Bring energy manipulators to heel — Cantwell
“You have to piece the puzzle together: People don’t simply hand you the information,” said Cantwell, who started tracking price manipulation 10 years ago.
Back then, the West Coast suffered a shortage of electric power deliberately made worse by traders from the Houston-based Enron Corp. The Enron boys used schemes given such names as “Death Star,” “Get Shorty” and “Fat Boy” to manipulate energy prices.
Nowadays, Cantwell has watched oil prices soar twice in the past three years — to more than $140 a barrel in the spring of 2008, and up over $100 a barrel in recent months — despite the existence of abundant supplies.
“We’ve seen this happen in electricity, we’ve seen it happen in natural gas: Somebody has to set the rules of the road, and somebody has to prosecute those who violate them,” Cantwell said in an interview with seattlepi.com.
She spoke as the Commodities Futures Trading Commission approved a new market-manipulation rule. Cantwell championed the rule as part of last year’s Wall Street reform legislation, formally known as the Dodd-Frank Financial Reform bill.
The rule will enable CFTC to more effectively prosecute manipulation of commodity futures and derivatives’ market prices.
The CFTC has already filed one case against a company buying up oil in anticipation of higher prices.
The new rule switches the CFTC from requiring proof of “specific intent” to manipulate commodities markets to a fraud-based “reckless conduct” standard applied by such other agencies as the Federal Energy Regulatory Commission and Federal Trade Commission.
Despite its complexity, the “reckless conduct” standard stands to have impact from the gas pump to the monthly electrical bill.
A decade ago, traders for now-defunct Enron engaged in market manipulation literally every day from January 2000 until June 2001. They joked in company financial documents about jacking up the electricity bills of elderly widows.
Cantwell and attorneys for the Snohomish County Public Utility District forced a lethargic Federal Energy Regulatory Commission to demand records and release 750 pages of Enron financial documents.
The documents showed a billion-dollar gouging of Western states, including a $122 million bill to the Snohomish PUD. In one famous incident, Enron made $222,678 in three hours by transferring power from California to Oregon, concealing its source of origin, and selling it back to California at a higher price.
The new chairman of FERC at that time was hesitant to proceed. He had been recommended for the job by Enron Chairman Ken Lay, or “Kenny Boy” as he was called by close friend George W. Bush.
“What Enron helped teach me is that energy is the lifeblood of our economy,” Cantwell said. “Someone can introduce manipulation into a tight market and effect supply. We’ve seen similar situations.”
She noted that the Federal Energy Regulatory Commission can now use the “reckless conduct” standard in electrical energy markets, and that the Federal Trade Commission has powers in monitoring the retail sale of gasoline.
In fact, a more active FERC has (as of March) used “reckless conduct” to conduct 93 investigations, gaining 45 settlements and civil penalties totaling $122.2 million and forcing manipulators to disgorge $35.9 million in ill-gotten profits.
CFTC Chairman Gary Gensler thanked Cantwell for helping secure “this important authority” for his agency.
But the CFTC will have to fight for the staffing needed to use the tools it has been given.
Pending budget legislation in the Republican-run House of Representatives would deny such agencies as the CFTC, FERC and FTC of money needed to implement oversight provided in Dodd-Frank.
“How can you be against fighting market manipulation?” asked Cantwell.
She noted, however, the four Republican senators from New England states “who rely on home heating oil through the winter months.” Cantwell had their votes when the legislation was on the Senate floor last year. She may need them again.
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