Dianne Feinstein

Mrs. FEINSTEIN

Mrs. FEINSTEIN. I thank the Chair for the clarification. I wish to make one comment about this amendment. This amendment has been in the Agriculture Committee. It has had a hearing. It has been reviewed by both staffs, Republican and Democratic. The Democratic chairman of the committee, Senator Harkin, worked on this. The ranking member at the time, Senator Lugar, worked on this. They have both concurred. They are supporting this legislation. The staffs have reviewed it. We believe it is bona fide, that it is solid, and that it will stand the test of time. I thank the Chair. I yield the floor.

Mrs. FEINSTEIN. Mr. President, I ask unanimous consent the order for the quorum call be rescinded.

Mrs. FEINSTEIN. Pardon me?

Mrs. FEINSTEIN. That is correct. This is the report. It is a final report. It was done in March 2003, so it has been circulated for a few months. Additionally, our legislation has the support of the chairman of the Federal Energy Regulatory Commission. We have kept in touch with him so he is aware of what is in the report, and, of course, the former chairman of the Agriculture Committee, Senator Harkin, and former ranking member of the Agriculture Committee, Senator Lugar.

Mrs. FEINSTEIN. The only thing I can figure is they want to do it. They want the unabashed ability to conduct the bogus trades. That would be the only reason they would want this little, dark, hidden place through electronic trading because there is no oversight for fraud or manipulation. There is no record kept. There is no audit trail.

Mrs. FEINSTEIN. I was not at the hearing. I do not recall that. But I think whomever that was, they are certainly correct because that would give confidence to their company and to people to invest in that company which is on the up and up, which is regulated and which has transparency. I think particularly now after what we know has transpired over the past that this is one of the reasons why our economy has had problems in that people have lost confidence. They have seen these companies go down. The Senator mentioned some of the big companies that have gone down that have done just this kind of thing. At some point, Peter has to pay Paul. If they don't have the capital to handle it, there is a problem.

Mrs. FEINSTEIN. Mr. President, I rise to support the amendment offered by Senators Wyden, Bingaman, Sununu, and Enzi to strike the section of the energy bill providing Federal subsidies for the construction of new nuclear plants. Title IV of the energy bill includes loans, loan guarantees, and other forms of financial assistance to subsidize the construction of new nuclear powerplants. In the past 50 years, California has built 5 commercial nuclear powerplants and one experimental reactor. Today, just two of these nuclear powerplants are still operating in the State. The plants at San Onofre and Diablo Canyon are running at diminished capacity but still provide 4,400 megawatts of power in California--close to a fifth of California's energy supply. Impressive as these numbers may be in terms of the power-generating capacity of nuclear energy, they tell only part of the story of California's experiment with nuclear power. Of six nuclear powerplants built in California, four have been decommissioned due to high operating costs and excessive risk. In the late 1950s, an experimental reactor at the Rocketdyne site in Ventura County was shut down after a severe meltdown. In 1967, the Vallecitos plant closed its doors after 20 years of operating because its owner, General Electric, was unable to obtain accident insurance due to the high risk of operating a nuclear power plant. In 1976, the Plant at Humboldt Bay shut its doors after 13 years of operation as a result of the discovery of a fault line near the plant that would have required millions of dollars in seismic retrofits. And in 1989, the Rancho Seco plant near Sacramento was closed by public referendum after 14 years of operation plagued by mismanagement that resulted in cost overruns. Nuclear power is expensive and risky. Yet I believe that if private investors are not willing to put their own money on the line to support new nuclear plants, then the Federal Government should not put taxpayers' money at risk either. However, under the nuclear subsidy provision in this energy bill, taxpayers would be required to subsidize up to 50 percent of construction costs of new nuclear plants--costs that CRS estimates to be in the range of $14-16 billion. CRS also estimates the risk of default on these loan guarantees to be ``very high--well above 50 percent.'' I strongly believe it is not in the public interest for our Nation to subsidize costly nuclear plants. Instead we should devote more resources to the development of renewable energy. I strongly believe we should be doing more to encourage the development of renewable power such as, wind, geothermal, and biomass, instead of providing subsidies to an industry that has not built a new powerplant since the 1970s. Unfortunately, this Energy bill currently has an over-reliance on promoting traditional energy resources, such as nuclear power. The U.S. nuclear power industry, while currently generating about 20 percent of the Nation's electricity, faces an uncertain long-term future. No nuclear plants have been ordered since 1978 and more than 100 reactors have been canceled, including all those ordered after 1973. No units are currently under construction. The nuclear power industry's troubles include high nuclear powerplant construction costs, public concern about nuclear safety and waste disposal, and regulatory compliance costs. Controversies over safety have dogged nuclear power throughout its development, particularly following the March 1979 Three Mile Island accident in Pennsylvania and the April 1986 Chernobyl disaster in the former Soviet Union. These events shaped much of our opinions about nuclear power. Safety continues to raise concerns today. In a recent example, it was discovered in March 2002 that leaking boric acid had eaten a large cavity in the top of the reactor vessel in Ohio's Davis-Besse nuclear plant. The corrosion left only the vessel's quarter-inch-thick stainless steel inner liner to prevent a potentially catastrophic release of reactor cooling water. Furthermore, nuclear powerplants have long been recognized as potential targets of terrorist attacks, and I remain skeptical that there are enough safeguards in place to defend against potential terrorist attacks on our nuclear plants. Concern about nuclear safety and waste disposal makes Californians apprehensive about nuclear power. California has shifted away from nuclear power over the years and activists in the communities surrounding the Diablo Canyon and San Onofre plants continue to express concerns about the safety of the remaining reactors in California. The construction of new nuclear reactors would also exacerbate the nuclear waste problem. Since the volume of nuclear waste in the United States is expected to exceed capacity at the controversial Yucca Mountain repository by 2010, any new plants will create even more waste storage problems. I voted with Senator Bingaman to strike these nuclear subsidies in committee and today I will vote with Senator Wyden to do the same.

Mrs. FEINSTEIN. The Senator is asking me to hypothesize. I sure wouldn't do it. I can only assume that some sophisticated trader has worked out some scheme and was utilizing it in this venue and knew that he or she was safe because there was no way to pin it on them. There were no records kept.

Mrs. FEINSTEIN. Mr. President, I inquire as to what the order is.

Mrs. FEINSTEIN. Mr. President, I send an amendment to the desk on behalf of Senators Fitzgerald, Harkin, Lugar, Cantwell, Wyden, Boxer, and Leahy.

Mrs. FEINSTEIN. Mr. President, I heard the comments of the distinguished ranking member that they had not had an opportunity to see the amendment. Of course, we will allow that opportunity to take place. This amendment closes a major loophole which allows energy trades to take place electronically, in private, with no transparency, no record, no audit trail, or any oversight to guard against fraud and manipulation. This amendment will close a loophole created in 2000 when Congress passed the Commodity Futures Modernization Act which exempted energy and metals trading from regulatory oversight and excluded them completely if the trade was done electronically. This amendment was presented by me before. Senator Fitzgerald spoke, Senator Wyden spoke, Senator Cantwell spoke. We got just about a majority. Senator Gramm of Texas argued against it. It did go back to the Agriculture Committee. The Agriculture Committee held hearings and both Senators Harkin and Lugar participated in making changes, which I think has made this a better amendment. We were hoping for a markup, but the Congress ended without that markup having taken place. Now the Energy bill is before us, and it seems to me this is the time to present this. This bill has had floor discussion. It has had a committee hearing. It has been modified by the chairman and the ranking member of the Agriculture Committee and is now before us. Today, if there is no delivery of physical energy, there is no price transparency. By that I mean, if I buy natural gas from you and you deliver it to me, the Federal Energy Regulatory Commission has the authority to ensure that the transaction is transparent--meaning it is available to look at--and that it is reasonably priced. However, many energy transactions no longer result in delivery. In other words, if I sell to you and you sell to Senator Craig who sells to Senator Domenici who sells to somebody else who then delivers it, none of these trades is covered if done electronically. That means there is no record; there is no audit trail; there are no capital requirements; there is no transparency; there is no antifraud or antimanipulation oversight today. It is a huge loophole permitted in the Commodity Futures Modernization Act of 2000. This lack of transparency and oversight applies to energy and metals trading. It does not apply if you are selling wheat or pork bellies or any other tangible commodity. Why do we include metals? Fraud and manipulation have not been confined to the energy trading sector. For example, in 1996 U.S. consumers were overcharged $2.5 billion from Sumitomo's manipulation of the copper markets. Furthermore, in 1999 the President's Working Group on Financial Markets recommended excluding only financial derivatives, not energy and metals derivatives, from the CFTC's jurisdiction. After intense lobbying by, of all people, Enron, a change was made to the Commodity Futures Modernization Act to exempt energy and metals trading from CFTC oversight in 2000. It did not take long for EnronOnline and others in the energy sector to take advantage of this new freedom by trading energy derivatives absent any transparency and regulatory oversight. In other words, a whole new niche was found where you could avoid any scrutiny and do this trading. After the 2000 legislation was enacted, EnronOnline began to trade energy derivatives bilaterally, without being subject to proper regulatory oversight. It should not surprise anyone that without the transparency, prices soared and games were played. Three years ago this summer, California's energy market began to spiral out of control. In May of 2000, families and businesses in San Diego saw their energy bills soar. The western energy crisis forced every family and business in California and many of the other States to pay more for energy. The crisis forced the State of California into a severe budget shortfall. It forced the State's largest utility into bankruptcy and nearly bankrupted the second largest publicly owned utility. Now, 3 years and $45 billion in costs later, we have learned how the energy markets in California were gamed and abused. Originally everyone around here said: Oh, it's the problem of the 1996 deregulation law. I will admit that law is a faulty law. However, you cannot have the price of energy 1 year being $7 billion throughout the whole State and the next year it is $28 billion and say that is supply and demand. You cannot have a 400 percent increase just based on supply and demand. Clearly, you do not have a 400 percent increase in demand in a 1-year period of time. Nor did that happen in a 1-year period of time. In March of this year, the Federal Energy Regulatory Commission issued a report titled ``Price Manipulation In Western Markets,'' which confirmed that there was widespread and pervasive fraud and manipulation during the western energy crisis. According to the FERC report, the abuse in our energy markets was pervasive and unlawful. Yet this Energy bill does not prevent another energy crisis from occurring nor does it curb illegal Enron-type manipulation. Just last week, the FBI arrested former Enron trader John M. Forney, saying he was a key architect of Enron's well-known trading schemes blamed for worsening California's energy crisis in 2000 and 2001. Mr. Forney was charged with a single count each of wire fraud and conspiracy. He is the third Enron trader accused by the Justice Department of criminal manipulation of western energy markets but the first who did not reach a plea agreement, leading to his arrest last Tuesday. According to the criminal complaint, Forney is allegedly the architect of the Enron trading strategies with the now infamous names of Ricochet, Death Star, Get Shorty, Fat Boy, and others. These Enron strategies were first revealed on Monday, May 6, 2002, when the Federal Energy Regulatory Commission posted a series of documents on their Web site that revealed Enron manipulated the western energy market by engaging in these suspect trading strategies. Under one such trading strategy called Death Star, which was also called Forney's Perpetual Loop, for John Forney, Enron would ``get paid for moving energy to relieve congestion without actually moving energy or relieving any congestion,'' according to an internal memo. It was a fraud. It was a fraud. A was a trading strategy which was clearly and simply fraudulent and manipulative. In another strategy detailed in these memos, Enron would ``create the appearance of congestion through the deliberate overstatement of loads'' to drive up prices. The above-mentioned strategies reveal an intentional and coordinated attempt to manipulate the Western energy market for profit. This is an important piece of the puzzle that has been uncovered. Some former Enron traders helped fill in the blanks. CBS News reported in May 2002 that former Enron traders admitted the company was directly responsible for local blackouts in California. Yet, interestingly enough, no one has followed up on this report. According to CBS News reporter Jason Leopold, the traders said Enron's former president Jeff Skilling pushed them to trade aggressively in California and told them, ``If you can't do that, then you need to find a job at another company or go trade pork bellies.'' The CBS article mentions that Enron traders played a disturbing role in blackouts that hit California. The report mentions specific manipulative behavior by Enron on June 14 and 15 in the summer of 2000 when traders said they intentionally clogged Path 26--a key transmission path connecting Northern and Central California. Here is what one trader said about the event: What we did was overbook the line we had the rights on during a shortage or in a heat wave. We did this in June 2000 when the Bay Area was going through a heat wave and the ISO couldn't send power to the North. The ISO has to pay Enron to free up the line in order to send power to San Francisco to keep the lights on. But by the time they agreed to pay us, rolling blackouts had already hit California and the price for electricity went through the roof. In other words, they waited for the weather. They calculatedly overbooked the line to clog the lines so that power could not be transmitted to the north. Therefore, what power was transmitted went sky high in terms of price. Second, a blackout resulted. California lost billions. Yet according to the traders, Enron made millions of dollars by employing this strategy alone. On top of all this, traders disclosed that Enron's manipulative trading strategies helped force California to sign expensive long-term contracts. It is no surprise that Enron and others were able to profit so handsomely during the crisis. Now, after 3 years, the FBI and the Justice Department are beginning to bring these traders to justice. In February, Jeffrey Richter, the former head of Enron's Short-Term California energy trading desk, pled guilty to conspiracy to commit fraud as part of Enron's well known schemes to manipulate Western energy markets. Richter's plea followed that of head Enron trader Tim Belden in the fall of 2002. Belden admitted that he schemed to defraud California during the Western energy crisis and also plead guilty to conspiracy to commit wire fraud. Nobody can believe this didn't happen, because it did. Two people have pled guilty, and a third was just arrested for doing just what we hope to prevent happening with this amendment. The plea by Jeff Richter came on the heels of FERC's release of transcripts from Reliant Energy in January of this year that reveal how their traders intentionally withheld power from the California market in an attempt to increase prices. This is one of the most egregious examples of manipulation and it is clear and convincing evidence of coordinated schemes to defraud consumers. Let me read just one part of the transcript to demonstrate the greed behind the market abuse by Reliant and its traders. On June 20, 2000 two Reliant employees had the following conversation that reveals the company withheld power from the California market to drive prices up: Reliant Operations Manager 1. I don't necessarily foresee those units being run the remainder of this week. In fact you will probably see, in fact I know, tomorrow we have all the units at Coolwater off. The Coolwater plant is a 526 Megawatt plant. Reliant Plant Operator 2. Really? Reliant Operations Manager 1. Potentially. Even number four. More due to some market manipulation attempts on our part. And so, on number four it probably wouldn't last long. It would probably be back on the next day, if not the day after that. Trying to uh . . . Reliant Plant Operator 2. Trying to shorten supply, uh? That way the price on demand goes up. Reliant Operations Manager 1. Well, we'll see. Reliant Plant Operator 2. I can understand. That's cool. Reliant Operations Manager 1. ``We've got some term positions that, you know, that would benefit. That is what existed. That is the kind of thing that went on, and it has to stop. It has to be made illegal and it has to have heavy penalties. Let's turn to some other examples. On January 27, 2003, Michelle Marie Valencia, a 32-year-old former senior energy trader for Dynegy, was arrested on charges that she reported fictitious natural gas transactions to an industry publication. On December 5, 2002, Todd Geiger, a former vice president on the Canadian natural gas trading desk for El Paso Merchant Energy, was charged with wire fraud and filing a false report after allegedly telling a trade publication about the prices for 48 natural gas trades that he never made in an effort to boost prices and company profit. In other words, he is telling an energy trade publication about 48 gas trades that were never made. It was bogus information which was given out. Why? Simply to boost the market. These indictments are just a few examples of how energy firms reported inaccurate prices to trade publications to drive energy prices higher. Industry publications claimed they could not be fooled by false prices because deviant prices are rejected, but this claim was predicated on the fact that everyone was reporting honestly which we now know they weren't doing. CMS Energy, Williams, American Electric Power Company, and Dynegy have each acknowledged that its employees gave inaccurate price data to industry participants. On December 19 Dynegy agreed to pay a $5 million fine for its actions. Let us turn to other types of fraudulent trades that many energy firms have admitted to. Dynegy, Duke Energy, El Paso, Reliant Resources Inc., CMS Energy Corp., and Williams Cos. all admitted engaging in false ``round-trip'' or ``wash trades.'' What is a ``round-trip'' trade, one might ask? ``Round-trip'' trades occur when one firm sells energy to another and then the second firm simultaneously sells the same amount of energy back to the first company at exactly the same price. No commodity ever actually changes hands, but when done on an exchange, these transactions send a price signal to the market and they artificially boost revenue for the company. How widespread are ``round-trip'' trades? Well, the Congressional Research Service looked at trading patterns in the energy sector over the last few years and reported, ``this pattern of trading suggests a market environment in which a significant volume of fictitious trading could have taken place.'' Yet since most of the energy trading market is unregulated by the government, we have only a slim idea of the illusions being perpetrated in the energy sector. Consider the following confessions from energy firms about ``round- trip'' trades: Reliant admitted 10 percent of its trading revenues came from ``round-trip'' trades. The announcement forced the company's President and head of wholesale trading to both step down. These are bogus traders. CMS Energy announced 80 percent of its trades in 2001 were ``round- trip'' trades. Eighty percent of all of the trading this company did was bogus. Remember, these trades are sham deals where nothing was exchanged, yet the company booked revenues from the trades. This is exactly what our legislation aims to stop. Duke Energy disclosed that $1.1 billion worth of trades were ``round- trip'' since 1999. Roughly two-thirds of these were done on the InterContinental Exchange owned by banks that oppose this legislation. Let me repeat that. Duke Energy disclosed that $1.1 billion worth of trades were bogus ``round-trip'' trades since 1991. And two-thirds of those were done on the InterContinental Exchange, which is an electronic exchange. That means that thousands of subscribers would have seen false price signals. A lawyer for J.P. Morgan Chase admitted the bank engineered a series of ``round-trip'' trades with Enron. Dynegy and Williams have also admitted to this ``round-trip'' trading. And although those trades mostly occurred with electricity, there is evidence to suggest that ``round-trip'' trades were made in natural gas and even broadband. By exchanging the same amount of a commodity at the same price, these companies have not engaged in meaningful transactions but in deceptive practices to fool investors and drive up energy prices for consumers. It is, therefore, imperative that the Department of Justice, the Federal Energy Regulatory Commission, the Securities and Exchange Commission, the Commodity Futures Trading Commission, and every other oversight agency conduct an aggressive and vigorous investigation into all of the energy companies that may have committed fraud and abuse in the western energy market. Beyond that, I believe strongly that Congress must reexamine what tools the Government needs to keep a better watch over these volatile markets that, frankly, are little understood. In the absence of vigilant Government oversight of the energy sector, firms have the incentive to create the appearance of a mature liquid and well functioning market, but it is unclear whether such a market exists. And I don't believe, for a minute, that such a market exists. The ``round-trip'' trades, the Enron memos, the FERC report on ``Price Manipulation in the Western Markets'' raise questions about the energy markets of our country. To this end, I believe it is critical for the Senate to approve this amendment, which would provide more regulatory oversight of online energy trading. When the Senate Energy Committee marked up the Energy bill in April, there was a consensus to include some provisions of the Energy Market Oversight Act, S. 509, I introduced earlier this year. The Energy bill, S. 14, does include higher criminal and civil penalties for violations of the Federal Power Act and the Natural Gas Act. Under section 1173 of the bill now on the floor, fines will be $1 million instead of the current $5,000 for a one-time violation of the statutes. I thank the chairman of the committee for this. Jail time will be raised to 5 years instead of the current 2 years. And I thank the chairman of the committee for this. Fines will be $50,000 per violation per day instead of the current $500 per violation per day for violations of the statutes. And I thank the chairman of the committee for this. Furthermore, section 1174 of the Energy bill will eliminate the unnecessary 60-day waiting period for FERC to grant refunds. I thank both Senator Domenici and Senator Bingaman, the chairman and the ranking member of the Energy Committee, for their efforts to include provisions of S. 509, the Energy Market Oversight Act, in this Energy bill. Now let me turn to the specifics of the amendment. I am offering this amendment--and I am hopeful that Senator Fitzgerald will come to the floor; I know he intends to speak on this amendment, and I hope he does--I am offering this amendment to subject electronic exchanges, such as EnronOnline, the InterContinental Exchange, and any other electronic exchange, to the same oversight, reporting, and capital requirements of other commodity exchanges, such as the Chicago Mercantile Exchange, the New York Mercantile Exchange, and the Chicago Board of Trade. Why should there be one secret trading venue where fraud and manipulation can take place abbondanza? I do not think there should be. I do not think it is in the interests of our citizens to have that happen. And the western energy market should be a major case in point. I am very pleased that Senators Fitzgerald, Harkin, Lugar, Cantwell, Wyden, Leahy, Durbin, and Boxer have again signed on to this amendment. I was very proud of the work we did in the 107th Congress, and I hope we can adopt this amendment on this Energy bill because without this type of legislation, there is insufficient authority to investigate and prevent fraud and price manipulation since parties making the trades are not required to keep a record. That is the problem. The CFTC will say: Oh, we are already doing that. But in the law there is no requirement to keep a record. There is a specific exemption in the law. So I do not see how the CFTC has the adequate tools to do what they need to do without this amendment because this amendment closes that loophole which exists just for energy and just for metals and, because of its existence, has allowed EnronOnline and a number of other exchanges--Dynegy had one; InterContinental Exchange had one as well--to do all these things in secret with no audit trail, no record, no capital requirements. Nobody has a responsibility to set any capital requirements. There is no audit trail and no antifraud and antimanipulation oversight. Clear and simple, it is a travesty. Right now, energy transactions are regulated by FERC. When there is actual delivery, that is taken care of. If Senator Reid sells me energy and I deliver it, that is covered by FERC. But interim trades are not covered by anybody. They are on their own in secret. Many energy transactions no longer result in delivery, so this giant loophole where there is no government oversight--when these transactions are done on electronic exchanges--is major. I think it is mega. I think a number of companies have jumped into this void simply because they thought they could make a quick buck by gaming the system, and in fact they have done just that. As I mentioned, in 2000 Congress passed the Commodity Futures Modernization Act, which exempted energy and metals from regulatory oversight, and excluded it completely if the trade was done electronically. So today, as long as there is no delivery, there is no price transparency, there is no record, there is no audit trail, there is no capital requirement, there is no antifraud, antimanipulation oversight. This lack of transparency and oversight only applies to energy. It does not apply if you are selling wheat or pork bellies or any other tangible commodity. And financial derivatives are not included in this amendment. It did not take long for Enron and others to take advantage of this new freedom by trading derivatives absent any regulatory oversight. Thus, after the 2000 legislation was enacted, EnronOnline, as I said, began to trade energy derivatives bilaterally without being subject to regulatory oversight. It should not be a surprise to anyone that prices soared. In March, Warren Buffett published a warning in Fortune magazine saying: Derivatives are financial weapons of mass destruction. In his annual warning letter to shareholders about what worries him about the financial markets, Warren Buffett called derivatives and the trading activities that go with them ``time bombs.'' In the letter, Mr. Buffett states: In recent years some huge-scale frauds and near-frauds have been facilitated by derivatives trades. In the energy and electric utility sectors, for example, companies used derivatives and trading activities to report great ``earnings''--until the roof fell in when they actually tried to convert the derivatives-related receivables on their balance sheets into cash. We clearly saw this with Enron. Was Enron and its energy derivative trading arm, Enron Online, the sole reason California and the West had an energy crisis? No. Was it a contributing factor to the crisis? I believe it was. Unfortunately, because of the energy exemptions in the 2000 Commodities Futures Modernization Act, which took away the CFTC's authority to investigate, we may never know for sure. In the 107th Congress, this legislation was debated during consideration of the Senate Energy bill, and it was a subject of a hearing in the Senate Agriculture Committee. As I said, time ran out before it could be marked up and passed. Since that time, both Senators Lugar and Harkin have made significant improvements to the legislation. So today I am pleased to note that the following companies and organizations are supporting this legislation: the National Rural Electric Cooperative Association; the Derivatives Study Center; the American Public Gas Association; the American Public Power Association; the California Municipal Utilities Association; Southern California Public Power Authority; the Transmission Access Policy Study Group; U.S. Public Interest Research Group; the Consumers Union; the Consumers Federation of America; Calpine; Southern California Edison; Pacific Gas and Electric; and the FERC Chairman Pat Wood. Here is a quick explanation of what this amendment does. It applies antifraud and antimanipulation authority to all exempt commodity transactions. An exempt commodity is a commodity which is not financial and not agricultural and mainly includes energy and metals. The bill sets up two classes of swaps for those made between sophisticated persons, basically institutions and wealthy individuals, that are not entered into on a trading facility, for example, an exchange. Antifraud and antimanipulation provisions apply and wash trades are prohibited. The following regulations would apply to all swaps made on an electronic trading facility and a ``dealer market'' which includes dealers who buy and sell swaps in exempt commodities and the entity on which the swap takes place. Antifraud and antimanipulation provisions and the prohibition of wash trades apply. If the entity on which the swap takes place serves a pricing or price discovery function, increased notice, reporting, bookkeeping, and other transparency requirements are provided. The requirement to maintain sufficient capital is commensurate with the risk associated with the swap. We don't determine that in this legislation. The Commodities Futures Trading Commission would determine that. In other words, they would determine what kind of net capital requirement there will be, and that would be commensurate with the degree of risk involved in the transaction. Except for the antifraud and antimanipulation provisions, the CFTC has the discretion to tailor the above requirements to fit the character and financial risk involved with the swap or entity. While the CFTC could require daily public disclosure of trading data, such as opening and closing prices, similar to the requirement of futures exchanges, it could not require real-time publication of proprietary trading information or prohibit an entity from selling their data. So proprietary information is protected. The CFTC may allow entities to meet certain self-regulatory responsibilities as provided in a list of core principles. If an entity chooses to become a self regulator, these core principles would obligate the entity to monitor trading to prevent fraud and manipulation, as well as assure that its other regulatory obligations are met. The penalties for manipulation are greatly increased. The civil monetary penalty for manipulation is increased from $100,000 to $1 million. Wash trades are subject to the monetary civil penalty for each violation and imprisonment of up to 10 years. The FERC is required to improve communications with other Federal regulatory agencies. A shortcoming in the main antifraud provision of the CEA is also corrected by allowing CFTC enforcement of fraud to apply to instances of either defrauding a person for oneself or on behalf of others. This would also require the FERC and the CFTC to meet quarterly and discuss how energy derivative markets are functioning and affecting energy deliveries. So they are required to look at this, to monitor it closely, and to sit quarterly and see how these markets are, in fact, functioning. This would grant the FERC the authority to use monetary penalties on companies that don't comply with requests for information. This is essentially the same authority the SEC has today. It would make it easier for FERC to hire the necessary outside help they need, including accountants, lawyers, and investigators for investigative purposes. And it would eliminate the requirement that FERC receive approval from the Office of Management and Budget before launching an investigation or price discovery of electricity or natural gas markets involving more than 10 companies. This amendment is not going to do anything to change what happened in California and the West. But it does provide the necessary authority for the CFTC and the FERC which will help protect against another energy crisis. No one is immune from this kind of thing. The gaming, the fraud, the manipulation has been extraordinary. Just the chutzpah to do Death Star, Get Shorty, Ricochet, just the chutzpah to do these kinds of trades in secret, it is a bunco operation. It is nothing else but. And who is buncoed? The consumer is buncoed. That is why consumer organizations feel strongly about this. When regulatory agencies have the will but not the authority to regulate, Congress must step in and ensure that our regulators have the necessary tools. Unfortunately, sometimes an agency has neither. In this case, I am glad to have the support of FERC, and I hope the CFTC will reconsider its position and support this amendment. I note that Senator Fitzgerald is on the floor. I would like to yield to him. But before I do, may I just say one quick thing.

Mrs. FEINSTEIN. I certainly will.

Mrs. FEINSTEIN. Yes, it was CMS Energy. The year was 2001. They announced that. Additionally, Duke Energy disclosed that $1.1 billion worth of trades were round trip, wash trades, since 1999; roughly two-thirds of these were done on the InterContinental Exchange, which means that thousands of subscribers would have seen these false price signals. I could finish this, if you like? A class action suit accused the El Paso Corporation of engaging in dozens of round trip energy wash trades that artificially bolstered its revenues and trading volumes over the last 2 years. CMS Energy Corp. has admitted conducting wash energy trades that artificially inflated its revenue by more than $4.4 billion. So this is important. I have a hard time, I think, as you do, that if I sell something to you and you just sell it back to me and we both boost sales and yet nothing is really sold, that that is a legitimate way of doing business.

Mrs. FEINSTEIN. Mr. President, I ask unanimous consent that the reading of the amendment be dispensed with.

Mrs. FEINSTEIN. That is correct.

Mrs. FEINSTEIN. That is absolutely correct. That is what we are trying to do. For the life of me, I don't understand why people are against it.

Mrs. FEINSTEIN. The Senator is absolutely correct. When we had this vote in the last Congress, if I recall correctly, we got 48 votes. It wasn't really crystal clear what the excesses were at that time. Now we have documentation of the excesses. We have literally billions of dollars of fraudulent trades, wash trades, round-trip trades, whatever you call them, but fraudulent trades. So we know. We also know that Mr. Fortney was arrested and two others have plead guilty to creating these schemes. To continue to allow that kind of thing to exist would be a real dereliction of this Congress.

Mrs. FEINSTEIN. Madam President, I would also like to point out another study that has been done in a CRS report for Congress, and that was dated January 28 of this year, pointing out that this bill was presented in the last Congress and probably would be presented in this Congress. One of the points it makes is that if over-the-counter derivatives dealers were required to keep and make available for inspection records of all trades and to disclose information about trading volume and prices, abuses like the ones we have been talking about would be easier to detect and, thus, presumably less likely to occur. That is really the purpose of this: not to allow sort of a secret niche in the trading arena where people could go to hide and trade, but to bring the sunshine into that niche and to provide--and it is very conservative--regulation of what they must do. I know my friend and senior Senator from Nevada has proposed an amendment. Regrettably, I have to vote against the amendment. This bill had been worked out with Senator Harkin and Senator Lugar. My understanding is they believe we should close the loophole entirely, not leave one area sort of in the dark, so to speak. I am troubled by the amendment because our reading of the amendment indicates that it effectively exempts metals entirely without any oversight or regulation by the CFTC, even less than under current law. In good conscience, I cannot do that. So I think we made the arguments, Madam President. And with what has happened--and now that we know the extent of the fraud that has taken place online--not to close that loophole, I think, would be a terrible blot on this Congress. So I am hopeful we will have a positive vote. I thank the Chair for your indulgence and yield the floor.

Mrs. FEINSTEIN. That is exactly right. That is why we suspect it. It is hard to prove. Again, there have been three arrests of Enron traders who devised these schemes. Actually two were plea-bargained. There was a recent arrest last week of this fellow who apparently set these trading schemes up for Enron. To have a transparent marketplace, I think, gives confidence to the 50 percent of the people who are small investors who would want to participate in the market. You have to show there is oversight. You have to show it is up and up, that it is a legitimate bona fide marketplace with trades that mean something. In my heart of hearts, I believe that a lot of this kind of activity is what amounted to a 400-percent increase in the cost of power in 1 year in California alone.

Mrs. FEINSTEIN. CMS Energy admitted to conducting wash energy trades that artificially inflated its revenue by $4.4 billion.

Mrs. FEINSTEIN. That is right.

Mrs. FEINSTEIN. Right. May I ask the Senator a question? Some, I understand, may come to the floor and want a study. The study has already been done, and it is the ``Final Report On Price Manipulation in Western Energy Markets, Fact-Finding Investigation of Potential Manipulation of Electric and Natural Gas Prices.'' It was prepared by the staff of the Federal Energy Regulatory Commission. It was put out in March of this year. I would like to read one section of it to the Senator and see if he is aware of this. It reads: Recommend that Congress consider giving direct authority to a Federal agency to ensure that electronic trading platforms for wholesale sales of electric energy and natural gas in interstate commerce are monitored and provide market information that is necessary for price discovery in competitive energy markets.

Mrs. FEINSTEIN

Mrs. FEINSTEIN. Mr. President, I rise to support the amendment by my colleague from California to strke the so-called ``safe harbor provision'' in the amendment offered by the majority leader that would shield ethanol producers and refiners from any liability if the fuel additive harms the environment or public health. Candidly, I find this ``safe harbor provision'' astounding. I believe it is egregious public policy to mandate ethanol into our fuel supply in the first place--and even worse to provide complete liability protection to the fuel additive before scientific and health experts can fully investigate the impact of tripling ethanol on the air we breathe and the water we drink. This is exactly the mistake we made with MTBE. Over the past several years, we have learned that MTBE has contaminated our water and may be a human carcinogen. As exemplified by our Nation's experience with MTBE, there can be severe environmental and health repercussions when we mandate the use of any one fuel additive. Last fall a California jury found there was ``clear and convincing evidence'' that three major oil companies acted ``with malice'' by polluting ground water at Lake Tahoe with MTBE because the gasoline they sold was ``defective in design'' and there was failure to warn of its pollution hazard. After a 5-month trial, Shell Oil and Lyondell Chemical Company were found guilty of withholding information on the dangers of MTBE. The firms settled with the South Lake Tahoe Water District for $69 million. This case demonstrates why we cannot surrender the rights of citizens to hold polluters accountable for harm they inflict. How can the Senate favor exempting the ethanol industry from this kind of wrongdoing? I urge my colleagues to take a look at the so- called ``safe harbor'' provision that will give the ethanol industry unprecedented protection against consumers and communities that may seek legal redress against the harm ethanol may cause. Our amendment would strike this ridiculous exemption. If we do not strike this provision, polluters will receive unprecedented protection from damage to public health or the environment. If we do not strike this provision, what incentive will there be for ethanol manufacturers and refiners to make their products as safe as possible and thoroughly test their long-term effects? If we do not strike this provision, how else can we hold manufacturers accountable when fuel additives cause harm? Mandating ethanol into our fuel supply raises serious health and environmental concerns. What effect will an ethanol mandate have on our environment? What are the health risks? Although the scientific opinion is not unanimous, evidence suggests that; one, reformulated gasoline with ethanol produces more smog pollution than reformulated gas without it; and, two, ethanol enables the toxic chemicals in gasoline to break apart and seep further into groundwater even faster than conventional gasoline. Ethanol is often made out to be an ideal ``renewable fuel'' giving off fewer emissions. Yet, on balance, ethanol can be a cause of more air pollution because it produces smog in the summer months. Smog is a powerful respiratory irritant that affects large segments of the population. It has an especially pernicious effect on the elderly, children, and individuals with existing respiratory problems such as asthma. Just last week the American Lung Association named California the smoggiest state by listing nine counties and six metropolitan areas in California as having the worst conditions. A 1999 report from the National Academy of Sciences found, ``the use of commonly available oxygenates [like ethanol] in [Reformulated Gasoline] has little impact on improving ozone air quality and has some disadvantages. Moreover, some data suggest that oxygenates can lead to higher Nitrogen Oxide (NOx) emissions.'' Nitrogen Oxides are known to cause smog. The American Lung Association report also noted that half of Americans are living in counties with unhealthy smog levels. Why would we want to take the chance of increasing these unhealthy smog levels by mandating billions of unnecessary gallons of ethanol into our fuel supply? Thus, ethanol can be both good and bad for air quality. To me it would make sense to maximize the advantages of ethanol, while minimizing the disadvantages. This is exactly why States should have flexibility to decide what goes into their gasoline in order to meet clean air standards, and ethanol should not be mandated--certainly not at this level. And if we are mandating it, why exempt manufacturers and refiners from their legal responsibility to provide a safe product? Evidence also suggests that ethanol accelerates the ability of toxins found in gasoline to seep into our groundwater supplies. The EPA Blue Ribbon Panel on Oxygenates found ethanol ``may retard biodegradation and increase movement of benzene and other hydrocarbons around leaking tanks.'' And according to a report by the State of California entitled ``Health and Environmental Assessment of the Use of Ethanol as a Fuel Oxygenate,'' there are valid questions about the impact of ethanol on ground and surface water. An analysis in the report found there will be a 20 percent increase in public drinking water wells contaminated with benzene if a significant amount of ethanol is used. Benzene is a known human carcinogen. At a hearing held on the House side last year, Professor Gordon Rausser of UC Berkeley commented on the potential harm of ethanol on groundwater. Professor Rausser testified: when gasoline that contains ethanol is released into groundwater, the resulting benzene plumes can be longer and more persistent than plumes resulting from releases of conventional gasoline. Research suggests that the presence of ethanol in gasoline will delay the degradation of benzene and will lengthen the benzene plumes by between 25 percent and 100 percent. This evidence on the potential harm of ethanol is extraordinarily troubling. I am at a loss to understand why the Senate would support sweeping liability protection for fuel producers. Taking away the ability of families and communities to seek redress for the harm caused by fuel additives is NOT something I believe this Senate should be doing. Let me read part of a letter sent by California Attorney General Bill Lockyer opposing the ethanol safe harbor provision. Lockyer writes: Congress should not enact the current safeharbor provisions, which could be construed as granting oil companies a very broad immunity. As exemplified by MTBE, there can be dire consequences from the use of defective fuel additives. Lockyer continues: If there is a defect with a particular fuel, the oil companies should be held accountable under the common law principles for using such a fuel. In addition, by including fuels and not just renewable fuels, this section has a extraordinarily broad reach. There is no reason to add immunity for a fuel just because one drop of renewable fuel is added to that fuel. For as long as automobiles have been used, oil companies have been subject to common law product liability rules. There is no need to change these fundamental principles. We need to protect the basic rights American families enjoy remain in place to keep our air and water safe. I urge my colleagues to support this amendment to protect our communities from harm caused by fuel additives.

Mrs. FEINSTEIN

Mrs. FEINSTEIN. Mr. President, May 29, 2003 marks a true milestone, a triumph of the human spirit. On that day, 50 years earlier, two young men--Edmund Hillary and Tenzing Norgay--became the first to reach the highest point on earth, the fabled summit of Mt. Everest. At 29,028 feet above sea level, Everest had defied 15 earlier attempts, including the doomed expedition of George Mallory, in 1924. Some have called Everest the Third Pole, after the North Pole, first reached in 1909, and the South Pole, reached in 1911. Small wonder, then, that these two intrepid climbers--the lanky beekeeper from New Zealand and the sprightly Sherpa born in Tibet--became instant celebrities back in 1953, and have since evolved into legendary figures. The son of a yak herder, Tenzing Norgay, who died in 1986, became the first humbly born Asian to rise to global fame entirely through his own efforts and sheer willpower. In many ways his story has a strong American flavor to it--with enough determination and hard work, anyone can achieve anything. Norgay spoke 13 languages but could neither read nor write. He always told his children: ``I climbed Everest so you wouldn't have to.'' His son, Norbu, now a resident of San Francisco, took these words to heart. College became his Everest. Equally extraordinary is how Hillary and Norgay used their fame not for personal gain, but as champions of their people and, later, to help and protect the unique culture of the Sherpas. For nearly 25 years now, I have been honored to consider Sir Edmund Hillary my friend. In September of 1981, he was with my husband when he fulfilled a dream: entering the beautiful Kanshung valley, in an attempt to climb the east face of Everest from Tibet. In concert with the American Himalayan Foundation, Sir Edmund's Himalayan Trust, which was established in 1962, has been leading the effort to build schools, bridges, hospitals, and micro hydro plants, out of his deep and lasting affection for the Sherpa people. To date, they have built 27 schools where once there were none. I am not talking about just funding alone--Sir Edmund actually took part in the actual construction of these and other buildings. Here is a man who puts the divots back. Just ask the Sherpa children who grew up tending yaks who are now doctors, pilots and investment bankers. The Himalayan Trust has also built two hospitals, one in Khunde and one in Paphlu, and 11 village clinics that provide health care for the Sherpa communities and trekkers alike. The Trust has worked to combat the deforestation of the Khumbu, caused largely by tourism, by planting more than 1 million trees, to restore the sacred monasteries at Tengbouche and Thame--central sites for the spirituality of the Sherpas, and in the establishment, in 1976, of the Sagarmatha National Park. Sagarmatha is the Nepali name for Mount Everest. At 83 years old, New Zealand's former High Commissioner to India is still going strong. For half a century now he has been one of the enduring figures of our time. He has taught me and so many others about the simple yet majestic power of the Himalayas and the marvelous but far too often forgotten people whose ancient culture is tied so closely to those amazing mountains. Being the first to reach the top of the world would ensure anyone's name in the history books--and Hillary and Norgay achieved that the moment news spread of their heroic accomplishment. But I believe had they not been the men they were--soft spoken and down to earth, devoted to actions and example, to helping others rather than themselves--then they would have ended up as mere footnotes. Instead, the names of Hillary and Norgay remain an inspiration to people around the world. And I am absolutely certain that the same will be true 50 years from now, when it comes time to celebrate the 100th anniversary, and for many other anniversaries to follow.

Mrs. FEINSTEIN

Mrs. FEINSTEIN. Mr. President, I rise along with my distinguished colleague from Kentucky, Senator McConnell, to introduce the Burmese Freedom and Democracy Act of 2003, which would establish a complete import ban on all products from Burma. On May 30, Aung San Suu Kyi and at least 17 officials of the National League for Democracy, NLD, were detained after a clash in the town of Ye-u, after reportedly being attacked by members of the Union Solidarity Development Association, a paramilitary organization created by the ruling military junta, the State Peace and Development Council, SPDC. Four people were killed and 50 injured in the attacks. Aung San Suu Kyi has been officially placed in ``protective custody'', but her whereabouts remain unconfirmed. Still more disturbing are reports in today's Washington Post that Suu Kyi may have suffered a head wound and a broken arm in the attacks and is possibly being held at a military hospital near Rangoon. The military junta continues to insist that she is in good health and in a ``safe place'', yet they are unwilling to allow independent verification of Suu Kyi's condition. One year ago the military junta freed Suu Kyi following 19 months of house arrest, while promising cooperation and dialogue toward political accommodation. Had I discussed Burma on the floor of the Senate back then, I would have sounded a note of cautious optimism, echoing Aung San Suu Kyi's own statement that ``it's a new dawn for the country''. But as the events of May 30 have so tragically illustrated, the SPDC have broken every promise to work towards political dialogue and, in fact, have launched a new campaign of repression. Given the military regime's utter contempt for the welfare and safety of its people and the repeated and ongoing human rights abuses against Aung San Suu Kyi and the members of the NLD, I now feel we have no choice but to strengthen the sanctions imposed in 1997. The actions of the SPDC are simply outrageous and I join the State Department, the United Nations and the many voices from around the world in demanding that Suu Kyi and the others be released immediately, and to allow the U.N. Special Rapporteur on Human Rights in Burma to conduct an independent investigation into the attack on Aung San Suu Kyi and her party. Not content to stop with arresting the leadership of the NLD, the regime has tightened its crackdown on the pro-democracy movement, closing universities and shutting down at least six NLD offices. In addition, two NLD leaders have been arrested on charges of ``subversion''. Let us recall, the NLD overwhelmingly won Burma's national elections in 1990. The NLD are Burma's rightful leaders, not the military junta which seized power in 1988, crushing a widespread popular uprising. Such actions are only the tip of the iceberg of the regime's brutality. According to the Council on Foreign Relations Task Force report on Burma, which both the Senator from Kentucky, and I had the honor of serving on, gross human rights violations continue under the SPDC: over 1,300 political prisoners are still in jail; the practice of rape as a form of repression has been sanctioned by the Burmese military; the use of forced labor is widespread; trafficking in young boys and girls as sex slaves is rampant; the government engages in the production and distribution of opium and methamphetamine. In addition, the report notes that because of SPDC mismanagement, the Burmese economy is in shambles, with poor rice harvests and, most recently, a February 2003 financial crisis sparked by government closure of private deposit companies. In the face of such brutality it is imperative that the United States take strong and decisive action to express our disapproval of the SPDC and its tactics, and our support of those forces working for peace in Burma. The United States must act. Although in general I do not support the use of trade embargoes as an effective instrument of foreign policy, in certain circumstances and when faced with certain conditions I believe they are necessary and proper and can, in fact, provide effective leverage. Burma, I believe, is such a case and an import ban is a proper and much needed step to take. Our legislation: imposes a complete ban on all imports from Burma until the President determines and certifies to Congress that Burma has made substantial and measurable progress on a number of democracy and human rights issues; allows the President to waive the import ban should he determine and notify Congress that it is in the national security interests of the United States to do so; allows the President to waive any provision of the bill found to be in violation of any international obligations of the U.S. pursuant to World Trade Organization dispute settlement procedures; freezes the assets of the Burmese regime in the United States; directs United States executive directors at international financial institutions to vote against loans to the Burma; expands the visa ban against the past and present leadership of the military junta; encourages the Secretary of State to highlight the abysmal record of the SPDC in the international community, and; authorizes the President to use all available resources to assist democracy activists in Burma. Both business and labor are united in support of a ban. The American Apparel and Footwear Association, which represents apparel, footwear, and sewn products companies and their suppliers, has called for a ban. President and CEO Kevin M. Burke stated, ``The government of Burma continues to abuse its citizens through force and intimidation, and refuses to respect the basic human rights of its people. AAFA believes this unacceptable behavior should be met with condemnation from not only the international public community, but from private industry as well.'' A number of stores, including Saks, Macy's, Bloomingdales, Ames, and The Gap have already voluntarily stopped importing or selling goods from Burma. The AFL-CIO and other labor groups also support a ban. In addition, the international Labor Organization, for the first time in its history, called on all ILO members to impose sanctions on Burma. Such diversity in support of this legislation speaks volumes about the brutality of the SPDC regime and its single-minded unwillingness to take even a modest step towards democracy and national reconciliation. Currently, Burma exports approximately $400 million in goods per year to the United States. These exports are the regime's major source of foreign currency. Rest assured, the regime will take notice if this bill becomes law. As events of the past few days have shown, all other avenues have been tried and failed. There is no other resource but to introduce this legislation, that would put pressure on the military junta to cease its violations of human rights and respect the free will of the Burmese people as expressed in the 1990 elections. We must make a stand on the side of the people of Burma. I urge my colleagues to support this bill. I ask unanimous consent that the text of the bill be printed in the Record.