US Senate rejects energy derivatives legislation

The US Senate yesterday voted down proposed legislation that sought to impose tighter controls over energy derivatives trading.

Senators voted 56 to 41 against an amendment included in an agriculture spending bill by Democrat senator for California Dianne Feinstein. It was the third time Feinstein had pushed for stricter federal regulation in energy and commodity derivatives markets. This follows a push to introduce the Energy Market Oversight Act, defeated earlier this year, and a routine procedural vote for changes in energy regulation in April 2002 also defeated.

The International Swaps and Derivatives Association, which represents participants in the privately negotiated derivatives industry, immediately applauded the Senate’s decision.

Robert Pickel, Isda’s chief executive officer and executive director, said: "Isda welcomes the Senate's vote against the proposed amendment and thanks those Senators who voted in favour of continued legal certainty for these markets … [The senators’ actions] preserve the ability of American companies to use these valuable tools to manage risk and thereby aid economic recovery."

Feinstein argued that the US was vulnerable to the kind of market manipulation that led to a crippling increase in electricity prices in her state several years ago.

Her amendment was intended to close the “Enron loophole” that allowed traders to buy and sell energy holdings largely in secret and free from regulation. It would have improved price transparency in wholesale electricity markets, prohibited manipulation in electricity markets, and provided the Commodity Futures Trading Commission with greater powers to monitor over-the-counter energy markets.

However, Thad Cochran, chairman of the Senate Agriculture Committee, said current cases against Enron and other energy companies accused of manipulating markets make clear that the government has the powers of enforcement it needs to punish those defrauding consumers.