03.25.09

Cantwell Statement Before the Energy Subcommittee Hearing on Energy Market Manipulation

"This hearing is called to order. 
 
Senator Risch, thank you for being here today.
 
I hope this will be the first of many subcommittee hearings we can work on together to try and make progress on our nation’s many energy challenges. 
 
We are here today to examine two pieces of proposed legislation that will help prevent future energy price bubbles and market manipulation. 
 
We have worked with many stakeholders in developing these bills and have received a lot of positive feedback. 
 
For instance, we have heard from the Industrial Energy Consumers of America, whose membership are significant consumers of natural gas and from every major energy intensive manufacturing sector. 
 
We’ve also receive positive feedback from the American Public Gas Association, and I am making their testimony part of the hearing record. 
 
The first bill, which I introduced yesterday as Senate Bill 672, adds real teeth to FERC’s anti-manipulation authority.
 
It provides the FERC with the tools to stop bad actors before they wreak havoc on energy consumers and the economy. 
 
One of the lessons we learned was from the Western Energy Crisis in 2000 and 2001. This Committee, then led by Chairman Domenici, gave the Federal Energy Regulatory Commission important new anti-manipulation authority in the Energy Policy Act of 2005. 
 
To date, FERC has used this new authority to conduct 135 investigations resulting in 27 settlements totaling over almost 65 million dollars in civil penalties. 
 
One example of FERC’s work is the enforcement actions the Commission took for alleged market manipulation against Amaranth Advisors LLC. These actions prompted FERC to seek $291 million in civil penalties along with $167 in civil penalties from Energy Trading Partners.
 
However, I understand that in the case of Amaranth, this Hedge Fund liquidated its assets before FERC could complete its enforcement action, leaving FERC unable to fully collect the $291 million in penalties it originally sought. 
 
And that falls quite short of the estimated $9 billion Amaranth’s shenanigans cost natural gas consumers.
 
Amaranth is one notable example of why we need to strengthen and clarify FERC’s enforcement powers to protect consumers and deter manipulation.
 
That’s why Senate Bill 672 would empower FERC with cease-and-desist authority to stop manipulative schemes currently in progress. The Security and Exchange Commission (SEC) and the Commodities Future Trading Commission (CFTC) already have this authority. 
 
It will allow FERC to act more like a cop catching a robbery in progress, instead of trying to piece together what happened at a crime scene after the fact.
 
Second, the bill empowers FERC to freeze the assets of any entity that is suspected of market manipulation. This will create a brighter line and deterrent, so would-be bad actors know that if they attempt to manipulate, they can’t just get rid of all their assets to avoid penalty. 
 
Third, when there is an energy emergency caused by market manipulation, we want to give the FERC the ability to protect electric consumers by temporarily changing or suspending power rates for up to 30 days. 
 
If the FERC had this authority during the West Coast energy crisis, they could have stopped the skyrocketing electricity price increases before they got out of control and cost consumers billions.
 
Finally, in order to more effectively recover unjust and unreasonable natural gas rates, we change the law to allow any potential refund to accrue from the time the FERC brings a case. Currently, the FERC can only recover damages from the time they actually prove a case. 
 
The Commission already has this important tool for electricity markets, which has helped encourage settlements and full recovery of damages. We should provide the same authority do the same for natural gas.
 
These measures build on the lessons learned from the wild price fluctuations we have seen in the past few years. And, it gives the FERC the authority with teeth that they need.
 
But evidence from the last few years, which our witnesses will talk about today, has made it clear that additional anti-manipulation authority is needed to put new, more effective tools in the FERC’s enforcement tool box. 
 
We need to make the line of what is and what isn’t acceptable market behavior brighter. This will ensure markets function more efficiently and effectively. 
We are also here to consider important legislation that would increase transparency and data collection in the oil markets. 
 
When this subcommittee held a related hearing on energy markets last September, the price of a gallon of regular gas was around $3.85. 
 
Now just six months later the price has dropped almost exactly in half to a national average of $1.96 a gallon.  
 
In these challenging economic times, every American is thankful that energy prices are closer to historic levels. 
 
But they still wonder, what happened? 
 
Actually they are probably saying, what went wrong? What’s behind these dramatic and unprecedented peaks and valleys in oil prices -- none of which followed supply and demand fundamentals. 
 
Like the Wall Street meltdown, no one can explain who made the tens of billions of dollars from artificially inflated energy prices. But we must make sure it doesn’t happen again.
 
At least in this case we don’t need to give a bailout to the oil industry! Despite the downturn, ExxonMobil still managed to pocket 45 billion dollars in 2008 -- the largest annual profit in U.S. history. 
 
Unfortunately, in hindsight, we know that the Energy Information Administration predictions, so important for government and business decision-making, were wildly inaccurate. 
 
We need to provide the Administration with the tools to do better.
 
Mr. McCullough was one of many market experts that released independent reports that helped shine a bright light on oil markets. These reports demonstrated the tight correlation between the physical and financial oil markets. 
 
Thanks to his work, and several hearings this Committee has held in previous years, we have learned that we don’t have the necessary data collection or focus to understand what really drives oil market prices. 
 
All we really know now is that supply and demand is only part of the equation.
 
To that end, the Committee has crafted legislation that would establish an office within the Energy Information Administration to collect and analyze information from both the physical and paper oil markets. 
 
It will improve their ability to predict future energy prices, which will help businesses and consumers plan for the future. It will also empower regulators to more effectively police the markets.
 
I am looking forward to the witness testimony. 
 
I hope he can share his knowledge and experiences with us today and inform the work of this subcommittee.
 
All of the witnesses’ full testimony will become part of the record of this hearing. We ask that the witnesses each summarize their testimony in five minutes. 
 
Mr. Gruenspecht, please proceed. "
 
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