over virtually all other trading, to monitor the over-the-counter 
energy market.
  This would repeal what happened in 2000 when Enron pushed the 
Commodities Futures Modernization Act exemption for large traders in 
energy commodities. And it would apply antimanipulation and antifraud 
provisions of the Commodities Exchange Act to all over-the-counter 
trades in energy commodities and derivatives.
  In my view, when Congress exempted energy from the Commodities 
Futures Modernization Act of 2000, it created the playing field for the 
western energy crisis of 2000 and 2001. The western energy crisis cost 
millions of people millions of dollars in my home State of California. 
So this is a charge I am making. When this Congress permitted the Enron 
loophole to exist in the Commodities Modernization Act, they created 
the loophole for the playing field that Enron and others used to 
manipulate the western energy markets.
  Next, our bill would provide the Commodity Futures Trading Commission 
the tools to monitor over-the-counter energy markets. Over-the-counter 
energy trade in energy commodities and derivatives performs a 
significant price discovery function, including trade on electronic 
trading facilities. Our amendment requires large, sophisticated traders 
to keep records and report large trades to the Commodity Futures 
Trading Commission. This doesn't change the law. It only applies the 
law that exists for futures contracts to over-the-counter trades in 
energy markets.
  We would limit the use of data. This requires the CFTC to seek the 
information that is necessary for the limited purpose of detecting and 
preventing manipulations in the futures and over-the-counter markets 
for energy, to keep proprietary business data confidential, except when 
used for law enforcement purposes. This does not require the real-time 
publication of proprietary data. It does not.
  This would have no effect on nonenergy commodities or derivatives. 
The amendment would not alter or affect the regulation of futures 
markets, financial derivatives, or metals. We have specifically stated 
on page 20 the following:

       The amendments by this title have no effect on the 
     regulation of excluded commodities under the Commodity 
     Exchange Act.

  In addition, we state:

       The amendments made by this title have no effect on the 
     regulation of metals under the Commodity Exchange Act.

  Mr. President, my colleagues may be asking themselves why I continue 
to press this cause. Here I note that Senator Levin has come to the 
floor. I want the Senate to know how helpful the Senator from Michigan 
has been in working on this complicated issue. He has spent hours and 
hours of his time. His staff has worked with my staff in evolving this 
measure. We have carefully vetted it. I believe we really know what we 
are doing here.
  The energy crisis in the West demonstrated that, without Federal 
oversight, a business becomes solely concerned with its bottom line and 
not with any sense of ethical behavior; and arrests and convictions to 
date have clearly documented this to be the case.
  Californians are still paying the price of this unethical behavior. I 
make the point that we are not talking about one bad player in the 
California market. This goes way beyond Enron. It extends to others as 
well--to Reliant, Dynegy, Williams, AEP, CMS, El Paso Merchant Energy, 
Duke, Mirant, Coral, Sempra Energy Trading--unfortunately, in my own 
State--Aquila, the City of Redding, Morgan Stanley Capital Group, 
Pacificorps, and to the Puget Sound Energy.
  We believe California was duped out of $9 billion. The Federal Energy 
Regulatory Commission has illustrated its inability to refund 
California the money it is owed by recently recommending settlements 
that in no way, shape, or form reflect the damage that was caused to 
both consumers and the economy of the largest State in the Union. In 
fact, FERC settled with Reliant on August 29, allowed them not to admit 
wrongdoing, and fined them $836,000. That was $836,000 for rules of 
conduct that cost the State $13 million--hardly fair.
  This disproportionately low fine gives credibility to the fact that 
the price one would have to pay in penalties, if caught manipulating 
the market, is worth the risk since the benefits of not getting caught 
far outweigh any penalty that may be levied upon a company.
  I think it is pretty clear that this disproportionately low fine 
gives credibility to the fact that the price one would have to pay in 
penalties, if caught manipulating in the market today, is worth the 
risk. There is no deterrence, since the benefits of not getting caught 
far outweigh any penalties that may be levied on a company. That is 
what we are trying to change.
  If I left any doubt in my colleagues' minds about the widespread 
manipulation that took place during the western energy crisis, let me 
point out some recent examples of a case that was brought by the 
Securities and Exchange Commission against David Delaney, a former 
chief executive with two of the most prominent divisions of Enron.
  On October 30, 2002, Delaney pled guilty to insider trading. The SEC 
brought charges against him for selling millions of dollars in Enron 
stock at a time he knew it was being manipulated. While these charges 
appear to be financial in nature, the underlying facts of the case were 
that Enron was engaged in manipulative business practices, especially 
in California.
  In March of 2003, the FERC staff report on price manipulation in 
western markets: Investigators said they suspected Enron was using 
price information obtained in regulated deals to manipulate trades in 
unregulated energy derivative markets.
  In one instance, Enron manipulated the price of physical gas, upward, 
then downward. Although the price change in the physical markets was 
only 10 cents per million Btus, Enron profited due to the effect that 
this small change in the physical price had on its large financial 
position. Enron earned more than $3 million in the unregulated over-
the-counter markets, while losing only $86,000 on the physical sale of 
natural gas.
  I think it is important to note that the FERC report also states:

       Enron's corporate culture fostered a disregard for the 
     American energy customer. The success of the company's 
     trading strategies, while temporary, demonstrates the need 
     for explicit prohibitions on harmful and fraudulent market 
     behavior and for aggressive market monitoring and 
     enforcement.


[[Page 27139]]


  That is what we are trying to provide in this amendment. That is what 
FERC says is missing.
  Our amendment would provide greater oversight over these markets so 
that fraudulent and manipulative behavior could be prevented. It would 
increase the penalties if, in fact, a company engaged in fraudulent or 
manipulative behavior, and it would outlaw all types of manipulation 
including round-trip trading, wash trades, false reporting, churning, 
and deliberately withholding generation. All of the Enron trading 
strategies, such as Ricochet, Death Star, Get Shorty, Fat Boy, Non-Firm 
Export, Load Shift, Wheel Out, Black Widow, Red Congo, and Cuddly Bear: 
these are euphemisms for fraud and manipulation and our amendment would 
cover them all.
  It is not clear to me why energy derivatives are not regulated while 
the Federal Government oversees some physical energy transactions. In 
other words, if I buy natural gas, and it is delivered to me, then that 
transaction is overseen by FERC, which has the authority to ensure that 
this transaction is both transparent and reasonably priced.
  But a giant loophole is opened where there is no Government 
oversight, when transactions are carried out in electronic exchanges. 
As a result, if I sell natural gas to you, and you sell it to someone 
else who sells it to another person who then sells it again, none of 
these transactions are covered by FERC or the CFTC. Because of that, 
what we saw in the western energy crisis is that this particular 
loophole allowed energy companies to manipulate prices and to escape 
any investigation or prosecution by any regulatory agency.
  Our amendment will close the loophole, as Senator Levin said, created 
in 2000 when Congress passed the Commodities Futures Modernization Act.
  The loophole exempted energy trading from regulatory oversight, and 
it excluded it completely if the trade was done electronically. At the 
time, Enron was the main force behind getting this exemption in this 
act. By closing this loophole, the amendment will prohibit fraud and 
price manipulation in all over-the-counter energy commodity 
transactions and provide the CFTC the authority it needs to investigate 
and prosecute allegations of fraud and manipulation.
  Opponents of this amendment have questioned why we need to explicitly 
give the CFTC this authority. The answer is we need to give the 
Commodities Futures Trading Commission this authority because we 
learned during the western energy crisis that there was, in fact, 
pervasive manipulation and fraud in energy markets, and that FERC and 
the CFTC were either unable or unwilling to use the authority they had 
to intervene. I think Mr. Delaney's plea bargain is eloquent testimony 
to that.
  We need to give the CFTC this authority because we need regulators to 
protect consumers and make sure they are not taken advantage of. We 
need to give the CFTC this authority because, when there are inadequate 
regulations, consumers are ripped off. Let me be clear. Our amendment 
will provide the same protections to consumers in energy markets as 
these same consumers have in all other commodity markets such as the 
New York Merchantile Exchange or the Chicago Merchantile Exchange. Our 
amendment does not provide more regulation or greater oversight than 
what currently exists for other commodity markets, merely the same 
protections: Protections which are currently lacking.
  In fact, in an effort to avoid onerous or complicated requirements, 
Senator Levin, Senator Lugar, and I have worked together to make sure 
the recordkeeping and reporting requirements are very clear. Our 
amendment only requires traders to keep records of over-the-counter 
trades in energy commodities and derivatives that perform a significant 
price discovery function. In other words, these are the trades that 
affect the pricing for everyone. These are the big trades, and these 
are the trades where there needs to be transparency because they affect 
the market.
  If I am a large company and I sell you 1,000 decatherms of natural 
gas in a typical transaction on the spot market, this is a price 
discovery transaction because the prices of these transactions are 
usually covered and reported by the press and will affect prices of 
subsequent transactions. Trades on electronic markets serve, by their 
very nature, as price discovery functions. They should be available for 
everyone to see because they will very likely influence what price the 
next trader will buy or sell at in an open and transparent fashion.
  Our amendment would require traders to keep records of their trades 
and to maintain an audit trail. This requirement would simply regulate 
energy trading in the same way other finite commodities are handled. 
Why should pork bellies or frozen concentrated orange juice have more 
protection for consumers than electricity?
  There is nothing in this amendment that should be burdensome for 
traders in any way. I would think responsible traders would already be 
keeping records and maintaining an audit trail for their own protection 
in this world. In fact, the amendment only allows the CFTC to seek 
information to investigate allegations of wrongdoing.
  We have worked for almost 3 years to craft this provision. It has had 
hearings in the committee. It has been discussed on the floor. We have 
met with dozens of people. We understand there are those who do not 
want to support it. But in not supporting it, what they are doing is 
condoning a marketplace that has practiced deep fraud and deep 
manipulation and for the most part gotten away with it.
  I don't think we do our job as Senators if we can't protect an 
unsuspecting public. As the Derivative Center pointed out, these 
markets are in disarray now. Why are these markets in disarray? They 
are in disarray because people do not have confidence in them. They are 
in disarray because there is no transparency because there are hidden 
markets, and when they explode, they explode big time.
  Why should Mrs. Smith from Texas or Mr. Jones from Pennsylvania or 
Mr. Cornyn from Texas invest in these markets? Why should he? He 
wouldn't have confidence in them. He would have no transparency. He 
would have no ability to know what is going on.
  What we are trying to do is put that confidence back in the 
marketplace by providing some prudent, commonsense, antifraud, 
antimanipulation oversight by saying: If you trade this way, you must 
keep a record of the trade. You must keep an audit trail. And these 
trades must be transparent so that the Smiths, the Jones, and the 
Cornyns, if they so desire, can find out what in fact is going on.
  Let me stress that this does not impact financial derivatives in any 
way whatsoever. We have clarified that. Our opponents persist in using 
the argument that financial derivatives are affected. They are not. 
Look at page 20, lines 17 to 20, if you want to see it in black and 
white. Nothing in this provision affects the authority of the Federal 
Energy Regulatory Commission. We don't change it in any way.
  To respond to concerns about trading platforms that only match buyers 
and sellers, there is no capital requirement. Let me repeat that 
because people are going around saying there is. To respond to concerns 
about trading platforms that only match buyers and sellers, there is no 
capital requirement.
  Bottom line: Our amendment merely gives back to the CFTC most of the 
authority it had before Congress passed the Commodity Futures Exchange 
Act.
  I note that Senator Levin is in the Chamber. I wonder if it would be 
appropriate for him, if other Members would agree, to make some 
comments at this time.
  Mr. BENNETT. Mr. President, I would have no objection to having the 
Senator from Michigan make his statement. But I wonder if we can arrive 
at some kind of time agreement as to how much longer we are going to 
spend on this amendment. I was told the Senator from California 
originally said she could deal with it in an hour and a half. I 
suggested an hour and was told that was not acceptable. I am now 
willing to say an hour and a half if we can,

[[Page 27140]]

in fact, nail that time down, with the Senator's statement until now 
applying against the full hour and a half.
  Mrs. FEINSTEIN. If I might respond, I believe Senator Levin will 
speak, Senator Lugar wishes to speak, and Senator Cantwell wishes to 
speak. So on our side of this issue, I believe it will be at least an 
hour and a half.
  Mr. BENNETT. An additional hour and a half, I ask?
  Mrs. FEINSTEIN. It may not be. I will try to move it rapidly along. 
These Senators have indicated they wish to come to the floor.
  Mr. BENNETT. I ask unanimous consent, then, that the debate on the 
minority side be limited to an hour and a half from this point forward, 
and I will control the time on the majority side and see that we have 
no more than an hour and a half to respond.
  The PRESIDING OFFICER. Is there objection?
  Without objection, it is so ordered.
  Mr. BENNETT. In that case, I have no objection to the Senator from 
Michigan speaking now.
  The PRESIDING OFFICER. The Senator from Michigan is recognized.
  Mr. LEVIN. Mr. President, first let me thank Senator Feinstein for 
her leadership on this issue and for her typical courtesy in 
interrupting her statement so I may give mine at this time. It is most 
appreciated. More important, I thank her for her leadership and Senator 
Lugar's leadership in bringing this amendment to the floor.
  Recent highly negative events in our energy markets show that there 
is an urgent need to prevent price manipulation in those markets, 
improve the transparency of energy markets, and to strengthen the 
ability of State and Federal agencies to enforce the rules governing 
the operation of those markets.
  Widespread price manipulation and falsification of price information 
in the electricity and natural gas markets in the last few years have 
inflicted billions of dollars in extra costs on energy consumers and 
businesses and have been a severe blow to our economy.
  The corruption and manipulation of these markets by Enron and other 
companies fueled the collapse of some energy markets in the United 
States, the bankruptcy of some energy companies, and a huge decline in 
investment and trading in the energy markets.
  The bipartisan amendment of Senators Feinstein, Lugar, myself, and 
others would close these ``Enron loopholes.'' Enron used these 
loopholes, and other companies joined with them, to manipulate energy 
markets at the public's expense. Our amendment would strengthen 
prohibitions on fraud and manipulation and give both the Federal Energy 
Regulatory Commission, FERC, and the Commodity Futures Trading 
Commission, CFTC, the necessary tools to monitor the energy markets, to 
prevent manipulation, and ensure that prices are fairly and 
competitively arrived at.
  This legislation is needed because companies such as Enron are now 
permitted to trade large amounts of energy in virtually unregulated 
markets, making those unregulated markets and the resulting price of 
the energy we use vulnerable to fraud and manipulation.
  FERC's recent report on manipulation in the western energy market 
provides some stunning examples of how the energy markets can be 
manipulated.
  FERC found that Enron, through an unregulated electronics trading 
center called EnronOnline, ``manipulated the price of physical gas 
upward and downward,'' earning huge amounts of illegal profits. FERC 
determined that Enron often ``invited counterparties to wash trades, 
and these trades created a false sense of liquidity, which can distort 
prices. Enron also manipulated prices on the EOL by having affiliates 
on both sides of certain wash-like trades. This created artificial 
price volatility and raised prices.''
  The report by FERC concluded that ``large-volume, rapid-fire trading 
by [Enron] . . . substantially increased natural gas prices in 
California.'' FERC found ``significant market manipulation'' in the 
``inextricably linked'' natural gas and electricity markets, and that 
``dysfunctions in each fed off one another'' during the energy crisis 
in California.
  According to FERC:

       Spot gas prices rose to extraordinary levels, facilitating 
     the unprecedented price increase in the electricity market. 
     Dysfunctions in the natural gas market appeared to stem, at 
     least in part, from efforts to manipulate price indices 
     compiled by trade publications. Reporting of false data and 
     wash trading are examples of efforts to manipulate published 
     price indices.

  Finally, the report found:

       The widespread false reporting led staff to conclude that 
     reported prices did not reliably reflect market activity.

  I would like to give one specific example on how one day, January 31, 
2002, Enron used an unregulated, nontransparent Internet trading system 
to manipulate the natural gas market in California.
  In August of 2002, the FERC staff issued an investigatory report 
finding that out of a total of 227 trades on that day, January 31, 
2002, 174, or more than two-thirds of the trades on that day, involved 
Enron and a single unnamed party. Most of these trades took place 
during the last hour of trading with two parties buying huge amounts of 
natural gas from each other in numerous transactions.
  FERC determined that the trades took place at ``higher prices,'' in 
their words, than other trades that day, and resulted in a steep price 
increase over the last hour of trading. FERC described this trading 
activity as ``difficult to rationalize as a normal or standard business 
practice'' and noted:

       [O]nly Enron and possibly the counter party could have 
     known that so much of the trading was going on between 
     themselves, because parties looking at EOL's screens could 
     only see the bid and ask prices; they could not know who the 
     counter party was on any particular trade.

  The FERC report indicated that EnronOnline's prices were routinely 
used to prepare published reports on natural gas prices, which meant 
that the Enron price data was not just affecting Enron trades but also 
causing higher natural gas prices industry-wide. The report concluded 
that Enron had ``significant ability and incentive to manipulate the 
price data published by the reporting firms.''
  This spring, FERC issued a number of recommendations to fix the 
problems in the energy markets. FERC recommended new policies and 
procedures for the oversight of commodity trades and prices and a 
system of market surveillance to detect and prevent manipulation.
  In March of this year, following a year-long investigation, I 
released a Permanent Subcommittee on Investigations staff report into 
the operation of crude oil markets. The report describes the regulated 
and unregulated markets for buying and selling crude oil and explains 
how crude oil prices are set and how they affect the price of critical 
oil commodities, such as gasoline, home heating fuel, jet fuel, and 
diesel fuel.
  The report describes the vulnerability of unregulated commodity 
markets to price manipulation and the need for and beneficial effects 
of U.S. commodity regulation. The report also explains how the over-
the-counter markets are virtually unregulated and, therefore, 
vulnerable to manipulation.
  The report recommends that traders in over-the-counter markets be 
required to ``provide the CFTC with routine information on large 
positions in crude oil and energy contracts and derivatives, as well as 
other information that would aid the CFTC in detecting, preventing, and 
halting commodity market manipulation.''
  So we have two reports reaching the same conclusions about the need 
for more market transparency and strengthened oversight to detect and 
prevent fraud and manipulation in energy markets.
  How did we get to this position where companies, such as Enron, are 
permitted to manipulate prices in our energy markets? The answer lies 
in how the energy markets and the Federal regulations have evolved over 
the last 20 years.
  Billions of dollars' worth of contracts for the future delivery of 
energy are now traded every day. These contracts are called energy 
derivatives because they derive their price from the price

[[Page 27141]]

of the energy commodity in the contract.
  There are two basic types of energy derivatives. Energy derivatives 
that are traded on futures exchanges are called futures contracts. The 
trading of futures contracts on futures exchanges is regulated by the 
Commodity Futures Trading Commission under the Commodity Exchange Act.
  The other type of energy derivatives, which are not traded on futures 
exchanges, are called over-the-counter energy derivatives. These 
derivatives may be traded by fax, by phone, in face-to-face meetings, 
or over the Internet. The trading of these derivatives is virtually 
unregulated.
  Both the futures markets and the over-the-counter markets perform 
identical economic functions. Both markets enable traders to buy and 
sell commodities at fixed prices, disseminate information about 
commodity prices, and provide a way for buyers and sellers to hedge 
against changes in the price of these commodities. Commodity traders 
routinely use both the futures markets and the over-the-counter markets 
for price discovery and hedging.
  Today, the types of contracts traded in the futures markets and the 
over-the-counter markets are virtually identical. As an indication of 
how indistinguishable these contracts really are, the NYMEX even calls 
some of the contracts that it offers on its over-the-counter electronic 
market ``futures contracts.''
  This is an example of what is shown on the NYMEX boards. This is the 
way the NYMEX advertises: Light Louisiana sweet crude oil futures--
futures. Futures are supposed to be bought and sold on futures markets, 
not over-the-counter markets, but this is an over-the-counter sale and 
offer.
  This is a picture the New York Mercantile projects over the Internet 
for the purchase and sale of over-the-counter contracts. Notice it 
says: Trading venue is over the counter, and yet it calls that over-
the-counter offer ``futures.'' If they were really futures, they would 
be regulated as futures contracts are by the Commodity Futures Trading 
Commission. But these are over-the-counter sales. These are 
unregulated, and yet they are characterized as futures. The language 
used here is interchangeable. The economic function is interchangeable. 
The only difference--and it is a critical difference--is that futures 
contracts are regulated by the Commission and over-the-counter 
contracts are not. And they should be. They perform the same economic 
function. The language used is exactly the same and yet there is one 
group of contracts unregulated. The other group of contracts is 
regulated. It is the unregulated contracts which got us into so much 
trouble, the lack of transparency which got us into so much trouble.
  Let me give another example. The largest over-the-counter electronic 
trading facility is the Intercon-
tinentalExchange, known as ICE, in Atlanta. It trades contracts that it 
calls futures, and yet these are not futures; these are over-the-
counter transactions, described by the ICE as futures. It says you can 
trade futures from your desktop. Yet these are over-the-counter 
transactions.
  Here is what they say on their Web site:

       IntercontinentalExchange brings parallel trading in IPE 
     Brent crude of futures to the ICE platform. Electronic 
     futures trading sessions operate in parallel with the regular 
     open-outcry session on the IPE floor in London.

  Now, that open-outcry session, as they phrase it, is the futures 
trading session that occurs at the exchanges. So they are treating them 
the same. They are saying, one can trade in futures electronically. The 
language now has become the same, the economic function is the same, 
but there is one key difference, and it is a deadly difference in terms 
of consumers and in terms of manipulation of prices. That difference is 
that futures contracts are in fact regulated and must be disclosed and 
are in fact transparent, whereas the over-the-counter trades are not. 
They are now dealt with interchangeably by the largest exchange, the 
largest over-the-counter electronic trading facility in the country, 
the IntercontinentalExchange in Atlanta.
  Only real futures markets are regulated to prevent price 
manipulation. That is a fact. The over-the-counter market is not. That 
is what has got us in the hole we are in. That is what permitted Enron 
to dig us deeper into the hole we are in and to cause the loss of huge 
amounts of money to our consumers and to many customers. No disclosure, 
take care of these trades over the market. If the market were a 
regulated market, such as the futures market is, it would have been 
regulated. It could have been transparent. We would not have seen the 
Enron disaster and the manipulation that we saw in Enron and by other 
companies.
  The Commodity Exchange Act regulates the futures exchanges so that 
they cannot be artificially manipulated. This regulation and 
transparency has bolstered the confidence of traders in the integrity 
of these markets and it has helped to propel our country into the 
leading marketplace for many commodities.
  For example, the New York Mercantile Exchange, NYMEX, is the world's 
leading exchange for futures contracts, for energy products such as 
natural gas, crude oil, gasoline, and home heating oil. The CEA makes 
it a felony to manipulate the price of any commodity, and it contains a 
number of provisions to enable the futures exchanges and the CFTC to 
detect and prevent price manipulation. The CEA requires the regulated 
futures exchanges to ensure that trading is orderly and to detect and 
prevent price manipulation. The CEA directs the CFTC to oversee the 
operations of the futures exchanges and to itself perform market 
oversight and ensure that trading is orderly.
  According to a former CFTC Chairman:

       The job of preventing price distortion is performed today 
     by regulatory and self-regulatory rules operating before the 
     fact and by threats of private lawsuits and disciplinary 
     proceedings after the fact. Both elements are essential.

  According to the CFTC:

       The heart of the commission's direct market surveillance is 
     a large-trader reporting system, under which [the futures 
     exchanges and brokers] electronically file daily reports with 
     the commission. These reports contain the futures and option 
     positions of traders that hold positions above specific 
     reporting levels set by the CFTC regulations.

  There are no protections against manipulation in the over-the-counter 
markets. Unlike the futures markets, the over-the-counter markets are 
not required to monitor trading to detect and deter fraud and price 
manipulation. Information that is routinely reported to the futures 
exchanges and the CFTC is not available to the over-the-counter 
exchanges or to the CFTC. Traders do not have to report large trades. 
There are no position limits or daily price limits. The over-the-
counter markets lack all of the critical features of an effective 
program to detect and prevent price manipulation.
  Over-the-counter energy derivatives are unregulated because of a 
provision that was added to a conference report at the last minute in 
an amendment to the Commodity Exchange Act in an omnibus appropriations 
bill at the end of the Congress in the year 2000. The Commodity Futures 
Modernization Act of 2000 was intended to clarify the regulation of 
financial instruments. Most of the provisions in the CFMA were based 
upon the recommendations contained in the Report of the President's 
Working Group on Financial Markets, Over-the-Counter Derivatives 
Markets and the Commodity Exchange Act, which was jointly issued in 
November 1999 by the Treasury Department, the Federal Reserve, the SEC, 
and the CFTC.
  The working group recommended that financial derivatives be excluded 
from regulation under the CEA but that derivatives involving 
nonfinancial commodities with a limited supply, such as energy 
commodities, not be excluded.
  The working group stated:

       Due to the characteristics of markets for nonfinancial 
     commodities with finite supplies, however, the working group 
     is unanimously recommending that the exclusion not be 
     extended to agreements involving such commodities.


[[Page 27142]]


  A unanimous recommendation of the working group and the House and 
Senate bills leading up to that conference in fact did not extend the 
exclusion to commodities transactions. Yet the exemption in the current 
law for trades in over-the-counter energy derivatives, the Enron 
exemption, somehow or another got inserted in that law at the eleventh 
hour during a House-Senate conference. This exemption was never 
considered by any committee. It was never discussed at any hearing. It 
was never commented on by interested parties. It was simply inserted in 
the conference report at the last minute. It is one of the reasons for 
the Enron mess that we have had to clean up after.
  This amendment would correct that situation. It is essential we have 
this kind of transparency regulation in the commodities markets. I hope 
this amendment, which is a bipartisan amendment, will be adopted by 
this body and close the Enron loophole which was created in the dark of 
night, without any debate in this body, without any knowledge of this 
body, in a bill which this body had passed without such an exemption, 
in a bill which the House had passed without such an exemption, and yet 
the exemption showed up nonetheless in a conference report and helped 
to create the Enron disaster and mess which we have been trying to 
clean up ever since.
   Exempting energy commodity trades from the CEA did not make sense 
when it happened in 2000. It would be irresponsible to continue it now, 
especially after we have seen how it facilitated the market fraud and 
manipulation by Enron and others.
   The amendment before us would return the commodities law to the way 
it was for decades prior to the passage of the Enron exemption. It 
would ensure that fraud and price manipulation would be a felony, and 
it would remove ``the Enron exemption'' as a shield against regulation 
and prosecution. It would authorize the CFTC to establish recordkeeping 
requirements to enforce the anti-fraud and anti-manipulation 
prohibitions in the CEA.
   This amendment also contains important provisions to improve FERC's 
ability to ensure the transparency and integrity of wholesale energy 
prices. It would direct FERC to establish an electronic price reporting 
system, strengthen the penalties for violations of the Federal Power 
Act and the Natural Gas Act, prohibit wash trading and other collusive 
and manipulative practices in wholesale energy markets, and clarify 
FERC's authority to fashion appropriate remedies in cases of wholesale 
price manipulation.
   There is a great deal of support for this legislation.
   Governor Jennifer Granholm, of my home State of Michigan, writes 
that, in the aftermath of the massive electricity blackouts that struck 
Michigan and large areas of the midwest and northwest this past summer, 
``all necessary steps should be taken to bolster business and consumer 
confidence in the Nation's energy markets and promote additional 
investment in reliable energy delivery at a fair price.'' Governor 
Granholm says our language ``would improve energy price transparency in 
wholesale electricity markets, greatly increase criminal and civil 
penalties for trading violations, prohibit market manipulation and 
fraud in all energy market sectors, and strengthen day-to-day energy 
market oversight, including over-the-counter market transactions that 
significantly affect energy prices.''
   The American Public Gas Association supports the amendment because 
``it will improve market transparency and provide the essential 
regulatory oversight to detect and prevent manipulation and improve the 
efficiency of energy markets.''
   Attorney General Eliot Spitzer, from the State of New York, urges 
swift adoption of the amendment, writing that ``the amendment closes 
loopholes used to manipulate energy markets, improves the ability to 
detect fraud and other manipulation, and deters manipulation by 
establishing substantive penalties.''
   The North American Securities Administrators Association, the 
association representing the securities administrators of the 50 
States, supports this amendment because it ``would provide more 
transparency to the wholesale electricity markets, supply the CFTC with 
the authority to detect fraud and manipulation, and help to deter 
wrongdoing by significantly increasing the penalties for violations of 
the Federal Power Act.''
   Consumers Union, the Consumer Federation of America, Public Citizen, 
and the U.S. Public Interest Research Group support this amendment. 
They state it ``would go a long way towards addressing the serious 
problems plaguing the Nation's energy markets.''
   The Derivatives Study Center comments that ``this important 
legislation will assure that [energy commodities] will be covered by 
Federal prohibitions or fraud and manipulation. . . . It will subject 
[energy] derivatives to some of the same regulations that apply to 
securities, banking, exchange-traded futures and options and other 
sectors of U.S. financial markets.''
   The National Association of State Utility Consumer Advocates writes 
that this legislation ``will help fix broken energy markets and given 
regulators the tools needed to protect consumers from market 
manipulators.''
   One hundred and fifty years of history of our commodity markets 
demonstrates that market integrity and investor confidence will not 
magically spring up in markets that have been tainted by manipulation. 
That same history shows that fair and efficient markets do not emerge 
by themselves. Rather, regulation and oversight are necessary to ensure 
that markets are fair and efficient. Without fair and efficient, and 
that means transparent, energy markets consumers will pay higher prices 
for energy products, capital will be misallocated, and out national 
economy and energy security will be harmed.
   This history also shows that a legal prohibition against commodity 
market manipulation, without more, does not deter or prevent 
manipulation. Continuous market disclosure and oversight are essential 
to halt manipulation before economic damage is inflicted upon the 
market and the public. This is why a major portion of the CFTC's budget 
and resources is devoted to oversight of the futures markets.
   Although some enforcement actions have been brought following the 
manipulation of the western markets, these enforcement actions will do 
little to make whole the consumers and businesses that suffered 
billions of dollars in losses from those misdeeds. It would be far 
better to ensure that such abuses do not occur in the first place, 
rather than rely on the hope that a few of the manipulators are caught 
after the fact.
   We cannot afford to have more Enrons, more manipulations, more 
frauds, and more flight of capital in the energy sector. It is 
imperative that we restore the integrity and credibility of our energy 
markets.
   Our bipartisan amendment will help create fair and transparent 
energy markets that investors can trust.
  Mr. President, I thank the Senator from California for her tenacity 
on this and so many other issues. But in this matter she and her State 
have suffered firsthand probably more than any other State as a result 
of this Enron loophole which she is so heroically and determinedly 
trying to close this afternoon.
  Mrs. FEINSTEIN. I thank the Senator from Michigan. More than just 
thank him, I thank him for his brilliance and for his willingness to be 
part of this effort. I think Senator Levin is really one of the fine 
minds in this Senate. It has been a great delight for me to have the 
opportunity to work with him. I think he has helped us make this a much 
better bill. I thank him so much.
  Mr. President, at this point I would like to read into the Record a 
colloquy between the two leaders, Senators Frist and Daschle, which 
makes clear the parameters of this and why we are on the floor on this 
bill. If I may:

       Senator Daschle: Mr. President, Senator Feinstein has a 
     market manipulation amendment that she was seeking a vote on. 
     It is my understanding that the agricultural appropriations 
     bill would be the appropriate bill for that amendment. I 
     would inquire of the majority leader, should she offer her 
     amendment to that bill, would she be assured of a vote on or 
     in relation to her

[[Page 27143]]

     amendment with no second-degree amendments, prior to such 
     vote?

  The majority leader responds:

       The Democratic leader is correct. If Senator Feinstein 
     offers her amendment to that bill, she will get a vote on or 
     in relation to it.

  I just offer that to clarify the present legal situation.
  The PRESIDING OFFICER. The Senator from Indiana.
  Mr. LUGAR. Mr. President, I thank the distinguished Senator. I 
compliment her and I compliment Senator Levin on this work. I am 
pleased to be associated with them in this amendment.
  I come to this amendment from an experience serving on the 
Agriculture Committee throughout the 27 years of my service in the 
Senate and 6 years as chairman of the committee. The Agriculture 
Committee spent a great deal of productive time working with the CFTC 
to make certain that the regulatory aspects with regard to trading were 
as strong and as just as possible. We did so, not in a sense of being 
punitive with regard to new markets and new innovations to weigh in on 
how American enterprise might flourish, but rather to try to give 
confidence to hundreds of thousands of traders and beyond--the farming 
community in particular--of our country. That was the basis for the 
creation of the Commodity Futures Trading Commission. We have had 
renewals of the CFTC during my tenure, and I believe we have improved 
upon the situation on each occasion.
  Historically, energy has been exempted from CFTC regulations. I will 
not attempt to trace the history of why those exemptions occurred. But 
I will say, in the give and take of compromise as the legislation made 
its way through the committees of the House and the Senate, and 
conferences in consultation with the White House, on each occasion in 
which energy was about to be incorporated in a regulatory pattern, it 
was exempted as a final compromise in order to gain passage of 
legislation at one juncture or another. That turned out to be a fatal 
flaw.
  The testimony before the Agriculture Committee, quite apart from 
testimony before other committees represented by the Senators here 
today, indicated it was not the entirety of the problem but certainly 
an example of the contribution of a very grave set of circumstances in 
which traders without particular scruples and with a minimum of 
regulation bankrupted each other, and unfortunately, a good number of 
other innocent parties in the process.
  Even in the midst of all of this rubble, as we witnessed the whole 
thing collapsing, there were still brave spirits in committee and 
elsewhere who said: ``Let freedom rein; don't regulate anything that 
doesn't need regulating.'' But, of course, by that time, most of the 
market aspects of it--all the electronic aspects of it--the poles and 
the plugs, had literally been pulled.
  I do not claim to understand the entirety of the complexities of how 
those markets work. At some point, if there are not people who can make 
good trades, you literally pull the plug and stop your electronic 
mechanism and the trading stops, and those who are still on the merry-
go-round are out of luck.
  There has always been the arguments that this is simply a subject for 
a few wealthy Americans to consider as they deal with each other. But 
that is not the case. The principal users of these markets are very 
wealthy people--people who ought to know better and who have proper 
legal or financial counsel so they don't make mistakes.
  But there are other people who get involved. The ramifications of the 
energy markets are not just for private corporations but they branch 
out into services for communities and the governing systems of this 
country.
  I appreciate very much those who will continue to advocate in the 
midst of all of the devastation which is apparent--and books are now 
being written about the difficulties. These books will point out, as 
some already have, that the President's working group--whose members 
testified before the Agriculture Committee several times when I was 
chairman--let the markets go without regulation; and said if you have 
not regulated at this point, let them alone. I am here to advise the 
President and the member of this working group, that these markets do 
not work well without public confidence, and without a degree of 
transparency. If there is anything occurring in American financial 
markets now, anything encouraging to investors, it is the thought that 
finally many people in Government have come to their senses and 
realized a good number of things have been going on to undermine 
confidence in those markets. Those of conservative persuasion who favor 
the markets and believe markets work, have to take responsibility and 
make certain they do actually work. In order for them to work, markets 
must be just, and investors must understand that there are remedies, as 
opposed to pulling the plug, literally, and letting the trades flounder 
and bankruptcy ensue.
  Mr. President, this is a very serious problem. I appreciate very much 
the persistence of the Senator from California in insisting that this 
issue needed to be raised again. She has raised it, and this is why I 
have come to the floor today in support of it.
  I recognize the atmosphere in which we are involved in trying to come 
to grips with the Agriculture appropriation in such a short time frame. 
It is a necessity to complete our work.
  This is not, perhaps, the most conducive manner to study this complex 
subject matter that Senators might require. However, I simply say, 
during my chairmanship, the Agriculture Committee studied this issue to 
a fault. Beyond circumstances I can control, I was no longer chairman, 
and the issue slid from the agenda. I do recall that we researched the 
issue, brought all the parties together, and held 2 days of study with 
experts on how future markets work. Many Members came to the conclusion 
that energy should be included, and it should be reformed. I pray that 
will occur.
  The CFTC, I believe, is the logical repository, but I am not 
insistent upon that. The need for reform is at hand and this amendment 
advances that ball.
  I yield the floor.
  The PRESIDING OFFICER (Mr. Hagel). The Senator from California.
  Mrs. FEINSTEIN. Mr. President, I thank the Senator from Indiana. He 
has taken a position based on extraordinary knowledge, having served on 
that committee for 27 years, having been its chair, having seen what 
happened with the Commodity Futures Oversight Act.
  In resisting, as he termed it, the movement just to have anything go, 
let anything go, if they are not regulated, let it go that way, he 
realizes the American people are not well served and the investment 
community is not well served when every day you pick up a newspaper and 
someone else is being arrested for fraud or manipulation. Our laws can 
prevent that from happening.
  I thank the Senator very much. You have been terrific. Your support 
is very meaningful to us.
  I have stated in the Senate numerous times it is the duty of this 
Congress to make sure our regulators have all the authority they need 
to prevent fraud and manipulation in the energy markets. Simply put, 
this is what our amendment does.
  Enron remains the perfect example of how the systems were so easily 
gamed. After Enron successfully lobbied for an exemption to the 
Commodity Futures Modernization Act in 2000, they and others in the 
energy sector quickly took advantage of this new freedom by trading 
energy derivatives absent any transparency and regulatory oversight. In 
other words, in secret. Thus, after the 2000 legislation was enacted, 
Enron began to trade energy derivatives literally without being subject 
to proper regulatory oversight. That is how all these schemes came 
about. Some hot-shot trader, sitting in front of his computer, found a 
way to evolve a strategy for the fraudulent and manipulative action of 
the marketplace. They let these various strategies play out.
  Unlike the NASDAQ, from which timely electronic trade reports are

[[Page 27144]]

available to the public, even prior to its transparency-enhanced 
reforms in 1997--in 1997, the NASDAQ reformed itself to make their 
traders more transparent--EnronOnline did not offer timely reporting of 
executions. This means EnronOnline provided no data regarding recently 
executed transactions. Consequently, even after the trades, basic 
market information was not provided to market participants.
  It should not surprise anyone that without basic transparency, 
without the ability to see what is happening, prices would soar. What 
interests me is they did and yet there is still resistance to this 
legislation.
  In 2 years, Enron's derivatives business had been a stand-alone 
company. It would have been the 256th largest company in America. That 
year, according to author Robert Bryce, Enron claimed it made more 
money from its derivatives business, $7.23 billion, than Tyson made 
from selling chickens. That is huge, if you think about it. Think what 
that means. This segment of the market in one year made $7 billion and 
nobody knew how. No one knew what the trades were. They were all in 
secret. Nothing was registered. There was no audit trail. There was no 
antifraud, antimanipulation oversight. Boom. It happened.
  EnronOnline rapidly became the biggest platform for electronic energy 
trading. But unlike the regulated exchanges, such as the New York 
Mercantile Exchange, the Chicago Mercantile Exchange, and the Chicago 
Board of Trade, EnronOnline was not registered with the CFTC. So Enron 
set its own standards. In other words, it had a very secure, quiet, 
protected niche on the market.
  Others have tried to replicate that. The banks, for example, Senator 
Levin said, devised something called the IntercontinentalExchange so 
they could do the same thing Enron has done. It is wrong.
  Traders and others in the energy sector came to rely on EnronOnline 
for pricing information. Yet the company's control over this 
information and its ability to manipulate it was tremendous. As author 
Robert Bryce went on to describe--and this is very colorful and true--
Enron did not just own the casino. On any given deal, Enron could be 
the house, the dealer, the oddsmaker, and the guy across the table you 
are trying to beat in diesel fuel futures, gas futures, or the 
California electricity market. You tell me that is a good situation?
  You tell me this Senate and this Congress should let that happen. We 
should not. That is just plain wrong. Those who want to protect this 
secret niche are just dead wrong. It is not in the American people's 
interest to have a secret trading niche that can be an empire for fraud 
and manipulation. We need to protect consumers from future Enron-like 
scams because they are going to happen.
  Now, was Enron and its energy derivative trading arm, Enron Online, 
the sole reason California and the West had an energy crisis? 
Absolutely not. Was it a continuing factor to the crisis? I certainly 
believe that evidence has shown it was.
  Unfortunately, because of the energy exemptions in the 2000 Commodity 
Futures Modernization Act, which took away the CFTC's authority to 
investigate, we may never know for sure. In other words, quite 
purposely, this Congress, in 2000, let this secret world be created and 
said: We are going to take energy and metals out of the entire trading 
regulatory structure and we are going to let them go ``on operating'' 
on their own, without the proper oversight. That is exactly what 
happened. It is just plain wrong.
  I repeat, once again, the amendment we offer will subject electronic 
exchanges such as EnronOnline to the same oversight as other commodity 
exchanges, such as the Chicago Mercantile Exchange, the New York 
Mercantile Exchange, and the Chicago Board of Trade--no more, no less. 
Without this type of legislation, there is insufficient authority to 
investigate and prevent fraud and price manipulations since parties 
making the trade are not required to keep a record.
  This amendment is not going to do anything to change what happened in 
California and the West. That is done. But it does provide the 
necessary authority for the CFTC to protect other parts of this country 
against this kind of thing happening again. And it well could happen.
  Nobody thought we would ever see the kind of event that blacked out 
most of the east coast and the Midwest, but we did. Nobody thought we 
would ever see what happened in the West, but we did. Nobody ever 
thought anybody would come up with schemes like ``Ricochet,'' ``Death 
Star,'' ``Get Shorty,'' ``Fat Boy,'' but they did. Nobody thought they 
could use them to commit a manipulation of the market, but they did.
  I will leave you with one fact: The total cost of electricity in 
California in 2000 was $7 billion. The cost the next year was $28 
billion. Does anyone believe that market forces--namely, supply and 
demand--could account for a 400-percent increase in the cost of 
electricity in a year? The answer has to be no. The answer has to be 
that bad things were done.
  So we have worked on this amendment. I sit on the Energy Committee. I 
have tried to pay a great deal of attention to these matters, to follow 
this, and I am absolutely convinced that America and the business 
climate of America is much better off when things are transparent, when 
there are records kept, when there is a regulatory authority that can 
say: Whoa. Something may be going haywire. Let's take a look at it. 
That is all we do--no more and no less than for any commodity.
  I wish to say one other thing. A financial derivative is not like an 
energy derivative. For people to confuse this and say it affects 
financial derivatives is not right. Energy is a finite commodity. There 
is a beginning and there is an end, and it is different from a 
financial derivative.
  Mr. President, may I ask how much time our side has remaining?
  The PRESIDING OFFICER. The Senator from California has 32 minutes 
remaining.
  Mrs. FEINSTEIN. Thank you. I retain the remainder of my time.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Utah.
  Mr. BENNETT. Mr. President, I yield half an hour to the Senator from 
Idaho.
  Just a moment, Mr. President. I was unaware that the Senator from 
Mississippi was on the floor. He was hiding behind me. So I yield 15 
minutes to the Senator from Mississippi.
  The PRESIDING OFFICER. The Senator from Mississippi is recognized.
  Mr. COCHRAN. Mr. President, thank you very much. I thank the chairman 
very much for yielding me this time.
  Mr. President, the Feinstein amendment suggests a significant change 
in the regulatory regime that exists today for energy markets.
  My understanding of the Senator's amendment is that it would, for the 
first time, require regulation of off-exchange energy derivatives. 
These complex instruments, used to transfer risk among sophisticated 
traders, are vital tools in today's energy trading environment.
  The Commodity Futures Trading Commission exempted off-exchange energy 
derivatives from regulation in 1993. The Congress codified this 
exemption, largely without change, as part of the Commodity Futures 
Modernization Act of 2000. The Congress considered regulating off-
exchange energy derivatives when it debated the modernization act but 
chose not to do so because of the disruption new burdensome regulation 
would cause to these sophisticated traders.
  Senators should remember that the distinguished Senator from 
California initially offered an amendment similar to the one before us 
today during last year's Senate debate on the Energy bill. On April 10, 
2002, the Senate voted 48 to 50 not to invoke cloture on this initial 
version of the Feinstein amendment. Senator Feinstein tried again with 
a new version of her amendment in June of this year, again during 
debate on the Energy bill. On June 11, 2003, the Senate tabled this 
amendment by a vote of 55 to 44. It should be noted that the second 
version of her amendment received four fewer votes than

[[Page 27145]]

the first version. Now we have before us a third version of the 
Feinstein amendment.
  Senators may remember from the debate last summer on the second 
version of the Feinstein amendment that I read into the Record a June 
11, 2003, letter from the President's Working Group on Financial 
Markets. In that letter, Alan Greenspan, Chairman of the Federal 
Reserve; John Snow, Secretary of the Treasury; William Donaldson, 
Chairman of the Securities and Exchange Commission; and James Newsome, 
Chairman of the Commodity Futures Trading Commission, all expressed 
opposition to the Feinstein amendment.
  The letter warned that the Feinstein amendment would have significant 
unintended consequences for this important risk management market. It 
also pointed out that the Commodity Futures Trading Commission has 
brought formal legal actions against Enron, Dynegy, and El Paso for 
market manipulation, wash--or round-trip--trades, false reporting of 
prices, and operation of illegal markets.
  The Securities and Exchange Commission, the Federal Energy Regulatory 
Commission, and the Department of Justice have also initiated formal 
actions in the energy sector. Some of these actions have already 
resulted in substantial monetary penalties and other sanctions and make 
clear that wrongdoers in the energy markets are fully subject to the 
existing enforcement authority of Federal regulators.
  To my knowledge, the President's working group has not changed its 
position on this latest version of the proposal of the Senator from 
California.
  Finally, the Feinstein amendment may create regulatory uncertainty 
for off-exchange energy derivatives from multiple Federal agencies. On 
one hand, the amendment before us requires the Commodity Futures 
Trading Commission to regulate off-exchange energy market derivative 
transactions. However, the amendment also contains a provision that 
appears to preserve the Federal Energy Regulatory Commission's 
authority in this market. At a minimum, the amendment appears to muddy 
the regulatory water with respect to this market.
  Remember, the CFTC has antifraud authority. It has brought legal 
actions against Enron, El Paso, Dynergy, and others regarding energy 
market problems. It has recovered millions of dollars in fines from 
these companies. It has numerous ongoing investigations in this area. 
And more charges are possible. The Senator from California has said 
that her amendment is needed to prevent wash trades. The CFTC has wash 
trade authority. It has specific authority under section 4 of the CEA. 
The CFTC has brought several wash trade actions in the last several 
years, and its authority to do so has been upheld recently by two U.S. 
appeals courts. Just this year, the Commodity Futures Trading 
Commission has recovered tens of millions of dollars from merchant 
energy traders for wash trades and false trades.
  It has also been suggested by the Senator that because exempt 
commercial markets such as the InterContinentalExchange are exempt from 
regulation under the Commodity Exchange Act that they have no 
regulatory oversight. These markets are subject to many regulatory 
requirements. They are required by statute to have an electronic audit 
trail. They are required by statute to keep records for 5 years. They 
are subject to antifraud and antimanipulation authority under the 
CFTC's jurisdiction. They are subject to special call examinations by 
the commission as well.
  This amendment would impose large trader reporting on exempt 
commercial markets. Large trader reporting works on retail futures 
exchanges with standardized contracts but wouldn't work on exempt 
commercial markets which do not have the same type of standardization. 
Large trader reporting on exempt commercial markets could actually lead 
to misleading information being provided to the public. Large trader 
reporting is used for market surveillance in retail futures markets.
  The Commodity Futures Trading Commission's statutory authority for 
exempt commercial markets is after-the-fact antifraud and 
antimanipulation enforcement and is, therefore, inconsistent with a 
large trader reporting scheme.
  For these reasons, which I think are very compelling, the Senate 
should reject this amendment.
  I ask unanimous consent to print in the Record the text of a letter 
that went out to all Senators signed by myself, Senator Pete Domenici, 
Senator Mike Crapo, and Senator Zell Miller on this subject, along with 
enclosures which are letters addressed to Senators Crapo and Miller 
from the Department of the Treasury, Board of Governors of the Federal 
Reserve System, signed by John W. Snow, Alan Greenspan, William 
Donaldson, and James E. Newsome, along with a Department of the 
Treasury letter, dated September 18, 2002, to these same two Senators, 
Mr. Crapo and Mr. Miller.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

 Oppose Feinstein Derivatives Amendment to Agriculture Appropriations 
                                  Bill

       Dear Colleague: We are writing to express our opposition to 
     the Feinstein Derivatives Amendment to the Agriculture 
     Appropriations bill. This amendment has been defeated twice 
     before on a motion to invoke cloture in April 2002 (48-50) 
     and most recently on a motion to table in June 2003 (55-44).
       The amendment before us today is an up or down vote. The 
     amendment would significantly modify portions of the 
     Commodity Futures Modernization Act of 2000 (CFMA) and re-
     introduce legal uncertainties into derivatives markets. It is 
     our understanding that the amendment's goal is to provide 
     additional regulatory oversight to the over-the-counter (OTC) 
     energy derivatives markets in light of the California energy 
     crisis and Enron's bankruptcy; however to date, there is no 
     evidence that derivatives caused either crisis.
       Attached please find copies of two letters from the 
     President's Working Group. The 2002 letter discusses reasons 
     why the derivatives amendment is not warranted and urges 
     Congress ``to be aware of the potential unintended 
     consequences of current legislative proposals.'' The 2003 
     letter discusses all the civil, criminal and enforcement 
     actions taken by the various federal agencies against the 
     wrongdoers in the energy markets since Enron and specifically 
     highlights the CFTC's actions.
       Finally, the Energy Policy Act of 2003 will address many of 
     the provisions in Senator Feinstein's proposed legislation, 
     including increased protection against fraud and 
     manipulation, which addresses the Enron-On-Line problem, a 
     ban on roundtrip trading, and increased penalties for 
     violations of the Federal Power Act and Natural Gas Act. Any 
     attempt to undermine the Energy bill by adding similar 
     provisions to the Agriculture Appropriations legislation is 
     unnecessary and we strongly oppose this effort.
           Sincerely,
     Thad Cochran.
     Mike Crapo.
     Pete Domenici.
     Zell Miller.
       Attachments.
         Department of the Treasury, Board of Governors of the 
           Federal Reserve System, U.S. Securities and Exchange 
           Commission, Commodity Futures Trading Commission,
                                                    June 11, 2003.
     Hon. Michael D. Crapo,
     U.S. Senate, Russell Senate Office Building, Washington, DC.
     Hon. Zell B. Miller,
     U.S. Senate, Dirksen Senate Office Building, Washington, DC.
       Dear Senators Crapo and Miller: Thank you for your letter 
     of June 10, 2003, requesting the views of the President's 
     Working Group on Financial Markets (PWG) on proposed Senate 
     Amendment #876 to S. 14, the pending energy bill. As this 
     amendment is similar to a proposed amendment on which you 
     sought the views of the PWG last year, we reassert the 
     positions expressed in the PWG's response dated September 18, 
     2002, a copy of which is enclosed. The proposed amendment 
     could have significant unintended consequences for an 
     extremely important risk management market--serving 
     businesses, financial institutions, and investors throughout 
     the U.S. economy. For that reason, we believe that adoption 
     of this amendment is ill-advised.
       We would also point out that, since we wrote that letter 
     last year, various federal agencies have initiated actions 
     against wrongdoing in the energy markets. As you note, the 
     CFTC has brought formal actions against Enron, Dynegy, and El 
     Paso for market manipulation, wash (or roundtrip) trades, 
     false reporting of prices, and operation of illegal markets. 
     The Securities and Exchange Commission, the Federal Energy 
     Regulatory Commission, and the Department of Justice have 
     also initiated formal actions in the energy sector. Some of 
     these

[[Page 27146]]

     actions have already resulted in substantial monetary 
     penalties and other sanctions. These initial actions alone 
     make clear that wrongdoers in the energy markets are fully 
     subject to the existing enforcement authority of federal 
     regulators.
       The Commodity Futures Modernization Act of 2000 brought 
     important legal certainty to the risk management marketplace. 
     Businesses, financial institutions, and investors throughout 
     the economy rely upon derivatives to protect themselves from 
     market volatility triggered by unexpected economic events. 
     This ability to manage risks makes the economy more resilient 
     and its importance cannot be underestimated. In our judgment, 
     the ability of private counterparty surveillance to 
     effectively regulate these markets can be undermined by 
     inappropriate extensions of government regulation.
           Yours truly,
     John W. Snow,
       Secretary, Department of the Treasury.
     Alan Greenspan,
       Chairman, Board of Governors of the Federal Reserve System.
     William H. Donaldson,
       Chairman, U.S. Securities and Exchange Commission.
     James E. Newsome,
       Chairman, Commodity Futures Trading Commission.
                                  ____

         Department of the Treasury, Board of Governors of the 
           Federal Reserve System, U.S. Securities and Exchange 
           Commission, Commodity Futures Trading Commission,
                                               September 18, 2002.
     Hon. Michael D. Crapo,
     U.S. Senate, Russell Senate Office Building, Washington, DC.
     Hon. Zell B. Miller,
     U.S. Senate, Dirksen Senate Office Building, Washington, DC.
       Dear Senators Crapo and Miller: In response to your letter 
     of September 13, we write to express our serious concerns 
     about the legislative proposal to expand regulation of the 
     over-the-counter (OTC) derivatives markets that has recently 
     been proposed by Senators Harkin and Lugar.
       We believe 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. 
     This proposal would limit this contribution, thereby 
     increasing the vulnerability of our economy to potential 
     future stresses.
       The proposal would subject market participants to 
     disclosure of proprietary trading information and new capital 
     requirements. We do not believe a public policy case exists 
     to justify this governmental intervention. The OTC markets 
     trade a wide variety of instruments. Many of these are 
     idiosyncratic in nature. These customized markets generally 
     do not serve a significant price discovery function for non-
     participants, nor do they permit retail investors to 
     participate. Public disclosure of pricing data for customized 
     OTC transactions would not improve the overall price 
     discovery process and may lead to confusion as to the 
     appropriate pricing for other transactions, as terms and 
     conditions can vary by contract. The rationale for imposing 
     capital requirements is unclear to us, and the proposal's 
     capital requirements also could duplicate or conflict with 
     existing regulatory capital requirements.
       The trading of these instruments arbitrages away 
     inefficiencies that exist in all financial and commodities 
     markets. If dealers had to divulge promptly the proprietary 
     details and pricing of these instruments, the incentive to 
     allocate capital to developing and finding markets for these 
     highly complex instruments would be lessened. The result 
     would be that the inefficiencies in other markets that 
     derivatives have arbitraged away would reappear.
       It is also unclear who would benefit from the proposed 
     disclosures and regulations other than whoever simply copied 
     existing products and instruments for their own short-term 
     advantage. Weakening the protection of proprietary 
     intellectual property rights in the market arena would 
     undercut a complex of highly innovative markets that is among 
     this nation's most valuable assets.
       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 
     consumers and to our economy. We urge Congress to protect 
     these markets' contributions to the economy, and to be aware 
     of the potential unintended consequences of current 
     legislative proposals.
           Yours truly,
     Paul H. O'Neill,
       Secretary, Department of the Treasury.
     Alan Greenspan,
       Chairman, Board of Governors of the Federal Reserve System.
     Harvey L. Pitt,
       Chairman, U.S. Securities and Exchange Commission.
     James E. Newsome,
       Chairman, Commodity Futures Trading Commission.

  The PRESIDING OFFICER. The Senator from Utah.
  Mr. BENNETT. I yield a half an hour to the Senator from Idaho.
  The PRESIDING OFFICER. The Senator from Idaho is recognized.
  Mr. CRAPO. Mr. President, I rise to address the Feinstein amendment, 
as the Senator from Mississippi has indicated, for the third occasion 
that we have debated this issue in this Congress. It is important to 
note that each time this amendment has been raised, it has been 
defeated. Each time the amendment has been raised, it has been opposed 
by those in the regulatory community--again as has been indicated by 
the Senator from Mississippi--whether it be the CFTC, the Department of 
the Treasury, the Board of Governors of the Federal Reserve, or others. 
The fact is that consistently those who are in charge of regulating, 
overseeing, and managing our economy and our financial markets have 
been opposed to this amendment. The question that we must ask ourselves 
is, Why?
  To do so it is important to go back over the history of this act. The 
Commodity Futures Modernization Act that we are debating is one with 
which we have had a long history of dealing in this Congress. In fact, 
before 2000, when President Clinton was in office, a President's 
working group was established which brought together experts from 
across the industry, not only those who were in the financial 
industries, but those who were regulating the financial industries, 
those we have already mentioned. The Secretary of the Treasury, the 
Commodity Futures Trading Commission, the Board of the Federal Reserve, 
and others were a part of this Presidential working group. Those who 
were involved in this Presidential working group looked at all the 
different commodities that we deal with, the different types of manners 
in which we deal with these commodities, and came up with an approach 
to how we should reform and modernize our law to best take advantage of 
the types of trading contexts or trading ideas that were utilized in 
the management and trading of commodities.
  It is a difficult subject to talk about because it is so complicated. 
The bottom line is that this act was then put forward. It was brought 
forward on a bipartisan basis in Congress, studied extensively by 
congressional committees after the Presidential committee brought 
forward its recommendations. And in the year 2000, reforms of the act 
were implemented.
  The amendment seeks to change the structure of regulation that this 
act established. The first time this challenge to the act was brought 
forward, we had occasion to have Mr. Greenspan before the Banking 
Committee. Mr. Greenspan was asked in his testimony what the proposed 
amendment would mean and what this concept of derivatives, that most 
people in America don't really get very engaged with, meant to our 
economy. I was the one who asked the question at that time.
  Mr. Greenspan's answer is very illuminating. He said, in his opinion, 
increasing the regulation and changing the scheme for regulating the 
management and the trading in derivatives from that which had been put 
together by the President's working group and approved by Congress 
would actually increase the threat to our economy. In fact, he pointed 
out that a very simple way to understand derivatives is that they are a 
tool by which sophisticated participants in the market are able to 
allocate risk so that those who are better able to bear it can pick it 
up, and that by being an instrument or a tool through which we allocate 
risk in our economy, the American economy actually was able to respond 
more quickly, more resiliently, and more effectively to the threats 
that have faced it over the last few years.
  Had we not had the capacity for derivatives transactions between 
sophisticated buyers, had that been regulated

[[Page 27147]]

and diminished or pushed offshore because the United States chose to 
regulate it so aggressively, we would not have had the resilience and 
the response in our economy that we had.
  We would have had a deeper trough and a more difficult recovery. 
Again, this amendment seeks to change that regulatory system Congress 
and the President and his working group so carefully put together.
  How did that act work? Well, the act created three different 
categories of derivatives transactions. The first category that was 
fully covered and is on an exchange--regulated exchange--where the 
first category was the category of agricultural transactions. Those 
transactions are fully regulated and fully covered under the act.
  The act identified certain types of transactions that should not be 
covered at all and should have no regulatory impact. Those were called 
financial derivatives. They include things such as treasury bonds, 
foreign exchange, or interest rates--those types of transactions that 
occur in the financial markets, and it was concluded they should not 
have any regulation. They were simply excluded from the act.
  A middle category was created for all other kinds of transactions. We 
have, on the one hand, agricultural transactions, which are fully 
covered. On the other hand, we have financial transactions, which are 
fully excluded and, in the middle, all other types of commodities, 
where the energy transactions fall. It has been argued today that these 
energy transactions simply are not covered. In fact, the phrase that 
has been used is one that would imply those engaged in energy 
derivatives transactions simply don't have any regulatory coverage at 
all. The phrase ``let anything go'' has been used, or it has been said 
there is literally no antifraud or antimanipulation provision or 
protection in the law regarding these types of transactions. That 
simply is not the case. This middle type of transaction was not put on 
an exchange because these are not the kinds of transactions that 
general investors in the market get involved with. These are highly 
sophisticated transactions, detailed negotiations between very 
sophisticated buyers and sellers, accomplishing this result which I 
talked about earlier of trading and exchanging risk. It is done in such 
a way that it doesn't effectively work on an exchange. That is why in 
this middle category the exchange was not included, but regulation for 
price reporting, antiprice manipulation, antimarket manipulation, and 
antifraud protection was included. So it is simply not correct to say 
those engaged in energy transactions--derivatives transactions--are not 
subjected to antifraud, antimanipulation, or price-reporting 
requirements. They are, which brings to bear the question of why we 
need to change this system of regulation.
  Again, on the floor today, as has been the case in the past each time 
we have debated it, the argument has been made that the Enron 
transaction or the Enron problem would not have been a problem had we 
had the aggressive kind of antifraud and antimanipulation this 
amendment proposes to create. Well, again, when we have had experts 
before us, and as has been said on the floor already by others, the 
Agriculture Committee and other committees have studied this very 
carefully. The experts have said to us there is no indication the lack 
of regulatory authority, if such exists, was any cause for what 
happened with Enron, and the lack of having regulated derivatives 
transactions, in terms of putting them on an exchange, or failure to 
have further fraud or antiprice manipulation and enforcement authority, 
was the cause of what happened with regard to the Enron transaction.
  As a matter of fact, I asked that same question, when this issue 
first came up, to Alan Greenspan. He, among many others, has indicated 
there is no evidence the failure to have more rigorous regulatory 
schemes in place on derivatives transactions would have stopped Enron 
from doing exactly what it did.
  Nobody is saying Enron did not violate the market, that Enron did not 
engage in price manipulation, that Enron did not engage in these wash 
transactions, that Enron did not engage in fraudulent behavior. The 
fact is, Enron did engage in these types of activities. The fact is the 
CFTC is currently investigating and enforcing its antifraud and 
antimanipulation enforcement authority against Enron and others in the 
market who might engage in these types of activities.
  The point is, as we proceed, we must understand whether what happened 
in terms of the Enron circumstance was as a result of the law not being 
strong enough or was simply the result of the fact that Enron violated 
the law. The fact is Enron did violate the law, those violations are 
being identified, and something over $90 million in fines and penalties 
against Enron and other market violators have already been enforced.
  Again, the point is enforcement is occurring. Why should we be 
concerned about adding a further regulatory scheme on top of that which 
is already in place? It gets back to the point Alan Greenspan made in 
that first hearing, where I first asked him about the issue; that is, 
we have a need in this country for resilience in our marketplace, in 
terms of allocation of risk.
  Our management of derivatives is critical in terms of how well we 
achieve that objective. If we want to increase the regulatory burden 
and increase the potential of diminishing our ability in the market to 
have the benefit of these very important types of transactions, then we 
better have a very good reason for doing so. If we want to have the 
benefit of a resilient marketplace, where derivatives transactions can 
occur between sophisticated buyers and sellers, then we want to be very 
careful about how we regulate it or overregulate it.
  I agree with anybody who says we want to make sure there should be 
antiprice manipulation or antifraud provisions in place. We should have 
those kinds of protections in place. But we should be very careful 
that, as we implement this type of regulatory scheme, we don't drive 
offshore derivatives transactions or cause a loss of resilience in our 
marketplace because we overregulate these important transactions.
  I note the chairman is looking to perhaps intervene here to conduct 
other business. I will reserve the remainder of my time.


                           Order of Procedure

  Mr. BENNETT. Mr. President, I ask unanimous consent that the vote in 
relation to the Feinstein amendment No. 2083 occur at 2:30 today; 
provided that no second-degree amendments be in order to the amendment 
prior to the vote, with the time until then equally divided in the 
usual form. I further ask unanimous consent that following that vote, 
the Senate proceed to a vote on passage of H.R. 2622, the Fair Credit 
Reporting bill. I also ask as in executive session that the Senate then 
proceed to executive session and an immediate vote on the confirmation 
of calendar No. 402, Roger Titus to be U.S. District Judge for the 
District of Maryland; provided further, that following that vote the 
President be immediately notified of the Senate's action and the Senate 
then resume legislative session. Finally, I ask unanimous consent that 
there be 2 minutes equally divided for debate prior to each of the 
votes following the first vote.
  Mr. REID. Mr. President, I wonder if my friend will modify his 
request to have the votes following the first vote be 10 minutes in 
length.
  Mr. BENNETT. I am happy to have the second two votes be 10-minute 
votes.
  The PRESIDING OFFICER. Is there objection?
  Without objection, it is so ordered.
  Mr. BENNETT. Mr. President, I ask the Senator from Idaho if he has 
further comments.
  Mr. CRAPO. I do. I will need 3 or 4 or 5 minutes.
  Mr. BENNETT. I yield 5 more minutes to the Senator from Idaho.
  The PRESIDING OFFICER. The Senator from Idaho.
  Mr. CRAPO. Mr. President, I want to conclude by once again going over 
the material that has already been put into

[[Page 27148]]

the record by Senator Cochran from Mississippi.
  As I indicated, as we have gone through this battle--now the third 
time--and the debate over whether we should change the manner in which 
we address derivatives transactions in this country, each time those 
who are charged with regulating and overseeing these types of concerns 
have weighed in in opposition to this amendment. I simply want to go 
through some of the points they have made from the materials. Again, 
they are already a part of the record.
  The first time we debated this amendment, back in September, a letter 
was submitted by Alan Greenspan, Chairman of the Board of Governors of 
the Federal Reserve System, Paul O'Neill from the Department of 
Treasury, Mr. Harvey Pitt, Chairman of the U.S. Security and Exchange 
Commission, and James E. Newsome, Chairman of the CFTC.
  In their letter at that time, they pointed out that this proposal 
would subject market participants to disclosure of proprietary trading 
information and new capital requirements.
  The capital requirements, I understand, have been dropped in this 
amendment. But as they go forward, they explain they don't believe a 
case exists in public policy to justify this increased level of 
Government intervention.
  The OTC markets, they state, trade a wide variety of instruments. 
Many of them are idiosyncratic in nature. They are customized markets 
and do not generally serve a significant price discovery function for 
nonparticipants, nor do they permit retail investors to participate.
  Again, this is not a market in which general investors participate. 
Highly sophisticated investors engage in these transactions. There has 
been some debate they have actually created the market through wash 
transactions and other activity. My point is that type of manipulation, 
either through manipulating a price or through other activities, such 
as wash trades, is already regulatable and being addressed by the CFTC.
  They go on to make the point: The trading of these instruments 
arbitrages away the inefficiencies that exist in all financial and 
commodities markets, and that we should not cause increased regulatory 
burdens on those important functions in our economy.
  Then again in June, when we addressed this issue last, the same group 
responded again to the same proposal. They wanted to point out then 
that with regard to the argument there was all of this bad activity 
taking place and we needed to pass new laws to stop this bad activity, 
the same group of regulators--the Treasury, the Federal Reserve System, 
the Securities and Exchange Commission, and the CFTC--stated they have 
brought formal actions against Enron, Dynegy, and El Paso for market 
manipulation, wash or roundtrip trades, false reporting of prices, and 
operation of illegal markets, and these actions have already resulted 
in substantial monetary penalties and other sanctions.
  Again, the point there is, as I made earlier, that we are enforcing 
the existing regime.
  Lastly, if there is still concern that we don't have enough 
protection in the law, our current chairman of the Energy Committee, 
Senator Pete Domenici, and those who are working with him from the 
Agriculture Committee, and others are beefing up those protections in 
the current law.
  A letter which, again, the Senator from Mississippi has already put 
in the Record, coming from Senator Cochran, myself, Senator Domenici, 
and Senator Miller, explains that the Energy Policy Act, which we are 
now working through in conference, will contain increased protection 
against fraud and price manipulation which addresses the EnronOnline 
problems that have been raised by the Senator from California.
  Even if the current situation in the law was not already 
satisfactory, we are increasing the antifraud and antimanipulation 
provisions to make certain that any concerns about this possibility 
occurring again are addressed as we focus the regulation without trying 
to do something to our derivatives markets that would cause a reduction 
in the resiliency of U.S. markets.
  Mr. President, I reserve the remainder of my time.
  The PRESIDING OFFICER. The Senator from Utah.


                           Amendment No. 2084

  Mr. BENNETT. Mr. President, I send an amendment to the desk on behalf 
of myself and Senator Kohl and ask for its immediate consideration.
  The PRESIDING OFFICER. Is there objection?
  The Senator from California.
  Mrs. FEINSTEIN. Is this meant to be an amendment to my amendment?
  Mr. BENNETT. No, the unanimous consent agreement, I say to the 
Senator from California, is that no second-degree amendments are in 
order to her amendment.
  Mrs. FEINSTEIN. Correct.
  Mr. BENNETT. This is a freestanding amendment separate and apart. If 
the Senator from California prefers, I can wait until after the vote to 
offer this amendment. This is a housekeeping action.
  Mrs. FEINSTEIN. Will the Senator be quick? I want to address some of 
the comments that have been made.
  Mr. BENNETT. I will, indeed.
  The PRESIDING OFFICER. Is there objection to the consideration of the 
amendment?
  Without objection, the clerk will report.
  The bill clerk read as follows:

       The Senator from Utah [Mr. Bennett], for himself and Mr. 
     Kohl, proposes an amendment numbered 2084.

  Mr. BENNETT. Mr. President, I ask unanimous consent that the reading 
of the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

       On page 79, between lines 7 and 8, insert the following new 
     section:
       ``Sec.  . Statements made by the Chairman and/or Ranking 
     Member of the Agriculture Appropriations Subcommittee, and 
     colloquies engaging the Chairman and/or Ranking Member of the 
     Agriculture Appropriations Subcommittee, given on the Senate 
     Floor or submitted for the Record during Senate consideration 
     of this Act shall be deemed part of Senate Committee Report 
     108-107 for purposes of conference with the House of 
     Representatives.''.

  Mr. BENNETT. Mr. President, this amendment provides that statements 
made by Senator Kohl and myself, as well as colloquies we have with our 
colleagues during consideration of this bill would be germane for 
conference with the House. I urge adoption of this amendment.
  The PRESIDING OFFICER. Is there further debate?
  If not, the question is on agreeing to the amendment.
  The amendment (No. 2084) was agreed to.
  Mr. KOHL. I move to reconsider the vote.
  Mr. BENNETT. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  The PRESIDING OFFICER. Who yields time?
  The Senator from California.


                           Amendment No. 2083

  Mrs. FEINSTEIN. Mr. President, I would like to try to respond to some 
of the comments that have been made.
  I believe the CFTC has antifraud and antimanipulation oversight on 
futures exchanges but not on over-the-counter energy trades. That is 
the difference here. We would cover over-the-counter energy trades and 
particularly those trades that are electronic.
  I also want to show where existing law is inadequate. There is a case 
that has just been brought to my attention which I think shows that the 
existing law is inadequate, and this is what we are trying to fix.
  Two energy traders from the energy firms Dynegy and El Paso were 
charged by the U.S. Government with reporting false information on a 
number of trades--at least 48 trades. They falsely reported the number 
and the prices used in trades they conducted involving natural gas in 
an attempt to influence the natural gas spot price indices.
  The Federal indictment charged them, among other matters, with wire

[[Page 27149]]

fraud and violation of the Commodity Exchange Act, which is what we are 
talking about, provisions prohibiting price manipulation and 
dissemination of false information about energy commodity rates.
  The Federal court allowed the wire fraud charges, but it dismissed 
the Commodity Exchange Act charges on the ground that the wording of 
the act failed to prohibit persons from knowingly providing false 
information. While the CEA used the word ``knowingly'' in an earlier 
part of the provision, the court ruled that the word had to be repeated 
in the section prohibiting false information.
  The Feinstein-Lugar-Levin amendment would clarify the wording of the 
CEA provision to resolve the problem identified by this Federal 
district court in the case of the United States of America v. Michelle 
Valencia, Criminal Action No. 8-03-024.
  That is a pretty clear indication of where present law is not 
adequate. These were bogus trades. These trades never took place. There 
were totally bogus, and yet the wording in the Commodity Exchange Act, 
which we are trying to fix, was judged by the court as too vague to 
take any action.
  Second, I want to make this point: What we are trying to do is 
prevent fraud and manipulation. We are trying to prevent it and deter 
it from happening. The soft penalties we have now don't prevent it. 
That should be very clear. We toughen the penalties in the Electricity 
Act and in the National Gas Act. Clearly, a number of these schemes 
that Enron practiced, whether it was Death Star, Ricochet, or Black 
Widow, or any of these other terrible schemes, took place. Our bill 
would specifically prevent them.
  We are trying to prevent and deter, and the way we do that is by 
strengthening the law.
  I am really puzzled by the administration's position. I am really 
puzzled because it seems to me they should be on the side of the 
American people, not on the side of the traders and those who want to 
get rich quick from this open marketplace.
  Additionally, it is interesting to me that the President's working 
group, when it came out in 1999, specifically said:
  ``Due to the characteristics of markets for nonfinancial commodities 
with finite supplies''--that is energy--``however, the working group is 
unanimously recommending that the exclusion''--the exclusion from the 
bill--``not be extended to agreements involving such commodities.''
  So beginning in the year 2000, they have done a total switch and I do 
not understand why, particularly after the events of 2000 and 2001, 
where we know fraud and manipulation was explicit. Now when the 
Government tries to go after two companies for bogus trades, a court 
finds the Commodities Exchange Act is inadequate; it is vague.
  Why would people oppose what we are trying to do? I think we are on 
the side of the angels.
  Let me quickly go over some points. Why do we need this legislation? 
We need it because companies are now permitted to trade large amounts 
of energy in virtually unregulated markets, which makes it easier for 
unscrupulous companies such as Enron to manipulate the price of energy. 
The bill would close the Enron loophole that allows this unregulated 
trading.
  Secondly, do we have any examples of how these markets have been 
manipulated? FERC recently released a 1-inch thick report on how the 
markets for electricity and natural gas in the western United States 
were manipulated in 2000 and 2001. So we know it happened. The FERC 
found Enron and other companies lied about the prices of their trades, 
reported fictitious trades to drive up prices, did wash trades with 
each other, and engaged in rapid trading to drive prices up and then 
back down, reaping millions of dollars of profits in the process and 
costing customers billions of dollars in unjustified energy costs. That 
is according to FERC. That is a finding in their study. Yet people 
still oppose this legislation. Unbelievable.
  Would this legislation have prevented these manipulations? Under 
current law, the CFTC is totally in the dark about what goes on in the 
over-the-counter markets. Under this legislation, manipulation in these 
markets would be a felony and the CFTC would get reports about large 
trades in the over-the-counter markets, so it would be able to monitor 
these markets, something it cannot do now. Should anybody be able to 
escape from ongoing monitoring of what they do in these markets, big 
traders? I do not think so. Yet they are in this little loophole that 
was created. That was the purpose of the loophole, to prevent anybody 
from looking; keep no records. Therefore, they are not going to be able 
to catch us, and there will be a weak law so it will not be sustained 
in court when they try to bring a case.
  Another question: Enron is bankrupt. A number of traders have been 
fined and energy trading is back on the rise. The marketplace seems to 
be correcting itself. Why is this legislation needed?
  It is needed to avoid more problems like we have just had. Although 
everything mentioned in the question I just asked may be true, there is 
one other significant fact. The consumers and businesses that paid 
higher prices have only recovered a small fraction of their losses. It 
is better to prevent the manipulation and the losses from happening 
than try to make up for them after they take place. That is the point. 
What our agencies have shown is there is, up to this point at least, no 
way for an aggrieved marketplace to recover its losses from fraud and 
any manipulation. Therefore, it should be our job to see the laws are 
accurate and in place to prevent this kind of activity from taking 
place in the beginning. That is where increasing the penalties comes 
in.
  Imagine, a $2,000 penalty for doing this. That is nothing. That is 
not even a slap on the wrist for multibillion-dollar companies.
  How does one respond to the concerns that this legislation will 
increase costs and uncertainty and scare off investment in the energy 
markets? It will not. The regulated U.S. commodities markets are the 
most successful and reliable in the world. Ever since the agricultural 
exchanges were first regulated, we have heard dire predictions from 
commodities traders that regulation will drive business overseas. In 
fact, the opposite has happened. We have seen a flight to quality as 
investors seek safe and reliable markets. That is a fact. This helps 
the market.
  Many traders and energy companies have said the actual cost of 
compliance with this legislation will be minimal.
  The final question: Why should energy derivatives be regulated 
differently or more stringently than financial derivatives? Because we 
do not touch financial derivatives. Mr. Greenspan, please know that.
  The price of energy derivatives can be manipulated by manipulating 
the supply of the underlying energy commodity. The price of financial 
derivatives is very difficult to manipulate because it is difficult to 
manipulate the price of financial measures underlying the instruments, 
which generally are not commodities but abstract financial measures 
such as interest rates and currency exchange rates.
  Then again, in 1999, the President's working group saw this. They 
recommended they not put energy into the loophole. The Congress saw 
differently and put energy into this loophole, and the never-never land 
of secrecy went on. These bogus trades were enabled. These bogus trades 
took place.
  There are cases being brought, and we are even finding that the law 
is inadequate because a court has said it is too vague. We correct 
that.
  I think this is really an important amendment. I do not think I could 
live with myself if I did not try to do it. If we lose today, believe 
me, I will come back again and again, because we saw what happened. We 
know there was massive fraud and manipulation. We know the loophole was 
there. We know there is no transparency, no record, no audit trail, and 
no antifraud and antimanipulation oversight for any over-the-counter 
energy trade. That is what we are trying to do.
  My colleagues have referred to futures exchanges rather than over-
the-

[[Page 27150]]

counter energy trades, and that is what we are referring to in this 
bill. Please, I know back here people look at the West and they say, 
aha, it is not us, but what I say to them is some day it could be them. 
Do they not want the law right? Do they not want to be protected? Do 
they not want a record kept so the regulatory agency can look at it? I 
really hope the answer is yes, and I hope this Senate will vote for 
this amendment.
  If there are no further comments, I will yield the remainder of my 
time. If there are, I reserve the remainder of my time.
  The PRESIDING OFFICER. The Senator from Utah.
  Mr. BENNETT. Mr. President, I understand there will be a response on 
this side so I would recommend to the Senator from California that she 
hang on to all the cards she has.
  Mrs. FEINSTEIN. I thank the Senator. I will do that.
  Mr. BENNETT. I yield 10 minutes to the Senator from Idaho.
  The PRESIDING OFFICER. The Senator from Idaho is recognized.
  Mr. CRAPO. Mr. President, I would like to respond to some of the 
points my colleague from California has made and try to further clarify 
some of these issues. It appears there may be a difference of 
understanding between us as to just what the CFTC actually has 
jurisdictional authority over. My colleague from California has 
indicated that the antifraud and antimanipulation provisions in the 
Commodities Futures Modernization Act do not apply to over-the-counter 
trades. My understanding is very different from that. In fact, it is my 
understanding that the CFTC has antimanipulation authority that allows 
the Commission to obtain books and records from any market participant 
when the CFTC believes the prices are being manipulated. In fact, as I 
had indicated in my previous comments, enforcement authority with 
regard to market manipulation and price manipulation is being 
undertaken with regard to Enron.
  The question here is whether there is a standardized set of books and 
records that are required of each participant. In that case, that is 
correct; the act does not put the full level of regulation onto those 
in the energy derivatives markets, only on agricultural commodities. So 
that might be the difference we are talking about. But the fact is, the 
distinction here is whether there is an exchange type of document 
disclosure as opposed to simply the type of document disclosure that 
the CFTC can ask for if it is investigating alleged price manipulation.
  Second, the Senator from California indicated that she believed the 
penalties were too soft, and her legislation addressed that issue. I 
suppose there is not a lot of disagreement. I have not really talked 
with other Members of the Senate about it. I don't know if there is a 
lot of disagreement in strengthening the penalties, but that is not 
really all this amendment does. In fact, it is not really the focus of 
this amendment. What this amendment does, as I said before, is it 
increases and creates an entirely new regulatory regime for the 
management of derivatives transactions in energy.
  I think this next point is a very critical point that we need to 
address. The Senator from California said in 1999 the working group 
said that energy transactions should not be excluded from the act. I am 
not familiar with the exact quotation or document that is being 
referred to there. But if the word ``excluded'' is the word the 
President's working group used, then that makes sense because, as I 
said earlier in my remarks, the act that we established after the 
President's working group went through its analysis created three 
different categories: Those that were included, those that were 
excluded, and those that were exempted. Why they use the word 
``exempted'' as opposed to some other category, I don't know. But there 
is a real distinction in this law between the word ``excluded,'' which 
means they are not covered, and the word ``exempted,'' which means they 
are not required to be registered on an exchange.
  Those that are in the exempted category are not excluded, which is 
what the 1999 working group apparently recommended for energy. Energy 
transactions in derivatives are not excluded, they are exempted, which 
means they, along with every other commodity transaction except for 
agricultural and financial transactions, are required to be subject to 
the reporting and investigatory antifraud and antimanipulation 
provisions of the act. That is what we are debating here.
  Finally, the Senator from California mentioned a case where the court 
did say there was a sufficient lack of clarity in the act that it could 
not be enforced against knowing and willful conduct. That is correct. 
That case, to my knowledge, is one of the only, if not the only, case 
in the country where there has ever been a court ruling that did not 
give the CFTC the authority it needs to go after this type of conduct.
  As I indicated in my earlier remarks, the Energy bill, which we are 
now putting together in the Energy conference, is correcting the 
problem that came up with that case. I actually have the language in 
front of me that is being changed in the law to address the concern 
raised by that case.
  So because there is a case where the court said the language needs to 
be tightened up a little bit, that does not mean we then need to create 
a whole new regulatory regime for the management of derivatives. What 
it means is we need to correct that problem that the case law pointed 
out in the statute to be sure that the antifraud and antimanipulation 
language is able to be enforced as we intended it to be. That is 
exactly what the chairman of the Energy Committee and the others of us 
who submitted this letter have stated is being corrected in the Energy 
bill.
  Then just one final comment. There was some question as to whether 
Mr. Greenspan or those of us on this side were making a distinction 
between financial derivatives or energy derivatives. I can assure those 
who were involved in the debate on all sides that Chairman Greenspan, 
as well as the rest of us, understand that we are talking about 
different types of derivatives when we talk about financial derivatives 
or energy derivatives or agricultural derivatives or other types of 
transactions in these commodities. The fact is, whether it is 
agriculture or energy or financial or other types of commodities, the 
manner in which we regulate them has incredible impacts on the way in 
which the markets operate.
  I will conclude my remarks at this time by asking unanimous consent 
to have printed in the Record a letter which was delivered to me today, 
again by Alan Greenspan, responding this third time to the issue, and 
discussing the reasons our market needs to retain its resilience as we 
deal with the management of different types of very sophisticated 
transactions like these derivatives transactions.
  I ask unanimous consent this letter be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                               Board of Governors,


                                       Federal Reserve System,

                                 Washington, DC, November 5, 2003.
     Hon. Michael D. Crapo,
     U.S. Senate,
     Washington, DC.
       Dear Senator: You have asked me for my views on Senator 
     Feinstein's latest proposal for additional regulation of 
     energy derivatives. By imposing large trader reporting 
     requirements on bilateral transactions in energy commodities, 
     the proposal would take the first steps toward introduction 
     of an ex ante prophylactic regulatory regime for the OTC 
     energy derivatives markets. Such a regime would undermine 
     market discipline to the extent that market participants come 
     to depend on the Commodity Futures Trading Commission (CFTC) 
     to protect their interests and therefore fail to do more to 
     protect themselves. Reliance on market discipline rather than 
     government regulation has allowed derivatives markets to 
     allocate risks very flexibly and effectively, which has 
     contributed importantly to the resiliency of our financial 
     system and our economy.
       In my view, concerns about market manipulation in the 
     energy derivatives markets would be addressed more 
     effectively by a combination of: (1) enhanced market 
     discipline on the processes through which price data are 
     gathered and price indexes are constructed, and (2) more 
     vigorous exercise of the CFTC's existing ex post enforcement 
     authority with respect to market manipulation. Some 
     clarification of the CFTC's enforcement authority would be 
     desirable, but

[[Page 27151]]

     it is not at all clear that the provisions in the proposed 
     amendment are the best way to accomplish that goal.
           Sincerely,
                                                   Alan Greenspan.

  Mr. CRAPO. With that, I withhold my further remarks. I suspect we may 
need to get into a little bit of debate on these issues, and that may 
help us to bring focus on what the differences and concerns we have 
are. But I withhold further remarks at this time.
  The PRESIDING OFFICER (Mrs. Dole). The Senator from California.
  Mrs. FEINSTEIN. Madam President, I would like to respond to the 
Senator. I think this discussion is constructive and I am pleased to 
partake in this exchange with my good friend from Idaho.
  This is a report entitled ``The Over-the-Counter Derivatives Market 
in the Commodity Exchange Act'' which was written by the President's 
working group on financial markets in 1999.
  On page 16 of that report, it goes on to say--and I want to read it 
in its context:

       Due to the characteristics of markets for nonfinancial 
     commodities with finite supplies--

  Which energy would be one--

     the working group is unanimously recommending that the 
     exclusion--

  In other words, the loophole--

     not be extended to agreements involving such commodities. For 
     example, in the case of agricultural commodities, production 
     is seasonal and volatile and the underlying commodity is 
     perishable, factors that make the markets for these products 
     susceptible to supply and pricing distortions and to 
     manipulation. There have also been several well known efforts 
     to manipulate the prices of certain metals by attempting to 
     corner the cash or futures markets. Moreover, the cash market 
     for many nonfinancial commodities is dependent on the futures 
     market for price discovery. The CFTC, however, should retain 
     its authority to grant exemptions for derivatives involving 
     nonfinancial commodities as it did in 1993 for energy 
     products, where exemptions are in the public interest and 
     otherwise consistent with the Commodities Exchange Act.

  Then the loophole was promulgated. The section of the Commodities 
Exchange Act which contains that loophole is section 2(g) and is 
titled, ``Excluded Swap Transactions.''
  The section reads, No provision of this Act (other than section 5a 
(to the extent provided in sections 5a(g)), 5b, 5d, or 12(e)(2) shall 
apply to or govern any agreement, contract or transaction in a 
commodity other than an agricultural commodity if agreement, contract 
or transaction is . . .
  And then it goes on.
  This section in the Commodities Exchange Act is what creates the 
loophole, and that is the problem that we are trying to correct in this 
legislation. I believe we do correct it.
  Again, it is very hard for me--and this might have something to do 
with the fact we went thorough it the west--to understand why we would 
not want to deter this activity and strengthen the rules to prohibit 
such manipulation from happening in the future.
  We want to be very certain that with all of this kind of trading, 
including over the counter trades and electronic trades, that the 
records are kept and there is an audit trail clearly exists and there 
is an opportunity for the Commodity Futures Trading Commission to note 
something may be wrong and hold the proper investigation. This is no 
more and no less than what exists on the exchange today.
  Why should this secret world of trading be allowed to exist? I know 
people get rich through it. This secret trading world allows people to 
get rich by engaging in fraudulent trades, as was seen during the 
Western energy crisis. It is this type of manipulative behavior that we 
are trying to stop.
  I can't understand why the administration would not want to support 
this. When Mr. Greenspan came in and talked to me a few years ago when 
we first proposed this legislation, his main concern was financial 
derivatives. This is why we made certain, as I have said in my 
comments, that this legislation does not concern financial derivatives. 
He may well have expanded his view to all kinds of over-the-counter 
trades since then, but at the time I sat down and met with him, that 
was not his position.
  Regardless, we are talking about public policy. We are talking about 
protecting the people of America. We are talking about strengthening 
the law so that what happened on the west coast can never happen in the 
Midwest or on the east coast or any part of the nation.
  I mentioned what the attorney general of the State of New York--the 
attorney general, not a deputy--Mr. Spitzer, has written. Once again, 
let me read what he said. He is the one who prosecutes many of these 
cases and I really think his views in this area should make a 
difference.
  He says:

       I urge your amendment's adoption. In addition to providing 
     wholesale electricity markets, the transparency vital to 
     effective competition, the amendment closes loopholes used to 
     manipulate energy markets. It improves the ability to detect 
     fraud and other manipulation, and it deters manipulation by 
     establishing substantive penalties.

  This is the attorney general of the State of New York who is going to 
be prosecuting many of these cases. He says it is a wise thing to do, 
it is a prudent thing to do, and you should do it.
  He also says that this amendment makes a major contribution to 
competitive energy markets by initiating an electronic information 
system to be operated through the Federal Energy Regulatory Commission. 
I have already talked about this. Earlier, I said how this legislation 
will provide open access to comprehensive, timely, and reliable 
wholesale electricity and transmission prices. The attorney general 
repeats that. He says:

       The reliability of market information would be markedly 
     improved by the amendment's--

  Don't we want that? I think so--

     general prohibition on manipulation of the purchase or sale 
     of electricity, or the transmission services needed to 
     deliver electricity and by the specific prohibition of the 
     round trip trading manipulation used so effectively to 
     inflate electricity prices to the public's injury.

  This is the prosecutor in one of the main States that would have this 
kind of litigation.
  Then he goes on to say:

       Enforcement of the law and regulation safeguarding our 
     energy markets would be greatly aided by other reforms the 
     amendment provides. The amendment would repeal the so-called 
     Enron exemption which shields large energy traders from 
     oversight.

  Once again, I want to iterate that this is the attorney general of 
New York speaking.

       In addition, the amendment would apply to anti-manipulation 
     and anti-fraud provisions of the Commodity Exchange Act--

  I just read to this provision to you. Clearly this section of the Act 
is inadequate by anybody's reading to effectively regulate all energy 
transactions--

       Our legislation would improve the Federal Energy Regulatory 
     Commission's ability to address complaints, and it would lift 
     the restriction on the Federal Energy Regulatory Commission's 
     authority to order refunds. These reforms will make 
     accountable parties, which are currently beyond the law's 
     reach accountable for their actions and will increase 
     recovery of overcharges.

  Once again, I ask, don't we want to do this? Do we really want to 
protect these people who are willing to do such harmful things to the 
American people?
  I am shocked at the administration's letter. I thought they were 
there to protect the public.
  I thank the Chair. I reserve the remainder of my time.
  The PRESIDING OFFICER. The Senator from Utah.
  Mr. BENNETT. Madam President, I yield an additional 10 minutes to the 
Senator from Idaho and allow him to yield back whatever time he might 
decide not to use.
  The PRESIDING OFFICER. The Senator from Idaho is recognized.
  Mr. CRAPO. Thank you very much, Madam President. I will try to be 
brief.
  I wish to respond to what really has become the one focal point in 
the discussion we have been having over the last few minutes; that is, 
whether the Commodity Futures Trading Act applies and provides tools to 
protect against over-the-counter trades and derivatives. There isn't 
any difference between us in regard to that.
  The Senator from California said: Would we want to protect people who

[[Page 27152]]

would do all of these bad things? She indicated from the letter she 
read from the attorney general of New York that we were shielding large 
over-the-counter trades from oversight. I will simply say again that 
this is not the way the laws have been interpreted by the authorities 
of the government who administer this act, and it is not the way the 
law has been interpreted by those who were involved in writing the act. 
Frankly, with the exception of one case of a word change correction in 
the energy conference bill to address the issue--with the exception of 
that one case, to my knowledge, there is no indication that the CFTC 
does not have authority to regulate these trades.
  Let me go on. I will go back to the letter of June 11. This is a 
letter from the Department of the Treasury, the Board of Governors of 
the Federal Reserve System, the U.S. Securities and Exchange 
Commission, and the Commodity Futures Trading Commission in which they 
state they were aware that one of the arguments was they do not have 
the authority or that adequate regulation is not taking place.
  This is a letter written to me and to Senator Zell Miller, whom I 
commend for his efforts in this matter. They state in the letter:

       As you know, the Commodity Futures Trading Commission has 
     brought formal actions against Enron, Dynegy, and El Paso for 
     market manipulation, wash--roundtrip--trades, false reporting 
     of prices, and operation of illegal markets.

  If they don't have the authority under the act to regulate price 
manipulation or other market manipulations, then how could they have 
brought formal actions to enforce it? Not only do they bring formal 
actions but the Securities and Exchange Commission, the Federal Energy 
Regulatory Commission, and the Department of Justice have also 
initiated formal actions in the energy sector.
  At the time of this letter, which was last June, they indicated:

       Some of these actions have already resulted in substantial 
     monetary penalties and other sanctions. These initial actions 
     alone make clear that wrongdoers in the energy markets are 
     fully subject to the existing enforcement authority of 
     Federal regulators.

  We can debate about whether we should increase the penalties or add 
more regulations on top of this, but the fact is that under the 
Commodity Futures Trading Act, anti-price-manipulation and other 
antifraud provisions are enforceable.
  I wish to go back also to one other comment the Senator from 
California made. She read to us out of the 1999 report of the 
President's working group. I listened very carefully to the words she 
was reading because it is important to understand the usage of words by 
the President's working group.
  I will go back again to when the President's working group 
recommended how to create this statutory system. When Congress adopted 
that recommendation and made it law, we created three categories--
included, exempted, and excluded. What this working group language 
which was read to us said was that due to the characteristics of 
nonfinancial commodities, exclusion was not intended or not 
recommended.
  That is exactly, in fact, what we did in the law. We did not exclude 
the energy sector. We put it in the middle category, which is exactly 
where their working report said it should go. It said they should have 
authority to be exempted. It was put in the ``exempted'' category 
which, again, although that exempted word makes it sound as if they are 
excluded, is not the way the wording of the statute works. The exempted 
category is fully subject to antifraud and antiprice manipulation 
protections and to record-reporting requirements imposed by the CFTC.
  Again, we may have a difference of opinion on where the reach of the 
law is, but the bottom line is the agencies involved in administering 
these and other laws are fully enforcing the law.
  I conclude by reading one further letter sent to the Honorable Bill 
Frist and Tom Daschle yesterday by a number of associations. I will 
read the names of the associations. These are not just energy companies 
but companies, associations, and groups involved with the management of 
our economy from many different perspectives. They point out that the 
President's working group's approach, which we have been debating 
today, has been applied and that enforcement actions are taking place. 
In their words:

       These actions make it clear that wrongdoers in the energy 
     markets are fully subject to the significant authority of 
     federal and state authorities.

  Again, in their words:

       Led by the CFTC, federal and state authorities are 
     currently investigating 32 companies and since last year the 
     Commission has entered into six settlements collecting a 
     total of $96 million in civil penalties from energy companies 
     and power merchants for attempting to manipulate energy 
     prices.

  Again, if they do not have the authority to regulate, they are 
certainly doing a good job of regulating. They have collected over $96 
million in civil penalties and continue to enforce the act.
  Signers of this letter are: the American Bankers Association, the ABA 
Securities Association, the Association for Financial Professionals, 
the Bond Market Association, EMTA, the Financial Services Roundtable, 
the Foreign Exchange Committee, the Futures Industry Association, the 
International Swap and Derivatives Association, the Managed Funds 
Association, the National Mining Association, and the Securities 
Industry Association.
  I bring that up simply to point out that not only are those agencies 
in our Government--such as the Department of the Treasury and the CFTC 
and the Federal Reserve and others--concerned about this, but those in 
the industry, those operating in our financial industries are concerned 
about what this will do to our economy and the resilience of our 
ability to manage risk in our economy.
  One of the factors that gives us the ability to have the strongest 
economy in the world is our ability to utilize these types of 
transactional authorities to allocate risk in a way that gives us the 
resiliency to defend against the kinds of threats against our economy 
we faced over the last few years.
  I yield back the remainder of my time.
  The PRESIDING OFFICER. Who yields time?
  Mr. BENNETT. Madam President, what is the time situation?
  The PRESIDING OFFICER. The Senator from Utah has 3 minutes 16 seconds 
and the Senator from California has 2 minutes 15 seconds.
  Mr. KOHL. Madam President, I would like to make a brief statement on 
this amendment. This is a complicated issue.
  The PRESIDING OFFICER. Who yields time?
  Mrs. FEINSTEIN. I would be very happy to yield my 2 minutes to the 
ranking member if I might have 3 minutes to conclude.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. KOHL. This is a very complicated issue. This is an issue on which 
the Senator from California has spent a lot of time. I believe she 
knows it thoroughly. Her proposal would bring more transparency to the 
derivatives market, something we should all support. With above-board 
transparent markets, derivatives trading will never be taken seriously 
and investors will always be at risk of being taken advantage of. I 
will be supporting the Feinstein amendment. I urge fellow Senators to 
do the same.
  The PRESIDING OFFICER. Who yields time?
  Mrs. FEINSTEIN. Madam President, there really is a difference of 
opinion. I would like to have the time to read part of the transcript 
in a hearing on the Committee on Agriculture on July 10. A question 
that Senator Crapo asks to Mr. Newsome of the CFTC.

       Senator Crapo: I know we have been over this before but I 
     want to be sure that I have it right. As I listened to the 
     testimony of both of you it seems to me that there is 
     actually a lot more agreement than disagreement with respect 
     to what we ought to be doing and where we ought to be. The 
     disagreement, as I understand it, is over whether 2G excludes 
     from the fraud and manipulation provision swap transactions.

  Now, swap transactions are the dominant majority of what goes over 
the over-the-counter market.

       I am correct about that. Would the two of you agree that is 
     the core of the disagreement between your testimony?

[[Page 27153]]

       Mr. Newsome: 2G certainly does exclude swap transactions.

  That is my point. And he is testifying to it in this committee that 
this is not covered by the CFTC.
  It goes on.

       Senator Crapo: It excludes them from fraud and manipulation 
     protections.
       Mr. Newsome: 2G excludes them from jurisdictions of the 
     CFTC.

  The PRESIDING OFFICER. The Senator from Utah.
  Mr. BENNETT. Madam President, I yield 2 minutes to the Senator from 
Wyoming.
  Mr. ENZI. Madam President, I rise to oppose this issue.
  I ask unanimous consent that an article from the Wall Street Journal 
that explains how small firms are potentially affected by this 
amendment, a way that small firms have had for hedging so they could 
stay in business in markets that fluctuate dramatically so they could 
keep a level price for consumers and still make a profit, be printed in 
the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

              [From the Wall Street Journal, Nov. 3, 2003]

         Small Firms Are Turning to Financial Futures for Fuel

                           (By Russell Gold)

       Dallas.--Deregulated energy markets have taken their fair 
     share of criticism in recent years. But that hasn't scared 
     off some of the nation's small-business owners, who are 
     betting that the wild and woolly world of the financial-
     futures markets will provide more price stability than the 
     stodgy regulated utilities.
       That's a big departure. Typically, small businesses have 
     relied on the regulated utilities for their energy needs. But 
     in the past three years, natural-gas prices have surged and 
     the regulated utilities have been slow to find ways to put a 
     lid on the trend. That's opened the doors to marketers that 
     can use financial derivatives and fixed-rate contracts to 
     offer stable pricing for customers.
       By the end of this year, an estimated 550,000 commercial 
     clients nationwide will have purchased fixed-price, natural-
     gas contracts through energy marketing middlemen, according 
     to Kema, a consulting firm in Fairfax, Va., that researches 
     retail-energy markets. That represents a 10% increase from 
     two years ago. ``We are seeing slow and steady growth'' in 
     small businesses switching from utilities to deregulated 
     energy marketers for fuel supplies, says Kema's natural-gas 
     research director, Gerry Yurkevicz.


                       locking into fixed prices

       In the past, only large industrial companies would take 
     such risks. But an increasing number of small and midsize 
     businesses, including property managers, hospitals and fast-
     food franchises, are locking in a fixed price rather than 
     watching their energy bills gyrate from month to month. If 
     they're lucky, they will save money on fuel. But if a warm 
     winter causes prices to collapse, they may end up spending 
     more on natural gas than what utilities would charge.
       But for most small businesses, natural-gas marketers have 
     something to offer besides the possibility of lower prices: 
     They can offer near-term price stability. This allows 
     businesses to set their energy budgets for the year and not 
     worry.
       Mark Beffort, president of a real-estate-management concern 
     in Oklahoma City recently made the switch. Instead of buying 
     natural gas from the local utility for a 22-story suburban 
     office tower he manages, he works with natural-gas marketer 
     Clearwater Enterprises LLC. This past fall, Mr. Beffort 
     called Clearwater and chewed over whether to but natural gas 
     for the winter or wait. ``Do we want to lock or do we want to 
     gamble?'' he asked. Last month, a government report on levels 
     of natural gas stored in reservoirs for winter use sent 
     natural-gas prices down. At the urging of Clearwater, Mr. 
     Beffort bought on the drop. He orally agreed to take enough 
     natural gas to heat the office tower at a fixed price. 
     Clearwater then locked in supply using a combination of 
     futures contracts and fixed-price deals with producers.
       ``Customers can fix their energy budgets at the beginning 
     of the year,'' Mr. Yurkevicz says. ``They can set it and 
     forget it.'' By contrast, regulators set up rules that 
     discourage utilities from hedging, making retail prices 
     almost as volatile as natural-gas prices.
       For most of the 1990s, natural-gas prices, as measured by 
     tradable futures contracts on the New York Mercantile 
     Exchange, held stable at about $2.50 per million British 
     thermal units. Since 2000, however, the price has whipsawed, 
     and the average cost so far this year has exceeded $5 per 
     million BTUs.
       Many marketing firms are targeting smaller and smaller 
     commercial customers. Peoples Energy Services, a unit of 
     Chicago-based Peoples Energy Corp., reported it number of 
     commercial clients jumped 20% to 13,073 for the year ended 
     Sept. 30. Meanwhile, the company's average customer usage 
     decreased by 9% to 3.2 million cubic feet, as the energy 
     marketer takes on more smaller customers.
       UGI Energy Services, a subsidiary of suburban Philadelphia-
     based UGI Corp., has more than quadrupled its number of 
     customers since 1999. Over the same span, its average 
     customer usage has dropped 13%, to 23 million cubic feet. 
     ``We view ourselves as risk managers,'' says UGI Energy 
     Services President Bradley Hall. ``What most people are 
     looking for its stability.''


                           switch to propane

       That's what attracted customer Jeff Uhlenburg. His family-
     owned industrial furnace in Philadelphia had spent more than 
     six months of its energy budget by mid-March, and high 
     natural-gas prices forced him to switch to propane. ``I got 
     burned,'' he says. This summer, he switched to UGI, which 
     buys natural-gas futures and supplies Mr. Uhlenburg natural 
     gas at a fixed price.
       Rather than fighting the trend, some regulated utilities 
     are encouraging their customers to switch. The utilities 
     continue to profit from transporting the natural gas. And 
     often, the utility and energy marketer share a common 
     corporate parent.
       Oklahoma Natural Gas Co., a regulated utility owned by 
     Oneok Inc., gained approval from the state earlier this year 
     to permit even smaller customers than previously allowed to 
     switch to third-party marketer. The 97-year old utility last 
     month began asking commercial clients as small as dry 
     cleaners for permission to send their contact information to 
     marketers. Oneok is hoping that commercial customers will 
     choose to sign up with its unregulated subsidiary, Oneok 
     Energy Marketing Co., to provide their natural gas.

  Mr. ENZI. I know this is a glaze-the-eyes-over issue. It is hard for 
me to understand. It is probably hard for me to be able to spell 
derivatives, let alone understand paragraphs A, B, C, D, G, or whatever 
they were.
  This amendment has come up twice before. We voted it down twice 
before. There have been some changes to pick up a little bit more of a 
majority. As the letter read by the Senator from Idaho pointed out, the 
industries that were excluded in this have not bit into it yet. They 
understand it is a slippery slope and they will come back up and pick 
them up.
  The SEC has brought action against these companies. If Sarbanes-Oxley 
had been in place a year before the time that it was, we would not have 
had any problem. There are protections out there. So let's not take 
this advantage away from the small businesses.
   The proponents of the amendment believe that the trading of 
derivatives, especially in the energy area, were the cause of the 
energy problems faced by western States in recent years. Specifically, 
the proponents believe that energy trading of derivatives by Enron 
contributed significantly to the energy problems.
   Unfortunately, the problems that caused Enron to fail were based 
upon failures in corporate governance and outright fraud. Ironically, 
we are addressing this amendment after we celebrated the 1-year 
anniversary of the passage of the Sarbanes-Oxley act in July. If that 
act had been in place earlier, the problems of Enron, and companies 
like Enron, would have been discovered by the independent directors and 
effective auditors required by the law.
   Proponents of the amendment also would have us believe that Federal 
regulators do not have enough power and authority to seek out and 
punish the wrong doers. That is simply not true. Three Federal agencies 
have brought enforcement actions as a result of the activities of Enron 
and companies like Enron and the Department of Justice has instituted 
investigations into the matter.
   Two weeks after we defeated the amendment in June, the Federal 
Energy Regulatory Commission issued two ``broad show cause'' orders to 
over 60 power trading companies that are alleged to have engaged in 
manipulative practices that disrupted the western energy markets in 
2000 and 2001.
   In addition, the Commodities Futures Trading Commission documented 
administrative and criminal actions of the energy trading industry in 
the agency's, ``Report on Energy Investigations'' that was released on 
April 9 of this year.
   Finally, in late July, the Securities and Exchange Commission 
settled enforcement proceedings in the amount of $255 million against 
two investment banks that conspired with Enron to commit fraud. This is 
not the first action by the Securities and Exchange

[[Page 27154]]

Commission in this area. In total, the Securities and Exchange 
Commission has brought six separate actions in connection with the 
Enron matter.
   In addition, the Federal agencies are not sitting idle. In 
particular, the Federal Energy Regulatory Commission has regulatory 
initiatives to provide greater clarity and transparency to the energy 
markets.
   It is abundantly clear that the Federal agencies are acting where 
appropriate and are using their full authority to pursue those who 
commit fraud on the energy and securities markets.
   During the debates on the June 11 amendment, the President's working 
group, which is 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, and the Chairman of the CFTC, sent a letter to 
opposed the amendment. In the letter, the working group stated that the 
June 11 amendment ``could have significant unintended consequences for 
an extremely important risk management market--serving businesses, 
financial institutions, and investors throughout the U.S. economy.''
   On July 16, Chairman Greenspan testified before the Senate Banking 
Committee on the state of monetary policy. In response to question 
posed at the hearing, he reiterated his opposition to the amendment.
   As I stated on June 11, as we debated this amendment before, I 
believe that the amendment is overly broad and if adopted will likely 
decrease market liquidity because of increased legal and transactional 
uncertainties. In addition, I am suspect of this amendment as it 
includes a carve-out for the metals industries. Congress should be very 
cautious about carve-outs as it may start out to be a slippery slope 
where the initial carve-out is for the metals industry. The next move 
will be to exempt other industries until there are enough votes to pass 
an amendment--then the process well reverse to pick up the exemptions.
   Instead of cutting the throats of particularly small companies, this 
will be the death by a thousand small slices. Derivatives are 
protecting hedging for small companies and it works. Evidence of small 
business use of energy financial products on energy issues can be seen 
in the November 3 article of the Wall Street Journal entitled, ``Small 
Firms are turning to Financial Futures for Fuel.'' I also would like to 
acknowledge the financial services industries opposition to this 
amendment.
   For every reaction Congress tends to have an overreaction. I believe 
that this is the case here. The Commodities Futures Trading Commission 
already oversees market manipulation concerns with the energy trading 
markets. The pursuit of a new broad-based regulatory scheme for the 
oversight of energy trading may be an unnecessary addition to the 
market.
   Accordingly, I urge my colleagues to vote against this particular 
amendment as they have voted it down twice before.
  Mr. BENNETT. Madam President, as I have listened to this debate, it 
has reminded me once again of why I am glad I did not go to law school. 
The details of the legislation are best left to the lawyers who have 
argued it.
  I simply share with my colleagues a conversation I had when the 
question of derivatives arose with respect to the bankruptcy of Orange 
County in California. There was an attempt at that point to say we must 
regulate these derivatives. Derivatives are terrible. Derivatives are 
responsible for all of our troubles. Chairman Greenspan was asked 
pointblank if derivatives were responsible for the bankruptcy in 
California. He said no, all derivatives did was make the stupid actions 
of the treasurer of Orange County be carried out more effectively than 
would have been the case without them.
  We must remember that derivatives are neutral. They are tools to be 
used by managers to hedge risks and to make things move more 
efficiently in the marketplace. We sometimes move away from that 
understanding and think they are inherently evil in and of themselves.
  I accept the assurances that the trading in this area is 
appropriately managed by the regulatory agencies that have been set up 
and I intend to oppose the amendment. I urge my fellow Senators to do 
the same.
  Mrs. FEINSTEIN. I ask unanimous consent for 1 minute to permit 
Senator Cantwell to speak.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The Senator from Washington.
  Ms. CANTWELL. Thank you, Madam President.
  Madam President, I come to the floor to support the Feinstein 
amendment. I think Senator Feinstein has done an outstanding job of 
trying to communicate what is essential for markets to operate 
efficiently. For markets to operate efficiently, they need 
transparency. That is what the underlying amendment does.
  It says, let's make these commodities have the same transparency as 
other products on the market that are sold as futures, have the ability 
to look at the books, and make sure that manipulation has not happened.
  I urge my colleagues to support the Feinstein amendment.
  The PRESIDING OFFICER. The Senator from Utah.
  Mr. BENNETT. Madam President, I move to table the amendment and ask 
for the yeas and nays.
  Mr. LEVIN. Will the Senator withhold for a unanimous consent request?
  Mr. BENNETT. I will withhold.
  Mrs. FEINSTEIN. Madam President, I have a copy of a colloquy between 
the leaders that we would have an up-or-down vote on the amendment.
  Mr. LEVIN. Madam President, while that is being considered, I ask 
unanimous consent that a statement of the American Public Gas 
Association, supporting the amendment; a statement of Attorney General 
Eliot Spitzer, supporting the amendment; a statement of the North 
American Securities Administrators Association, supporting the 
amendment; a statement from the Consumers Union, Consumer Federation of 
America, U.S. Public Interest Research Group, and Public Citizen, 
supporting the amendment; and a statement from the Derivatives Study 
Center be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                                   American Public


                                              Gas Association,

                                     Fairfax, VA, October 8, 2003.
     Re protecting electricity markets and consumers.

     Hon. Richard Lugar,
     Hart Senate Office Building,
     U.S. Senate, Washington, DC.
       Dear Senator Lugar: The American Public Gas Association 
     (APGA) is very pleased that you and Senators Levin and 
     Feinstein are leading a bipartisan effort to ensure that 
     energy prices are determined in a competitive and informed 
     marketplace. The provisions in your ``Energy Market Oversight 
     Amendment'' are significant steps toward closing the gaps 
     that impede effective federal oversight of the energy 
     marketplace. We strongly support the changes you propose to 
     the Commodity Exchange Act (CEA) and the Federal Power Act 
     (FPA). We also urge that you amend the Natural Gas Act (NGA) 
     in the same manner as the FPA so natural gas markets and 
     consumers are provided the same level of protection you 
     propose for electricity markets and consumers.
       APGA represents the interests of municipally-owned gas 
     utilities. There are over 950 public gas systems across the 
     country in 36 states serving more than five million 
     residential and commercial customers. APGA represents over 
     600 of these public gas systems. Our members are not-for-
     profit utilities, and their boards are composed of locally 
     elected and appointed officials. No other trade association 
     in the gas industry is closer to the customers they serve 
     than APGA members. And, on behalf of APGA, we strongly 
     support your amendment because it will improve market 
     transparency and provide the essential regulatory oversight 
     to detect and prevent manipulation and improve the efficiency 
     of energy markets. Greater transparency and effective 
     oversight are the basic steps necessary to restore confidence 
     in the energy markets and promote the investments needed to 
     provide reliable energy at fair prices to consumers and 
     businesses.
       We applaud your efforts and your goals: to improve 
     transparency, strengthen enforcement, and preclude 
     manipulation in energy markets. Fundamental to achieving 
     these goals is to undo the special exclusions and exemptions 
     granted in the closing hours of the 106th Congress. The 
     amendments to the CEA you now propose are focused 
     specifically on energy markets and will provide a

[[Page 27155]]

     basic level of protection for all energy consumers because 
     the provisions clearly establish anti-fraud and anti-
     manipulation authority in the over-the-counter derivatives 
     contracts for energy commodities.
       However, we urge you to include changes to the NGA that are 
     consistent with your changes to the FPA. Unless such changes 
     are made in tandem, there will be even further disparity 
     between the consumer protection provisions in these two 
     important acts. We hope that such disparate treatment will 
     not be tolerated.
       Again, public gas utilities and the hundreds of communities 
     we serve commend you for your thoughtful and deliberate 
     leadership on this very important issue. While there may be 
     some who will oppose this amendment, one need not look far to 
     see whether the opposition is looking out for the best 
     interests of Wall Street or Main Street. We pledge to work 
     with you in any way we can to pass this much-needed 
     amendment. Please let me know how I can assist you.
           Sincerely,
                                                         Bob Cave,
     President.
                                  ____

                                                State of New York,


                               Office of the Attorney General,

                                   New York, NY, October 15, 2003.
      Hon. Ted Stevens,
     Chairman, Appropriations Committee, U.S. Senate, Washington, 
         DC.
     Hon. Robert C. Byrd,
     Ranking Member, Appropriations Committee, U.S. Senate, 
         Washington, DC.
     Hon. Robert Bennett,
     Chairman, Subcommittee on Agriculture, Rural Development, and 
         Related Services, Appropriations Committee, U.S. Senate, 
         Washington, DC.
     Hon. Herb Kohl,
     Ranking Member, Subcommittee on Agriculture, Rural 
         Development, and Related Services, Appropriations 
         Committee, U.S. Senate, Washington, DC.
       Dear Senators: I firmly support your efforts to make our 
     energy markets competitive and to protect those markets from 
     fraud and manipulation. The Energy Market Oversight 
     Amendment, sponsored by Senators Feinstein, Levin and Lugar 
     and under consideration as an amendment to the pending 2004 
     Agriculture, Rural Development, and Related Services 
     Appropriations legislation, is a major step toward both 
     goals. I urge its swift adoption. In addition to providing 
     wholesale electricity markets the transparency vital to 
     effective competition, the amendment closes loopholes used to 
     manipulate energy markets, improves the ability to detect 
     fraud and other manipulation, and deters manipulation by 
     establishing substantive penalties.
       The amendment makes a major contribution to competitive 
     energy markets by initiating an electronic information system 
     to be operated through the Federal Energy Regulatory 
     Commission (`'FERC''). This system will provide open access 
     to comprehensive, timely and reliable wholesale electricity 
     and transmission price and supply data, greatly expanding the 
     choices of both buyers and sellers. In addition, the 
     reliability of market information would be markedly improved 
     by the amendment's general prohibition on manipulation of the 
     purchase or sale of electricity or the transmission services 
     needed to deliver electricity, and by the specific 
     prohibition of the ``round trip trading'' manipulation used 
     so effectively to inflate electricity prices to the public's 
     injury.
       Enforcement of the laws and regulations safeguarding our 
     energy markets would be greatly aided by other reforms the 
     amendment provides. The amendment would repeal the so-called 
     ``Enron exemption,'' which shields large energy traders from 
     oversight. In addition, the amendment would apply the anti-
     manipulation and anti-fraud provisions of the Commodity 
     Exchange Act to energy transactions, would improve FERC's 
     ability to address complaints, and would lift a restriction 
     on FERC's authority to order refunds. These reforms will make 
     accountable parties now beyond the law's reach and will 
     increase the recovery of overcharges.
       Finally,the amendment would give effect to the deterrents 
     against energy market abuses. These reforms make FERC 
     penalties more than just a ``cost of doing business.''
       The events of the past three years teach that we need 
     better and stronger laws to protect our energy markets. The 
     Energy Market Oversight Amendment would significantly improve 
     our laws and strengthen crucial deterrents against the fraud 
     and other energy market manipulations that have cost our 
     citizens and our economy billions. The national interest 
     would be served by the amendment becoming law as soon as 
     possible.
           Sincerely,
                                                    Eliot Spitzer,
     Attorney General.
                                  ____

                                         North American Securities


                             Administrators Association, Inc.,

                                 Washington, DC, October 27, 2003.
     Hon. Ted Stevens,
     Chairman, Appropriations Committee, Washington, DC.
     Hon. Robert C. Byrd,
     Ranking Member, Appropriations Committee, Washington, DC.
     Hon. Robert Bennett,
     Chairman, Subcommittee on Agriculture, Rural Development and 
         Related Services, Washington, DC.
     Hon. Herb Kohl,
     Ranking Member, Subcommittee on Agriculture, Rural 
         Development and Related Services, Washington, DC.
       Dear Senators: The North American Securities Administrators 
     Association is writing to express its support for the Energy 
     Market Oversight Amendment, sponsored by Senators Feinstein, 
     Levin and Lugar. It is our understanding that this amendment 
     will be considered as part of the Agriculture Appropriations 
     bill.
       The collapse of Enron, continued reports of fraud, 
     manipulation in the energy markets, and the lack of 
     transparency in over-the-counter (OTC) energy trading 
     underscore the need for this amendment. The Energy Market 
     Oversight Amendment would provide the transparency and 
     regulatory tools necessary to detect and prevent manipulation 
     and improve the efficiency of these markets. Its disclosure 
     requirements will make the energy marketplace more open for 
     all producers and consumers, and the result will be a more 
     sound and efficient market. During this period of market 
     unrest, now is the time to strengthen the oversight of the 
     energy markets.
       NASAA supports the Feinstein-Levin-Lugar amendment because 
     it would provide more transparency to the wholesale 
     electricity markets, supply the CFTC with the authority to 
     detect fraud and manipulation, and help to deter wrongdoing 
     by significantly increasing the penalties for violations of 
     the Federal Power Act.
       The events of the past three years should be a wake-up call 
     that we need stronger laws to protect the users of our energy 
     markets. This amendment would improve our laws and help to 
     ensure that problems associated with Enron, the Western 
     electricity crisis, and the recent Northeast blackout do not 
     recur. Thank you for your consideration of these 693Y85X 
     views. Please do not hesitate to contact Deborah Fischione 
     House, NASAA's Director of Policy at 202-737-0900, if we may 
     be of assistance to you.
           Sincerely,

                                            Ralph A. Lambiase,

                                                  NASAA President,
     Director of Connecticut Securities.
                                  ____

                                                 October 16, 2003.
       Dear Senator: We are writing to urge you to support the 
     bipartisan Energy Market Oversight Amendment, which will be 
     offered during consideration of the Fiscal Year 2004 
     Agriculture Appropriations bill. This amendment, being 
     offered by Senators Feinstein, Lugar, Levin and others, would 
     go a long way towards addressing the serious problems 
     plaguing the nation's energy markets.
       Unfortunately, we have been bombarded with a steady stream 
     of news reports about how electricity traders have 
     unscrupulously manipulated the market to unfairly inflate 
     their profits, costing consumers billions of dollars. More 
     than one trader has admitted to engaging in ``round trip 
     trading'' to artificially inflate prices. Some created 
     transmission congestion in order to be paid to relieve that 
     congestion. Supplies were withheld to drive prices up, 
     resulting in a series of rolling blackouts in California. We 
     are still learning the full extent of the misconduct, and 
     only now are we coming to understand the nature of these 
     schemes.
       Today, the loss of trust and confidence in the integrity 
     and creditworthiness of energy and energy derivatives markets 
     has left trading in oil, gas and electricity suffering from a 
     lack of liquidity. If markets are going to be the terrain for 
     setting the price for our key energy products, then it is 
     crucial that they be orderly and efficient. Towards that end 
     this amendment seeks to put an end to this plague of fraud 
     and market manipulation. It will help improve market 
     oversight and surveillance. It will enable the Commodity 
     Futures Trading Commission (CFTC) to detect and deter 
     manipulation. Its disclosure rules will make the marketplace 
     more transparent for all producers and consumers, and the 
     result will be a more sound and efficient market.
       Given all this, we believe that it would be irresponsible 
     to weaken consumer protections and cut federal oversight of 
     the electric industry, as both the Senate and House-passed 
     versions of the energy bill would do. That is why the Energy 
     Market Oversight Amendment is so timely. This amendment 
     would:
       Improve price transparency in wholesale electricity markets 
     by directing the Federal Energy Regulatory Commission (FERC) 
     to establish an electronic system to provide information 
     about the price and availability of wholesale electricity to 
     buyers, sellers and the general public;
       Prohibit round trip trading;
       Increase penalties for violations of the Federal Power Act 
     and the Natural Gas Act from $5,000 to $1,000,000;
       Prohibit manipulation of the electricity markets, including 
     giving FERC the authority to revoke market-based rates for 
     companies that are found to have engaged in market 
     manipulation;
       Repeal the ``Enron exemption'' in the Commodities Future 
     Modernization Act for large traders in energy commodities and 
     apply the

[[Page 27156]]

     anti-fraud provisions of the Commodity Exchange Act to all 
     over the counter trades in energy derivatives; and
       Provide the CFTC tools to monitor energy markets, including 
     requiring traders to keep records and report large trades to 
     the CFTC, focusing on transactions that perform a significant 
     price discovery function, while limiting the CFTC to seeking 
     only information necessary to detect and prevent price 
     manipulation in the futures and over the counter markets for 
     energy.
       In addition, the amendment would have no effect on futures 
     markets, financial derivatives, metals, swaps or electronic 
     trading of non-energy commodities.
       Energy production is a major sector of the economy, but 
     energy's importance is greater than that measured by its 
     size. One of the hard learned lessons from the Western 
     electricity meltdown of 2000 and 2001 is that when energy 
     companies manipulate the electricity markets, devastating 
     consequences result. Billions of dollars were lost and 
     millions of lives were adversely affected. The toll on 
     businesses both large and small was enormous. The impact of 
     the Northeast-Midwest blackout was also immense. Congress 
     should do everything within its power to ensure that such 
     devastation never occurs again, and, if it does, that those 
     responsible are punished severely.
       Please protect the nation's electricity markets from 
     further Enron-style manipulations--support the Energy Market 
     Oversight Amendment.
       Thank you.
           Sincerely,
       Adam J. Goldberg, Policy Analyst, Consumers Union.
       Mark N. Cooper, Director of Research, Consumer Federation 
     of America.
       Anna Aurilio, Legislative Director, U.S. Public Interest 
     Research Group.
       Michelle Boyd, Legislative Representative, Public Citizen.
                                  ____

                                           Financial Policy Forum,


                                     Derivatives Study Center,

                                 Washington, DC, October 22, 2003.
       Dear Senator Levin: I am writing regarding the Energy 
     Market Oversight legislation being offered as an amendment to 
     the FY 2004 Agricultural Appropriations bill. This important 
     legislation will assume that over-the-counter derivatives 
     markets in ``exempt'' commodities such as energy will be 
     covered by federal prohibitions on fraud and manipulation. It 
     will also help to create energy derivatives markets that are 
     more transparent and thus more efficient. In doing so, this 
     legislation will bring OTC energy derivatives out of the 
     shadows and into the same light of financial disclosure. It 
     will subject these derivatives to some of the same 
     regulations that apply to securities, banking, exchange-
     traded futures and options and other sectors of U.S. 
     financial markets.
       This regulatory assistance comes at a critical time. 
     According to the Federal Energy Regulatory Commission's 
     Director of the Office of Market Oversight, ``energy markets 
     are in severe financial distress.'' Along with the decline in 
     credit quality in these markets, the loss of confidence and 
     trust has led to a ruin in the liquidity and depth of these 
     markets. This legislation will go a long way to address this 
     problem.
       Derivatives are highly leveraged financial transactions, 
     allowing investors to potentially take a large position in 
     the market without committing an equivalent amount of 
     capital. Moreover, derivatives traded in over-the-counter 
     markets are devoid of the transparency that characterizes 
     exchange-traded derivatives such as futures, and this lack of 
     transparency introduces a greater potential for abuse through 
     fraud and manipulation.
       Derivatives are often combined into highly complex 
     structured transactions that are difficult--even for seasoned 
     securities traders and finance professionals--to understand 
     and price in the market. Enron used such over-the-counter 
     derivatives extensively in order to hide the nature of their 
     activities from investors. The failure of Enron and the 
     demise of other energy derivatives dealers has had a 
     devastating impact on the level of trust in energy markets.
       This legislation would help ensure that over-the-counter 
     derivatives markets operate with proper federal oversight 
     which will make the markets more stable and transparent. It 
     is appropriate to place this oversight authority with the 
     Commodity Futures Trading Commission, which, as the principal 
     federal regulator of derivatives transactions since its 
     founding in 1975, will provide oversight, surveillance and 
     enforcement of anti-fraud and anti-manipulation laws. The 
     CFTC has the experience to handle these complex financial 
     transactions and to develop the best rules to implement these 
     protections.
       At a time when these energy markets are deeply distressed 
     and the investing public looks skeptically at derivatives 
     trading and firms engaged in derivatives trading, we should 
     take decisive steps to ensure that the public is protected 
     from Enron-like abuses and that derivatives are properly 
     regulated so as to make energy markets more efficient. This 
     amendment is just such a step, and the authors of the 
     legislation deserve appreciation for their work in the public 
     interest.
       Thank you for introducing this important legislation.
           Sincerely,
                                                     Randall Dodd,
     Director.
                                  ____

                                                 State of Michigan


                                       Office of the Governor,

                                     Lansing, MI, October 2, 2003.
     Hon. Carl Levin,
     U.S. Senate, Russell Senate Office Building, Washington, DC.
       Dear Senator Levin: I am writing to express my strong 
     support for passage of the Feinstein-Lugar-Levin amendment to 
     the Fiscal Year 2004 agriculture appropriation bill.
       In the aftermath of the massive electricity blackout six 
     weeks ago that affected at least six million Michiganians, I 
     believe all necessary steps should be taken to bolster 
     business and consumer confidence in the nation's energy 
     markets and promote additional investment in reliable energy 
     delivery at a fair price. Your amendment would improve 
     electricity price transparency in wholesale electricity 
     markets, greatly increase criminal and civil penalties for 
     trading violations, prohibit market manipulation and fraud in 
     all energy market sectors, and strengthen day-to-day energy 
     market oversight including over-the-counter market 
     transactions that significant affect energy prices.
       By directing the Federal Energy Regulatory Commission 
     (FERC) to establish an electronic price and supply monitoring 
     system and crack down on manipulation in wholesale 
     electricity markets. Congress would be providing new 
     authorities consistent with my testimony before the House 
     Energy and Commerce Committee last month that urged Congress 
     to sharpen the teeth of federal regulators and hold 
     electricity market participants accountable to assure energy 
     reliability.
       I appreciate your efforts in the Senate to strengthen 
     federal oversight of energy markets and promote reliable and 
     fairly priced energy that will protect consumers and fuel 
     economic growth.
           Sincerely,
                                             Jennifer M. Granholm,
     Governor.
                                  ____

                                           National Association of


                             State Utility Consumer Advocates,

                                                 October 27, 2003.
       Dear Senator: The National Association of State Utility 
     Consumer Advocates strongly support the bipartisan Energy 
     Market Oversight Amendment, which will be offered during 
     consideration of the FY 2004 Agriculture Appropriations bill.
       The proposal, offered by Senators Feinstein, Lugar, Levin, 
     and others will help fix broken energy markets and give 
     regulators the tools needed to protect consumers from market 
     manipulators.
       The amendment improves price transparency, prohibits round 
     trip trading, and increases penalties for Federal Power Act 
     and Natural Gas Act violations. The amendment also prohibits 
     manipulation of the energy market and repeals the ``Enron 
     exemption.''
       The nation's consumer advocates urge you to support this 
     important consumer protection amendment.
           Sincerely,
                                               Charles A. Acquard,
                                               Executive Director.

  The PRESIDING OFFICER. The Senator from Utah.
  Mr. BENNETT. Madam President, as I understand the colloquy, it was 
either a vote on the amendment or in relation to the amendment, and 
that a motion to table is determined as being in relation to the 
amendment.
  Now, out of courtesy to the Senator from California, I will not make 
the motion to table. But I want to make it clear, I am reserving the 
right to make a motion to table in future situations similar to this. I 
do not want to be discourteous to her for her understanding, but it is 
my understanding that I do, indeed, have the right to make that motion.
  The PRESIDING OFFICER. The Senator from California.
  Mrs. FEINSTEIN. Madam President, the extraordinary courtesy of the 
Senator is appreciated because he is actually correct. It did say ``in 
relation to.'' But I quickly accept his offer to have an up-or-down 
vote.
  Mr. REID. Madam President, I ask for the yeas and nays on the 
amendment.
  The PRESIDING OFFICER. Is there a sufficient second?
  There is a sufficient second.
  The question is on agreeing to amendment No. 2083.
  The clerk will call the roll.
  The assistant legislative clerk called the roll.
  Mr. REID. I announce that the Senator from North Carolina (Mr. 
Edwards), the Senator from Massachusetts (Mr. Kerry), and the Senator

[[Page 27157]]

from Connecticut (Mr. Lieberman) are necessarily absent.
  I further announce that, if present and voting, the Senator from 
Massachusetts (Mr. Kerry) would vote ``yea.''
  The PRESIDING OFFICER (Mr. Ensign). Are there any other Senators in 
the Chamber desiring to vote?
  The result was announced--yeas 41, nays 56, as follows:

                      [Rollcall Vote No. 436 Leg.]

                                YEAS--41

     Akaka
     Baucus
     Biden
     Bingaman
     Boxer
     Byrd
     Cantwell
     Clinton
     Conrad
     Corzine
     Daschle
     Dayton
     Dodd
     Dorgan
     Durbin
     Feingold
     Feinstein
     Fitzgerald
     Graham (FL)
     Harkin
     Hollings
     Inouye
     Jeffords
     Johnson
     Kennedy
     Kohl
     Lautenberg
     Leahy
     Levin
     Lugar
     McCain
     Mikulski
     Murray
     Nelson (FL)
     Reed
     Reid
     Rockefeller
     Sarbanes
     Schumer
     Stabenow
     Wyden

                                NAYS--56

     Alexander
     Allard
     Allen
     Bayh
     Bennett
     Bond
     Breaux
     Brownback
     Bunning
     Burns
     Campbell
     Carper
     Chafee
     Chambliss
     Cochran
     Coleman
     Collins
     Cornyn
     Craig
     Crapo
     DeWine
     Dole
     Domenici
     Ensign
     Enzi
     Frist
     Graham (SC)
     Grassley
     Gregg
     Hagel
     Hatch
     Hutchison
     Inhofe
     Kyl
     Landrieu
     Lincoln
     Lott
     McConnell
     Miller
     Murkowski
     Nelson (NE)
     Nickles
     Pryor
     Roberts
     Santorum
     Sessions
     Shelby
     Smith
     Snowe
     Specter
     Stevens
     Sununu
     Talent
     Thomas
     Voinovich
     Warner

                             NOT VOTING--3

     Edwards
     Kerry
     Lieberman
  The amendment (No. 2083) was rejected.
  Mr. COCHRAN. Mr. President, I move to reconsider the vote.
  Mr. BENNETT. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.

                          ____________________