Draft Energy Market Oversight Bill Introduced by Senator Feinstein

In response to allegations of widespread manipulation of the energy markets during the Western energy crisis, Senator Diane Feinstein (D-Cal.) introduced legislation earlier this month to establish stronger federal oversight over energy market activities. The legislation would give FERC additional authority to investigate and punish market manipulation activities, and would authorize the Commodity Futures Trading Commission to oversee online and bilateral energy trading. The key components of the bill would (i) allow FERC to issue data requests to up to 10 companies without prior authorization from the Office of Management and Budget; (ii) permit FERC to fine companies up to $50,000 per day for not complying with requests for information; and (iii) enable FERC to hire third party consultants (accountants, investigators and lawyers) to assist in the investigations. The measure also would increase criminal penalties - by substantially increasing fines and lengthening sentences - for violations of the Federal Power Act and the Natural Gas Act. The bill would also end the 60 day delay in the refund effective date for complaint proceedings under the FPA. Instead, the refund period would begin on the date a complaint is filed, and in certain instances could be earlier if FERC determines that the complaint was not filed sooner due to fraud or misrepresentation by the targeted power seller.

The bill also expands CFTC oversight, granting that agency jurisdiction over online energy and bilateral trading platforms, which had been exempted from CFTC oversight under the so-called "Enron exception." In addition, the bill would ban wash trades and require traders to retain sufficient capital to cover their trades, and would grant the CFTC authority to impose penalties, including fines and incarceration. In addition, the bill would require greater coordination among federal agencies, including the CFTC, Justice, the SEC, FERC and others. Although the proposed bill could have been attached to the pending omnibus energy bill (see Energy Regulatory Update, 3/10/03), Senator Feinstein introduced it as stand-alone legislation, which she hopes will move quickly through the Senate.