Enron-Inspired Measure Fails

The Senate rejected a proposal Wednesday, inspired by the Enron collapse, which would have required federal regulation of energy-related financial derivatives, an area of the electricity markets that Enron widely exploited.

Sen. Dianne Feinstein, D-Calif., said the measure was "on the side of the angels" in that it would have "closed a loophole" that allowed Enron to buy and sell in energy markets in essential secrecy without government monitoring.

But opponents of the measure argued that it was too broad and would threaten the entire market in derivatives, a hedging mechanism used widely in commodity markets and other trading.

"The entire financial sector - every bank, every securities company every insurance company — is opposed to this amendment" as are federal market regulators, said Rep. Phil Gramm, R-Texas, who led the efforts against the measure.

Gramm said he didn't know who was or was not "on the side of the angels" but that the widely respected chairman of the Federal Reserve, Alan Greenspan, also had weighed in against the proposal, saying it could harm the economy.

The issue had lingered before the Senate for more than a month as Feinstein and Gramm tried to work out a compromise.

On Wednesday, Feinstein was unable to muster the votes needed to cut off debate on the matter and bring the amendment up for a vote. Sensing sure defeat, Feinstein withdrew the amendment.

The measure would have been part of a broader energy bill before the Senate.

Trading in energy derivatives over the Internet was a hallmark of Enron's energy trading business. Such trading currently is exempt from federal regulations and can be conducted largely in secret.

The Feinstein proposal would have brought such trading under the rules of the Commodity Futures Trading Commission, required new reporting requirements, and required trading partners to assure adequate capital to support the transactions.

Feinstein called it an "anti-fraud, anti-manipulation" measure needed to assure consumer and investor protections in energy trading over the Internet.

Feinstein and other Western senators have accused Enron and other wholesale energy trading companies of manipulating electricity markets — often largely in secret transactions — leading to a run-up in Western electricity prices during the past two years.

The Federal Energy Regulatory Commission is investigating the allegations of price manipulation in electricity markets used by Enron, but has not as yet produced any findings.