Press Releases

Farm Bill Conference Report Includes Feinstein-Levin-Snowe Measure to Close the “Enron Loophole”

- Measure would increase transparency in oil and natural gas markets and limit excessive speculation-

Washington, DC – U.S. Senators Dianne Feinstein (D-Calif.), Carl Levin (D-Mich.) and Olympia Snowe (R-Maine) today announced that the Farm Bill conference report includes a measure they have sponsored to close the so-called “Enron Loophole.” Since 2000, the “Enron Loophole” has exempted electronic energy markets for large traders from government oversight.          

Specifically, the measure would increase federal oversight authority to detect and prevent manipulation and to limit speculation in U.S. electronic energy markets. It would increase transparency, and create an audit trail, impose firm speculation limits, and impose stiffsignificantly increase financial penalties for cases of market manipulation and excessive speculation. The measure was approved as part of the CFTC Reauthorization Act of 2008, which is a title in the Farm Bill that Conferees closed late last night.

The overall Farm Bill conference report still needs to be finalized, and will ultimately need to be sent to the House and Senate for an up-or-down vote of approval, and then will require the President’s signature before it can become law.

“A major step has been taken toward closing the Enron Loophole once and for all,” Senator Feinstein said.  “This bill puts all significant energy trades on electronic platforms within the regulatory confines of the CFTC and will impose limits on the size of trader’s positions to prevent excessive speculation. 

It also ensures that there is an audit trail and, imposing imposes recording keeping requirements, and forces electronic exchanges to monitor trading behavior and prevent manipulation.  This is especially important given that the price of oil has hit a record high of $120 per barrel and gas prices have reached $4 per gallon in many parts of California. And natural gas prices are at an average of $12 per thousand cubic feet, roughly twice as high as they were 10 years ago.  Experts believe that speculation may be to blame.

This has been a long fight.  It began following the Western Energy Prices, when electricity cost California consumers nearly $40 billion.  In 2003, I offered an amendment to close the Enron Loophole that received 44 votes.  So, nearly eight years later, I’m hopeful that this legislation could go a long way toward preventing the next energy crisis.”

Senator Levin said: “With energy prices defying the laws of supply on and demand, it is imperative that we put the cop back on the beat in our energy markets.  This legislation will restore the CFTC’s authority to detect and prevent manipulation and excessive speculation in the energy markets.  I urge the Congress to quickly pass the Conference Agreement so the CFTC can immediately get to work to protect American consumers and business from manipulation and excessive speculation.”

“Truckers, families, and seniors across America are struggling to cope with the record high prices at the pump.  At a time when the price of oil reaches new highs every week, it is imperative that the Congress act expeditiously to ensure there is a “cop on the beat” to prevent price manipulation and other abuse,” Senator Snowe said.  “It is clear that traders are rushing into the oil futures markets and it absolutely critical that we ensure that these transactions are transparent and consistent with the fundamentals of futures trading.  This amendment will reflect that futures’ trading is out of control and the CFTC needs commensurate powers to adapt to the growth of the Wild West of Wall Street.”

Bill Summary 

  • Electronic Market Oversight: For contracts that are significant in determining commodity market prices, CFTC will require the electronic exchange to provide strict oversight, similar to what takes place today on regulated markets like the New York and Chicago Mercantile Exchanges.
  • Exchanges will be required to:
  • Prevent manipulation and price distortion by:
    • Monitoring trading to prevent manipulation and price distortion;
    • Ensuring contracts are not susceptible to manipulation; 
    • Limiting the size of positions to prevent excessive speculation, and;
    • Reducing holdings of traders in violation of position limits.
  • Establish an Audit Trail by: 
    • Collecting information on Trading Activity, and
    • Supplying large trader reports to the CFTC.
  • Strengthen Transparency by: 
    • Publishing price, trading volume, and other trading data on a daily basis. 
  • Electronic Contract Oversight. The CFTC will review all electronic contracts to identify those that are significant in determining market prices and must be regulated as described above.  CFTC will consider the following factors in making that determination:
    • Volume – If the contract is traded in significant volumes;
    • Price Reference – If the contract is used by traders to help determine the price of subsequent contracts.  This is like using “comps” in the real estate market or “Blue Book” for auto sales.
    • Linkage – If the contract is equivalent to a regulated contract and used the same way by traders. The CFTC refers to these contracts as “look-alikes.”


Since 2000, there has been a tremendous growth in the trading of oil and gas futures on unregulated, electronic markets.

The lack of oversight in these markets led to billions of dollars of losses:  

  • During the Western Energy Crisis in 2000-2001, energy costs for California soared from roughly $8 billion in 1999 to $27 billion in 2000, and then $27.5 billion in 2001.
  • In 2003, the Federal Energy Regulatory Commission (FERC) charged four energy companies – Enron Power Marketing, Enron Energy Services, Reliant Energy Services and BP Energy Company – of engaging in market manipulation during the Western Energy Crisis.
  • In September 2006, Amaranth Advisers, LLC announced that previously undisclosed speculation in natural gas trading had resulted in a loss of $6.6 billion, the largest hedge fund failure in history.
  • In July 2007, charges were brought against Amaranth – which at one point controlled more than half of the U.S. natural gas futures – by the CFTC and the Federal Energy Regulatory Commission (FERC). The charges allege that Amaranth had sought to manipulate natural gas prices in the United States.
  • In October 2007, BP agreed to pay $303 million to settle civil charges that it cornered the propane market three years ago and inflated heating and cooking costs for about 7 million mostly rural American households. This is the largest fine ever imposed by the CFTC. 
  • In October 2007, the CFTC issued a unanimous Report on the Oversight of Trading on Regulated Futures Exchanges and Exempt Commercial Markets which stated: Without some increased oversight of trading in relevant mature [electronic] contracts, the Commission cannot adequately police the trading of [regulated] contracts to detect and deter price manipulation and other trading abuses….  Accordingly, the Commission believes that [electronic] contracts that become significant sources of price discovery should be subject to a higher level of regulation than is now the case…” (p. 19-20.)
  • In November 2007, CFTC announced it had settled charges against a former gasoline trader, who agreed to pay a $400,000 fine to the CFTC for attempting to manipulate gasoline futures prices on the New York Mercantile Exchange in 2002.
  • In March 2008, CFTC announced that it had settled charges against a former energy trader and its three subsidiaries, who agreed to pay $10 million in fines to the CFTC for attempting to manipulate the price of natural gas.  
  • In March 2008, a jury found a former energy trader guilty of 8 counts of attempting to manipulate the price of natural gas between October 2001 and June 2002.

The U.S. Senate Permanent Subcommittee on Investigations, chaired by Senator Levin, held hearings and issued reports in 2006 and 2007 establishing the need for increased government oversight of unregulated U.S. energy markets.

In October 2007, the Government Accountability Office issued a report, Trends in Energy Derivatives Markets Raise Questions about CFTC’s Oversight, which concluded that non-commercial participants, including hedge funds, had increased participation in the exempt commercial markets.  According to GAO’s analysis of data, the notional amounts outstanding of OTC commodity derivatives grew by 854 percent since 2003.