MRS. FEINSTEIN: Mr. President, I wish I could come to the floor and say there is a quick fix for gasoline prices at the pump. This is needed as much as anywhere in California where gas prices are high -- and at times the very highest.
I wish I could say there was a quick fix. But I really can't.
I wish I could say that if we could drill all of the Outer Continental Shelf, if we could drill on all of the public land in America, the price of pump would drop immediately, but I can't. In all good conscience I don't believe that opening the Outer Continental Shelf to new drilling would lower the prices at the pump any time in the near future.
- First place, it takes two years for Minerals and Management Services to do the contracts.
- Second place, all drilling rigs are now leased. There need to be new rigs.
- Third place, there is no additional refining capacity.
- Fourth place, drilling in the outer continental shelf and on public lands in America over the last eight years has increased by 361% and at the same time the price of oil has doubled.
So there is no relationship between drilling on the outer continental shelf, drilling on public lands in America and the price of oil. I deeply believe this.
Some say it's simply a problem of supply and demand but physical supplies of oil and natural gas have remained relatively stable over the past year.
In fact, if you remember, executives from oil companies testified before congress recently and asserted that the price should be about $60 a barrel if it were just a matter of supply and demand.
Some point to instability in the Middle East and Africa's production regions. Others have pointed to the falling dollar. These are certainly factors. But it can't explain the sharp uptick in prices we've seen at the pump over the last few months.
So what's really going on? What's new in this picture? Consumption in America has dropped 3 percent this year over the same period last year.
So what's new? There's only one thing that's different. There's only one thing that's new -- and it's a massive influx of speculation in the marketplace. This is the 800-pound gorilla.
Increasingly, experts now say that rampant speculation in energy markets account for anywhere from 25 to 40 percent of the energy price increase. Some will say even more.
So I think we've got to take a look at why this is the case and what we can do about it.
In May, Congress took a major step forward in the effort to bring more oversight to energy futures markets when we enacted legislation to close the notorious Enron loophole. The senator from Minnesota just referred to it.
I had worked on this for six years. I came to the Floor when Phil Gramm argued against it. We lost - got just 48 votes.
We came back again. We finally got it in the farm bill this time. The notorious Enron loophole, today, is closed.
Now, what was that? This loophole was created in 2000 when a measure was inserted in the dark of night into a must-pass appropriations bill at the behest of Enron and others to essentially eliminate them from the Commodities Modernization Act. Two commodities were left out: energy and metals.
During the Western Energy Crisis, we saw the costs soar from $8 billion in 1999 to $27 billion in 2000, and then to $27.5 billion in 2001.
The reason for this was, in the main, manipulation, fraud, and reckless speculation of the worst sort – all because you could trade on electronic platforms with no transparency and there was no anti-fraud or anti-manipulation oversight by the Commodities Futures Trading Commission.
When all was said and done, the energy traders left California taxpayers with an increased bill of about $40 billion. To date, 32 companies have pled guilty to market manipulation and settled $6 billion in claims.
In recent years, we also saw the $6 billion collapse of the Amaranth hedge fund because of unregulated speculation in natural gas futures on electronic exchanges. And the list goes on. And this has typified the energy marketplace.
So it became clear that a legislative fix was needed. And we finally got that done, as I said.
The bill, which is now law, ensures that all major trades of energy futures that could drive up prices, or have what's called a price discovery impact, are placed under the oversight of the Commodities Futures Trading Commission.
The new law imposes limits on rampant speculation, prevents fraud and manipulation, requires traders for the first time to keep records and provide an audit trail to the CFTC.
This was a significant victory. It's signed into law.
But as we continue to learn more about what's really going on with energy futures markets, it's clear that more work remains to be done. We're learning about additional loopholes that must be closed. And the legislation before us is critical to ensure that we can level the playing field in energy markets, that there's transparency there.
First, the problem of large institutional investors like pension funds -- this is what's new in this market.
From 2003 to 2008 institutional investments in commodity index funds rose from $13 billion to $317 billion. That's in five years -- from $13 billion to $317 billion. Now, you might say, what does that have to do with it?
Well, Daniel Yergin said what it has to do with it when he said that “Oil has become the new gold a financial asset in which investors seek refuge as inflation rises and the dollar weakens.” Investors seek refuge.
So the implications are potentially devastating. And here's why. Unlike gold, energy and agricultural commodities meet essential needs in every day life of average people. They are limited. They aren't pork bellies. Energy is limited in the amount we have.
And these institutional investors, the big pension funds like my own, the California Public Employee Retirement Fund or CalPERS, has invested over $1 billion in these markets.
These institutional investors are trading long on energy futures prices. In other words, they are betting that the prices in these future markets continue to rise. They're not hedging against the risk of changing oil prices as airlines and utilities frequently do. They never take delivery of a product. They participate in the oil markets only on paper.
Yet these investors, the big ones, are currently exempt from CFTC regulation when they execute these trades through brokers or dealers. These trades are called "swaps."
Currently, the CFTC limits speculation positions to a total of 20 million barrels of oil and three million barrels of oil in the last three days of a contract. However, these same investors avoid these limits by executing their trades as swaps. This is a mistake. Institutional investors have become speculators.
Last month, the CFTC announced it would review trading practices for these investors and this is a positive step. But legislation is still needed to level the playing field and close the loophole. This bill before us will limit the size and influence of institutional investor positions in energy markets.
To further increase transparency this bill also requires the CFTC to begin distinguishing between the institutional investor index trader and the swaps dealers who broker their trades.
This legislation closes the swaps loophole bringing transparency and speculative limits from contracts executed through swaps dealers. In that way, preventing a price discovery function as much as possible to keep prices from continuing to escalate.
Specifically, the bill gives the CFTC the authority to begin collecting data on large over-the-counter traders so it can determine whether price manipulation or excessive speculation is taking place. And this would ensure that the CFTC has a clear picture of all trading in over the counter commodity markets.
Now, the London loophole. What is the London loophole?
We must prevent U.S. crude oil contracts from being traded on international exchanges without robust oversight.
A recent report found that traders were using the London exchange to trade U.S. crude oil futures to avoid U.S. regulations – in other words, go around it. Trades exceeded U.S. speculation limits every single week since 2006.
Last month, CFTC announced it would limit this offshore market speculation and require recordkeeping and an audit trail for these traders. That's a start.
But legislation is still needed to codify the legislation. And this legislation will require foreign exchanges with customers in the United States to adopt the same speculation trading limits and reporting requirements that apply to United States trade – ending the regulatory race to the bottom.
This language is based on legislation that Senator Levin and I introduced previously. I believe very strongly that we must ensure that American energy commodities are protected from manipulation and excessive speculation regardless of where the commodities are traded.
Bottom line: this bill brings transparency, it brings accountability, it brings recordkeeping, and it brings oversight to the energy markets.
It would impose sound, proven, economic principles to markets that are currently broke and where speculation has increased so dramatically that it is pushing price up. It would close regulatory and legislative loopholes that prevent the CFTC from enforcing the commodity exchange act in energy commodity markets.
I hope my colleagues will support it. I suspect it may not pass. I hope it does because there is no question in my mind that the 800-pound gorilla and the price of gasoline at the pump is excessive speculation on commodities futures markets deals with energy.
Thank you very much, Mr. President. I yield the floor.