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State of Vermont

House of Representatives

Montpelier, Vermont

Joint House Resolution

J.R.H.  54

Joint resolution urging Congress to eliminate the Enron Loophole regulatory exemption for energy and metal commodities traded on electronic commodities markets

Offered by:  Representatives Obuchowski of Rockingham, Dostis of Waterbury and Kitzmiller of Montpelier

Whereas, thousands of Vermonters rely on heating oil to heat their homes and businesses and on gasoline to operate their cars and farm machinery, and

Whereas, the retail price of these refined petroleum products is premised, in large measure, on the wellhead price of crude oil that has in recent weeks hovered in the historically high $100.00‑per‑barrel range, and

Whereas, on February 19, some March futures’ contracts for gasoline and heating oil, as sold on the New York Mercantile Exchange, rose to levels that were predicated on crude oil barrel prices exceeding $100.00 per barrel, and

Whereas, a major contributing factor to the escalating cost of crude oil is the so-called “Enron Loophole” (7 U.S.C. § 2(h)(3)), a statutory amendment to the Commodity Exchange Act, which Congress enacted as part of the Commodity Futures Modernization Act in December 2000, at the behest of the large commercial energy traders, which exempts from the regulatory jurisdiction of the federal Commodities Futures Trading Corporation (CFTC) “all agreements, contracts and transactions in energy and metals that are traded on electronic facilities between eligible commercial entities,” and

Whereas, the statute refers to these electronic facilities (or markets) as exempt commercial markets (ECM), and the CFTC’s jurisdiction is limited to matters pertaining to fraud and price manipulation and a requirement that incidents of an ECM performing a significant price discovery function “be reported publicly,” and

Whereas, the principal ECM is the Intercontinental Exchange (ICE), formed in 2000, and according to a June 2006 report of the U.S. Senate Committee on Homeland Security and Governmental Affairs, Permanent Subcommittee on Investigations, entitled “The Role of Market Speculation in Rising Gas and Oil Prices: The Need to Put the Cop Back on the Beat,” as of December 2005 is the largest over‑the‑counter (OTC) trader for energy commodities “with over 9,300 active screens at over 1,000 participating firms and over 440 futures participant firms,” and

Whereas, as the June 2006 report explained, unlike other OTC exchanges, “neither the CFTC nor the OTC trading facility itself monitors trading activity” of an ECM “to detect and deter fraud and price manipulation,” and “key trading information is not disclosed to the CFTC or the public,” and

Whereas, “although ICE discloses to the CFTC and subscribers of its data services certain information about posted bids, offers, and completed trades, other critical data routinely reported by the regulated exchanges do not have to be filed with the CFTC,” and

Whereas, the report cited the Enron scandal “as clear evidence of how a few sophisticated, unscrupulous traders can harm not only other market participants, but also the public at large by artificially increasing oil prices,” and further estimated that $20.00 of the price of a barrel of oil can be attributed to crude oil futures, and

Whereas, in June 2007, the same congressional subcommittee issued another report entitled “Excessive Speculation in the Natural Gas Market,” reflecting similar problems in this energy market, and

Whereas, one of the 2007 report’s recommendations stated “Congress should eliminate the ‘Enron Loophole’” and said that “experience since passage of the Commodity Futures Modernization Act of 2000, demonstrates there is no sound rationale for exempting electronic energy exchanges from regulatory oversight,” and

Whereas, both reports make clear the substantial role of market speculation on price increases in the international energy market, and the New England Fuel Institute has estimated that $1.00 of the retail purchase price of a gallon of gasoline is due to energy speculation, and

Whereas, legislative initiatives in Congress, including a bill that U.S. Representative Peter Welch introduced, H.R. 4066, “To Amend the Commodity Exchange Act to Close the Enron Loophole, Prevent Price Manipulation and Excessive Speculation in the Trading of Energy Commodities,” and a parallel U.S. Senate bill that U.S. Senator Carl Levin sponsored, S. 2058, both seek to end the Enron Loophole, and

Whereas, although neither of these measures has moved forward in the legislative process, the 2007 farm bill conferees have before them language to reverse the Enron Loophole, but this provision is not considered essential to the farm bill’s final language, and

Whereas, should the Enron Loophole language not be included in the 2007 farm bill then Congress should adopt either H.R. 4066 or S. 2058, now therefore be it

Resolved by the Senate and House of Representatives:

That the General Assembly urges Congress to eliminate the Enron Loophole regulatory exemption for energy and metal commodities traded on electronic commodities markets, and be it further

Resolved:  That the secretary of state be directed to send a copy of this resolution to the Vermont Congressional Delegation.


____________________________              Attested to:

Gaye R. Symington

Speaker of the House


____________________________              ____________________________

Brian E. Dubie                                             Donald G. Milne

President of the Senate                               Clerk, House of Representatives


Published by:

The Vermont General Assembly
115 State Street
Montpelier, Vermont