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Press Release of Senator Cantwell

With Gas Prices Soaring, Senators Cantwell, Feinstein, Snowe, and Levin Seek to Shine Light on Energy Markets

Bipartisan legislation would enable federal government to determine if fraud or manipulation is occurring

Monday, April 24,2006


WASHINGTON, DC – Tuesday, with gas prices nearing $3 a gallon nationwide, U.S. Senators Dianne Feinstein (D-CA), Maria Cantwell (D-WA), Olympia Snowe (R-ME), and Carl Levin (D-MI)introduced bipartisan legislation to increase transparency and accountability in energy markets. This will help ensure that the federal government can guard against speculation, manipulation, or hoarding in oil, gas, and electricity markets.

“The president has ordered an investigation into gas prices. The problem with this is that part of the energy market provides transparency, part does not,” Feinstein said. “If you make a trade on NYMEX, a record is kept, an audit trail is there. But if you make a trade on an electronic trading platform, no records are kept, and there is no audit trail. Therefore manipulation and fraud are more difficult to discover. In essence, the federal government is blind.

“This is what we found in the California energy crisis, and I think we’re going to find the same thing here. The time has come to plug this enormous loophole and see that across the board there is transparency, records are kept, and an audit trail is available. And then fraud and manipulation can be investigated by the CFTC.”

“Right now excuses from oil companies on why gas prices are so high are like smoke and mirrors,” Cantwell said. “We can’t begin to understand the real reasons for sky-rocketing gas prices until we get transparency in the market. The days of Enron taught us the painful lesson that fierce market manipulation does happen and I don’t want American consumers to have to experience that again. We can’t protect consumers, business, farmers, anyone from price gouging without transparency.”

“The American people are rightly demanding answers explaining why the price of gas is over $3 a gallon, a jump of almost 70 cents from this time last year," Snowe said. “Right now the federal government is in the dark as to whether the oil futures market is being manipulated, causing these sharp and devastating increases in the price of gas. Today, the President called for an investigation of price manipulation of gas prices, and this legislation that we introduce today shines a bright light on futures transactions so that we can determine whether fraud or speculation has occurred. It is only armed with this most essential information that we can rightly work to correct a problem that is threatening America's families and businesses."

Currently, the vast majority of energy trades occur on two markets: the New York Mercantile Exchange (NYMEX) and on electronic exchanges such as the InterContinental Exchange (ICE). NYMEX is regulated by the Commodities Futures Trading Commission (CFTC). Traders must keep records for five years and report large trading positions to the CFTC to ensure an audit trail and adherence to federal regulations, including limits on how much of a given commodity can trade hands during a single day.

By contrast, electronic exchanges such as ICE are largely unregulated. Traders are not required to keep records or report large trading positions. There is no audit trail. It is estimated that up to 80 percent of our energy commodities are traded on ICE. As a result, the federal government has little or no information on what takes place in our energy markets.

Legislation introduced by Cantwell and her colleagues would close this loophole and increase transparency in energy markets. Specifically, the bill would:

+ Require traders on exempt electronic trading facilities (e.g., InterContinental Exchange, Houston Street) to keep records and report large positions carried by their market participants in energy commodities for five years or longer. These are the same requirements that apply to traders that do business on NYMEX;

+ Require traders to provide such records to the CFTC or the Justice Department upon request; and

+ Require persons in the United States, who are trading energy commodities that are delivered in this country on foreign futures exchanges, to keep similar records and report large trades.

These provisions will empower the CFTC to effectively exercise its existing anti-fraud and anti-manipulation authority over energy commodities traded on U.S. exchanges.