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Senate Rejects Closer Look at Energy Pacts

Derivatives: Proposal would have given lawmakers more oversight on an Enron-related activity.


WASHINGTON — The Senate on Wednesday scuttled one of the first legislative proposals sparked by the Enron Corp. meltdown, rejecting a bid to bring the kind of energy derivatives traded by the now-bankrupt company under greater government oversight.

The vote came as the Senate moved closer to a showdown, perhaps as early as today, on the marquee issue in its energy bill: President Bush's call to open up a portion of Alaska's Arctic National Wildlife Refuge to oil drilling.

A bipartisan group of senators led by Sen. Dianne Feinstein (D-Calif.) sought to include the derivatives measure in the energy legislation, contending it would help regulators investigate allegations of market manipulation.

Feinstein and California's other Democratic senator, Barbara Boxer, have contended that Enron used the complex financial contracts to drive up electricity prices last year. The company has denied the charge.

Proponents of more government oversight of derivatives said it was necessary to shed light on an often secretive activity that affects consumer pocketbooks. Regulation-wary Republican senators, however, argued that the proposal would roil a multitrillion-dollar derivatives market that is critical to the nation's economic recovery and cited among the opponents Federal Reserve Chairman Alan Greenspan.

The vote underscored the difficulty of a closely divided Congress to reach agreement in an election year on a raft of proposed reforms inspired by the largest bankruptcy in U.S. history. The GOP-controlled House today is expected to act on Enron-triggered safeguards for employee retirement accounts, but that bill faces an uncertain fate because Democrats who control the Senate say it does not go far enough.

Derivatives are essentially contracts based on the future price or performance of a commodity, such as electricity. The contracts are used to hedge against sudden and large price increases.

Feinstein dropped her amendment that would have given the Commodity Futures Trading Commission oversight of energy derivative trading after the proposal fell well short of the 60 votes needed to end debate. Only 48 senators voted for the motion; 50 voted against it.

Feinstein said she was simply trying to extend to energy trades the same rules that apply to trading in such commodities as pork bellies and wheat, most notably requirements for disclosure of price information.

Supporters of the measure said it would close a loophole that allowed Enron to escape scrutiny in a major part of its operations.

"This loophole was created for Enron, by Enron, and I think it is tragic that the Enron experience was not enough to enable its passage at this time," Feinstein said.

Opponents warned against acting hastily on such a complex issue.

"You don't want to tamper with [the derivatives market] unless you know what you are doing," said Sen. Phil Gramm (R-Texas). "You don't want unintended consequences."

Gramm's wife, Wendy, was the Commodity Futures Trading Commission chairwoman who in the early 1990s shepherded an exemption from government oversight for the trading of energy products. She later joined the Enron board.

Assailing the Senate action, Ed Mierzwinski, consumer program director for USPIRG, a public interest research group, said, "The Senate failed the first major test of whether Congress is going to enact Enron reforms, or just wring its hands and stick with business as usual."

At the White House, Press Secretary Ari Fleischer cited the instability in the Middle East to make the case for Bush's push for increased production of domestic energy--a plan that includes the Arctic drilling proposal.

"What the president is saying to the Senate is we need conservation, we need more efficiency, but don't turn your back on making America more energy-independent because you're not willing to explore within our own lands," Fleischer said.

At an anti-drilling rally on Capitol Hill, Sen. Joseph I. Lieberman (D-Conn.) expressed confidence that opponents have the votes to block the proposal.

"It will not happen," he told a cheering crowd. Lieberman dismissed suggestions that the Middle East turmoil has made drilling in the refuge more imperative as "the biggest bunch of hokum."

Drilling proponents will need 60 votes in the Senate to break a threatened Democratic filibuster over the issue. A number of Republican senators contend that if they can muster 50 votes, it will give them more political leverage to try to include the drilling in any final energy bill crafted by a House-Senate conference committee. An energy bill passed by the House last summer authorizes the drilling.

Some GOP senators privately have talked about linking drilling in the Arctic refuge to aid for the steel industry in an effort to attract the support of Democratic senators from steel-producing states.

"It shows how desperate they are," Senate Majority Leader Tom Daschle (D-S.D.) said.

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