To modify the authority of the Federal Energy Regulatory Commission to conduct investigations, to increase the penalties for violations of the Federal Power Act and the Natural Gas Act, to authorize the Chairman of the Federal Energy Regulatory Commission to contract for consultant services, and for other purposes.

March 4, 2003

Mrs. FEINSTEIN (for herself, Mr. FITZGERALD, Mr. LUGAR, Mr. HARKIN, Ms. CANTWELL, Mr. WYDEN, and Mr. LEAHY) introduced the following bill; which was read twice and referred to the Committee on Agriculture, Nutrition, and Forestry

To modify the authority of the Federal Energy Regulatory Commission to conduct investigations, to increase the penalties for violations of the Federal Power Act and the Natural Gas Act, to authorize the Chairman of the Federal Energy Regulatory Commission to contract for consultant services, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Energy Market Oversight Act'.

SEC. 2. JURISDICTION OF THE FEDERAL ENERGY REGULATORY COMMISSION OVER ENERGY TRADING MARKETS.

Section 402 of the Department of Energy Organization Act (42 U.S.C. 7172) is amended by adding at the end the following:

`(i) JURISDICTION OVER DERIVATIVES TRANSACTIONS AND OTHER FINANCIAL TRANSACTIONS -

`(1) REFERRAL-

`(A) IN GENERAL- To the extent that the Commission determines that any contract for a derivative transaction or other financial transaction that comes before the Commission is not under the jurisdiction of the Commission, the Commission shall refer the contract to the appropriate Federal agency.

`(B) NO EFFECT ON AUTHORITY- The authority of the Commission or any Federal agency shall not be limited or otherwise affected based on whether the Commission has or has not referred a contract described in subparagraph (A).

`(2) MEETINGS- A designee of the Commission shall meet quarterly with a designee of the Commodity Futures Trading Commission, the Securities Exchange Commission, the Federal Trade Commission, the Department of Justice, the Department of the Treasury, and the Federal Reserve Board to discuss--

`(A) conditions and events in energy trading markets; and

`(B) any changes in Federal law (including regulations) that may be appropriate to regulate energy trading markets.

`(3) LIAISON- The Commission shall, in cooperation with the Commodity Futures Trading Commission, maintain a liaison between the Commission and the Commodity Futures Trading Commission.'.

SEC. 3. INVESTIGATIONS BY THE FEDERAL ENERGY REGULATORY COMMISSION UNDER THE NATURAL GAS ACT AND FEDERAL POWER ACT.

(a) INVESTIGATIONS UNDER THE NATURAL GAS ACT- Section 14(c) of the Natural Gas Act (15 U.S.C. 717m(c)) is amended--

(1) by striking `(c) For the purpose of' and inserting the following:

`(c) TAKING OF EVIDENCE-

`(1) IN GENERAL- For the purpose of';

(2) by striking `Such attendance' and inserting the following:

`(2) NO GEOGRAPHIC LIMITATION- The attendance';

(3) by striking `Witnesses summoned' and inserting the following:

`(3) EXPENSES- Any witness summoned'; and

(4) by adding at the end the following:

`(4) AUTHORITIES- Notwithstanding any other provision of law, the exercise of the authorities of the Commission under this subsection shall not be subject to the consent of the Office of Management and Budget or any other Federal agency.'.

(b) INVESTIGATIONS UNDER THE FEDERAL POWER ACT- Section 307(b) of the Federal Power Act (16 U.S.C. 825f(b)) is amended--

(1) by striking `(b) For the purpose of' and inserting the following:

`(b) TAKING OF EVIDENCE-

`(1) IN GENERAL- For the purpose of';

(2) by striking `Such attendance' and inserting the following:

`(2) NO GEOGRAPHIC LIMITATION- The attendance';

(3) by striking `Witnesses summoned' and inserting the following:

`(3) EXPENSES- Any witness summoned'; and

(4) by adding at the end the following:

`(4) AUTHORITIES- Notwithstanding any other provision of law, the exercise of the authorities of the Commission under this subsection shall not be subject to the consent of the Office of Management and Budget or any other Federal agency.'.

SEC. 4. INCREASE IN CRIMINAL PENALTIES UNDER THE NATURAL GAS ACT AND FEDERAL POWER ACT.

(a) CRIMINAL PENALTIES UNDER THE NATURAL GAS ACT- Section 21 of the Natural Gas Act (15 U.S.C. 717t) is amended--

(1) in subsection (a), by striking `punished by a fine of not more than $5,000 or by imprisonment for not more than two years, or both' and inserting `imprisoned not more than 5 years, fined not more than $1,000,000, or both'; and

(2) in subsection (b), by striking `$500 for each and every day during which such offense occurs' and inserting `$50,000 for each day of each violation'.

(b) CRIMINAL PENALTIES UNDER THE FEDERAL POWER ACT-

(1) GENERAL PENALTIES- Section 316 of the Federal Power Act (16 U.S.C. 825o) is amended--

(A) in subsection (a), by striking `punished by a fine of not more than $5,000 or by imprisonment for not more than two years or both' and inserting `imprisoned not more than 5 years, fined not more than $1,000,000, or both'; and

(B) in subsection (b), by striking `$500 for each and every day during which such offense occurs' and inserting `$50,000 for each day of each violation'.

(2) ENFORCEMENT OF CERTAIN PROVISIONS- Section 316A of the Federal Power Act (16 U.S.C. 825o-1) is amended--

(A) by striking subsection (a) and inserting the following:

`(a) VIOLATIONS- It shall be unlawful for any person--

`(1) to violate any provision of part II (including any rule or order issued under a provision of that part); or

`(2) to fail to comply, within a time period specified by the Commission, with--

`(A) any written request by the Commission or a member of the staff of the Commission for information; or

`(B) a formal investigation or proceeding under this part.'; and

(B) in subsection (b)--

(i) by striking `section 211, 212, 213 or 214 or any provision of any rule or order thereunder' and inserting the following: `part II (including any rule or order issued under a provision of that part) or fails to comply in a timely manner with any written request for information by the Commission or a member of the staff of the Commission or in a formal investigation or proceeding under this part'; and

(ii) by striking `$10,000 for each day that such violation continues' and inserting `$50,000 for each day of each violation'.

SEC. 5. REFUND EFFECTIVE DATE.

Section 206(b) of the Federal Power Act (16 U.S.C. 824e(b)) is amended--

(1) in the second sentence, by striking `the date 60 days' and all that follows and inserting `the date of filing of the complaint nor later than the date that is 150 days after the date of filing of the complaint, unless the Commission determines that the complaint could not have been brought earlier because of fraud, intentional misrepresentation, or any similar act by the public utility named in the complaint, in which case the refund effective date shall be the date on which the rate, charge, classification, rule, regulation, practice, or contract that is found to be unjust, unreasonable, unduly discriminatory, or preferential came into effect.'; and

(2) in the third sentence--

(A) by striking `date 60 days after the publication' and inserting `date of publication'; and

(B) by striking `expiration of such 60-day period' and inserting `the publication date, unless the Commission determines that the motion could not have been made earlier because of fraud, intentional misrepresentation, or any similar act by the public utility named in the motion, in which case the refund effective date shall be the date on which the rate, charge, classification, rule, regulation, practice, or contract that is found to be unjust, unreasonable, unduly discriminatory, or preferential came into effect'.

SEC. 6. CONSULTING SERVICES.

Title IV of the Department of Energy Organization Act (42 U.S.C. 7171 et seq.) is amended by adding at the end the following:

`SEC. 408. CONSULTING SERVICES.

`(a) IN GENERAL- The Chairman may contract for the services of consultants to assist the Commission in carrying out any responsibilities of the Commission under this Act, the Federal Power Act (16 U.S.C. 791a et seq.), or the Natural Gas Act (15 U.S.C. 717 et seq.).

`(b) APPLICABLE LAW- In contracting for consultant services under subsection (a), if the Chairman determines that the contract is in the public interest, the Chairman, in entering into a contract, shall not be subject to--

`(1) section 5, 253, 253a, or 253b of title 41, United States Code; or

`(2) any law (including a regulation) relating to conflicts of interest.'.

SEC. 7. LEGAL CERTAINTY FOR TRANSACTIONS IN EXEMPT COMMODITIES.

Section 2 of the Commodity Exchange Act (7 U.S.C. 2) is amended by striking subsections (g) and (h) and inserting the following:

`(g) OFF-EXCHANGE TRANSACTIONS IN EXEMPT COMMODITIES-

`(1) DEFINITIONS- In this subsection:

`(A) COVERED ENTITY- The term `covered entity' means--

`(i) an electronic trading facility; and

`(ii) a dealer market.

`(B) DEALER MARKET-

`(i) IN GENERAL- The term `dealer market' has the meaning given the term by the Commission.

`(ii) INCLUSIONS- The term `dealer market' includes each bilateral or multilateral agreement, contract, or transaction determined by the Commission, regardless of the means of execution of the agreement, contract, or transaction.

`(2) EXEMPTION FOR TRANSACTIONS NOT ON TRADING FACILITIES- Except as provided in paragraph (4), nothing in this Act shall apply to an

agreement, contract, or transaction in an exempt commodity that--

`(A) is entered into solely between persons that are eligible contract participants at the time the persons enter into the agreement, contract, or transaction; and

`(B) is not entered into on a trading facility.

`(3) EXEMPTION FOR TRANSACTIONS ON COVERED ENTITIES- Except as provided in paragraphs (4), (5), and (7), nothing in this Act shall apply to an agreement, contract, or transaction in an exempt commodity that is--

`(A) entered into on a principal-to-principal basis solely between persons that are eligible contract participants at the time at which the persons enter into the agreement, contract, or transaction; and

`(B) executed or traded on a covered entity.

`(4) REGULATORY AND OVERSIGHT REQUIREMENTS-

`(A) IN GENERAL- An agreement, contract, or transaction described in paragraph (2) or (3) (and the covered entity on which the agreement, contract, or transaction is executed) shall be subject to--

`(i) sections 5b, 12(e)(2)(B), and 22(a)(4);

`(ii) the provisions relating to manipulation and misleading transactions under sections 4b, 4c(a), 4c(b), 4o, 6(c), 6(d), 6c, 6d, 8a, and 9(a)(2); and

`(iii) the provisions relating to fraud and misleading transactions under sections 4b, 4c(a), 4c(b), 4o, and 8a.

`(B) TRANSACTIONS EXEMPTED BY COMMISSION ACTION- Notwithstanding any exemption by the Commission under section 4(c), an agreement, contract, or transaction described in paragraph (2) or (3) shall be subject to the authorities in clauses (i), (ii), and (iii) of subparagraph (A).

`(5) COVERED ENTITIES- An agreement, contract, or transaction described in paragraph (3) and the covered entity on which the agreement, contract, or transaction is executed, shall be subject to (to the extent the Commission determines appropriate)--

`(A) section 5a, to the extent provided in section 5a(g)) and 5d;

`(B) consistent with section 4i, a requirement that books and records relating to the business of the covered entity on which the agreement, contract, or transaction is executed be made available to representatives of the Commission and the Department of Justice for inspection for a period of at least 5 years after the date of each transaction, including--

`(i) information relating to data entry and transaction details sufficient to enable the Commission to reconstruct trading activity on the covered entity; and

`(ii) the name and address of each participant on the covered entity authorized to enter into transactions; and

`(C) in the case of a transaction or covered entity performing a significant price discovery function for transactions in the cash market for the underlying commodity, subject to paragraph (6), the requirements (to the extent the Commission determines appropriate by regulation) that--

`(i) information on trading volume, settlement price, open interest, and opening and closing ranges be made available to the public on a daily basis;

`(ii) notice be provided to the Commission in such form as the Commission may require;

`(iii) reports be filed with the Commission (such as large trader position reports); and

`(iv) consistent with section 4i, books and records be maintained relating to each transaction in such form as the Commission may require for a period of at least 5 years after the date of the transaction.

`(6) PROPRIETARY INFORMATION- In carrying out paragraph (5)(C), the Commission shall not--

`(A) require the real-time publication of proprietary information;

`(B) prohibit the commercial sale or licensing of real-time proprietary information; and

`(C) publicly disclose information regarding market positions, business transactions, trade secrets, or names of customers, except as provided in section 8.

`(7) NOTIFICATION, DISCLOSURES, AND OTHER REQUIREMENTS FOR COVERED ENTITIES- A covered entity subject to the exemption under paragraph (3) shall (to the extent the Commission determines appropriate)--

`(A) notify the Commission of the intention of the covered entity to operate as a covered entity subject to the exemption under paragraph (3), which notice shall include--

`(i) the name and address of the covered entity and a person designated to receive communications from the Commission;

`(ii) the commodity categories that the covered entity intends to list or otherwise make available for trading on the covered entity in reliance on the exemption under paragraph (3);

`(iii) certifications that--

`(I) no executive officer or member of the governing board of, or any holder of a 10 percent or greater equity interest in, the covered entity is a person described in any of subparagraphs (A) through (H) of section 8a(2);

`(II) the covered entity will comply with the conditions for exemption under this subsection; and

`(III) the covered entity will notify the Commission of any material change in the information previously provided by the covered entity to the Commission under this paragraph; and

`(iv) the identity of any derivatives clearing organization to which the covered entity transmits or intends to transmit transaction data for the purpose of facilitating the clearance and settlement of transactions conducted on the covered entity subject to the exemption under paragraph (3);

`(B)(i) provide the Commission with access to the trading protocols of the covered entity and electronic access to the covered entity with respect to transactions conducted in reliance on the exemption under paragraph (3); and

`(ii) on special call by the Commission, provide to the Commission, in a form and manner and within the period specified in the special call, such information relating to the business of the covered entity as a covered entity exempt under paragraph (3), including information relating to data entry and transaction details with respect to transactions entered into in reliance on the exemption under paragraph (3), as the Commission may determine appropriate--

`(I) to enforce the provisions specified in paragraph (4);

`(II) to evaluate a systemic market event; or

`(III) to obtain information requested by a Federal financial regulatory authority to enable the authority to fulfill the regulatory or supervisory responsibilities of the authority;

`(C)(i) on receipt of any subpoena issued by or on behalf of the Commission to any foreign person that the Commission believes is conducting or has conducted transactions in reliance on the exemption under paragraph (3) on or through the covered entity relating to the transactions, promptly notify the foreign person of, and transmit to the foreign person, the subpoena in a manner that is reasonable under the circumstances, or as specified by the Commission; and

`(ii) if the Commission has reason to believe that a person has not timely complied with a subpoena issued by or on behalf of the Commission under clause (i), and the Commission in writing directs that a covered entity relying on the exemption under paragraph (3) deny or limit further transactions by the person, deny that person further trading access to the covered entity or, as applicable, limit that access of the person to the covered entity for liquidation trading only;

`(D) comply with the requirements of this subsection applicable to the covered entity and require that each participant, as a condition of trading on the covered entity in reliance on the exemption under paragraph (3), agree to comply with all applicable law;

`(E) certify to the Commission that the covered entity has a reasonable basis for believing that participants authorized to conduct transactions on the covered entity in reliance on the exemption under paragraph (3) are eligible contract participants;

`(F) maintain sufficient capital, commensurate with the risk associated with transactions conducted on the covered entity; and

`(G) not represent to any person that the covered entity is registered with, or designated, recognized, licensed, or approved by the Commission.

`(8) HEARING- A person named in a subpoena referred to in paragraph (7)(C) that believes the person is or may be adversely affected or aggrieved by action taken by the Commission under this subsection, shall have the opportunity for a prompt hearing after the Commission acts under procedures that the Commission shall establish by rule, regulation, or order.

`(9) PRIVATE REGULATORY ORGANIZATIONS-

`(A) DELEGATION OF FUNCTIONS UNDER CORE PRINCIPLES- A covered entity may comply with any core principle under subparagraph (B) that is applicable to the covered entity

through delegation of any relevant function to--

`(i) a registered futures association under section 17; or

`(ii) another registered entity.

`(B) CORE PRINCIPLES- The Commission may establish core principles requiring a covered entity to monitor trading to--

`(i) prevent fraud and manipulation;

`(ii) prevent price distortion and disruptions of the delivery or cash settlement process;

`(iii) ensure that the covered entity has adequate financial, operational, and managerial resources to discharge the responsibilities of the covered entity; and

`(iv) ensure that all reporting, recordkeeping, notice, and registration requirements under this subsection are discharged in a timely manner.

`(C) RESPONSIBILITY- A covered entity that delegates a function under subparagraph (A) shall remain responsible for carrying out the function.

`(D) NONCOMPLIANCE- If a covered entity that delegates a function under subparagraph (A) becomes aware that a delegated function is not being performed as required under this Act, the covered entity shall promptly take action to address the noncompliance.

`(E) VIOLATION OF CORE PRINCIPLES-

`(i) IN GENERAL- If the Commission determines, on the basis of substantial evidence, that a covered entity is violating any applicable core principle specified in subparagraph (B), the Commission shall--

`(I) notify the covered entity in writing of the determination; and

`(II) afford the covered entity an opportunity to make appropriate changes to bring the covered entity into compliance with the core principles.

`(ii) FAILURE TO MAKE CHANGES- If, not later than 30 days after receiving a notification under clause (i)(I), a covered entity fails to make changes that, as determined by the Commission, are necessary to comply with the core principles, the Commission may take further action in accordance with this Act.

`(F) RESERVATION OF EMERGENCY AUTHORITY- Nothing in this paragraph limits or affects the emergency powers of the Commission provided under section 8a(9).

`(10) NO EFFECT ON OTHER AUTHORITY- This subsection shall not affect the authority of the Federal Energy Regulatory Commission under the Federal Power Act (16 U.S.C. 791a et seq.) or the Natural Gas Act (15 U.S.C 717 et seq.).'.

SEC. 8. PROHIBITION OF FRAUDULENT TRANSACTIONS.

Section 4b of the Commodity Exchange Act (7 U.S.C. 6b) is amended by striking subsection (a) and inserting the following:

`(a) PROHIBITION- It shall be unlawful for any person, directly or indirectly, in or in connection with any account, or any offer to enter into, the entry into, or the confirmation of the execution of, any agreement, contract, or transaction subject to this Act--

`(1) to cheat or defraud or attempt to cheat or defraud any person (but this paragraph does not impose on parties to transactions executed on or subject to the rules of designated contract markets or registered derivative transaction execution facilities a legal duty to provide counterparties or any other market participants with any material market information);

`(2) willfully to make or cause to be made to any person any false report or statement, or willfully to enter or cause to be entered for any person any false record (but this paragraph does not impose on parties to transactions executed on or subject to the rules of designated contract markets or registered derivative transaction execution facilities a legal duty to provide counterparties or any other market participants with any material market information);

`(3) willfully to deceive or attempt to deceive any person by any means whatsoever (but this paragraph does not impose on parties to transactions executed on or subject to the rules of designated contract markets or registered derivative transaction execution facilities a legal duty to provide counterparties or any other market participants with any material market information); or

`(4) except as permitted in written rules of a board of trade designated as a contract market or derivatives transaction execution facility on which the agreement, contract, or transaction is traded and executed--

`(A) to bucket an order;

`(B) to fill an order by offset against 1 or more orders of another person; or

`(C) willfully and knowingly, for or on behalf of any other person and without the prior consent of the person, to become--

`(i) the buyer with respect to any selling order of the person; or

`(ii) the seller with respect to any buying order of the person.'.

SEC. 9. FERC LIAISON.

Section 2(a)(9) of the Commodity Exchange Act (7 U.S.C. 2(a)(9)) is amended by adding at the end the following:

`(C) LIAISON WITH FEDERAL ENERGY REGULATORY COMMISSION- The Commission shall, in cooperation with the Federal Energy Regulatory Commission, maintain a liaison between the Commission and the Federal Energy Regulatory Commission.'.

SEC. 10. CRIMINAL AND CIVIL PENALTIES.

(a) ENFORCEMENT POWERS OF COMMISSION- Section 6(c) of the Commodity Exchange Act (7 U.S.C. 9, 15) is amended in paragraph (3) of the tenth sentence--

(1) by inserting `(A)' after `assess such person'; and

(2) by inserting after `each such violation' the following: `, or (B) in any case of manipulation of, or attempt to manipulate, the price of any commodity, a civil penalty of not more than the greater of $1,000,000 or triple the monetary gain to such person for each such violation,'.

(b) MANIPULATIONS AND OTHER VIOLATIONS- Section 6(d) of the Commodity Exchange Act (7 U.S.C. 13b) is amended in the first sentence--

(1) by striking `paragraph (a) or (b) of section 9 of this Act' and inserting `subsection (a), (b), or (f) of section 9'; and

(2) by striking `said paragraph 9(a) or 9(b)' and inserting `subsection (a), (b), or (f) of section 9'.

(c) NONENFORCEMENT OF RULES OF GOVERNMENT OR OTHER VIOLATIONS- Section 6b of the Commodity Exchange Act (7 U.S.C. 13a) is amended--

(1) in the first sentence--

(A) by inserting `section 2(g)(9),' after `sections 5 through 5c,'; and

(B) by inserting before the period at the end the following: `, or, in any case of manipulation of, or an attempt to manipulate, the price of any commodity, a civil penalty of not more than $1,000,000 for each such violation'; and

(2) in the second sentence, by inserting before the period at the end the following: `, except that if the failure or refusal to obey or comply with the order involved any offense under section 9(f), the registered entity, director, officer, agent, or employee shall be guilty of a felony and, on conviction, shall be subject to penalties under section 9(f)'.

(d) ACTION TO ENJOIN OR RESTRAIN VIOLATIONS- Section 6c(d) of the Commodity Exchange Act (7 U.S.C. 13a-1(d)) is amended by striking `(d)' and all that follows through the end of paragraph (1) and inserting the following:

`(d) CIVIL PENALTIES- In any action brought under this section, the Commission may seek and the court shall have jurisdiction to impose, on a proper showing, on any person found in the action to have committed any violation--

`(1) a civil penalty in the amount of not more than the greater of $100,000 or triple the monetary gain to the person for each violation; or

`(2) in any case of manipulation of, or an attempt to manipulate, the price of any commodity, a civil penalty in the amount of not more than the greater of $1,000,000 or triple the monetary gain to the person for each violation.'.

(e) VIOLATIONS GENERALLY- Section 9 of the Commodity Exchange Act (7 U.S.C. 13) is amended--

(1) by redesignating subsection (f) as subsection (e); and

(2) by adding at the end the following:

`(f) PRICE MANIPULATION- It shall be a felony punishable by a fine of not more than $1,000,000 for each violation or imprisonment for not more than 10 years, or both, together with the costs of prosecution, for any person--

`(1) to manipulate or attempt to manipulate the price of any commodity in interstate commerce, or for future delivery on or subject to the rules of any registered entity;

`(2) to corner or attempt to corner any such commodity;

`(3) knowingly to deliver or cause to be delivered (for transmission through the mails or interstate commerce by telegraph, telephone, wireless, or other means of communication) false or misleading or knowingly inaccurate reports concerning market information or conditions that affect or tend to affect the price of any commodity in interstate commerce; or

`(4) knowingly to violate section 4 or 4b, any of subsections (a) through (e) of subsection 4c, or section 4h, 4o(1), or 19.'.

SEC. 11. CONFORMING AMENDMENTS.

(a) Section 2 of the Commodity Exchange Act (7 U.S.C. 2) is amended--

(1) in subsection (d)(1), by striking `section 5b' and inserting `section 5a(g), 5b,';

(2) in subsection (e)--

(A) in paragraph (1), by striking `, 2(g), or 2(h)(3)'; and

(B) in paragraph (3), by striking `2(h)(5)' and inserting `2(g)(7)';

(3) by redesignating subsection (i) as subsection (h); and

(4) in subsection (h) (as redesignated by subparagraph (C))--

(A) in paragraph (1)--

(i) by striking `No provision' and inserting `IN GENERAL- Subject to subsection (g), no provision'; and

(ii) in subparagraph (A)--

(I) by striking `section 2(c), 2(d), 2(e), 2(f), or 2(g) of this Act' and inserting `subsection (c), (d), (e), or (f)'; and

(II) by striking `section 2(h)' and inserting `subsection (g)'; and

(B) in paragraph (2), by striking `No provision' and inserting `IN GENERAL- Subject to subsection (g), no provision'.

(b) Section 4i of the Commodity Exchange Act (7 U.S.C. 6i) is amended in the first sentence by inserting `, or pursuant to an exemption under section 4(c)' after `transaction execution facility'.

(c) Section 8a(9) of the Commodity Exchange Act (7 U.S.C. 12a(9)) is amended--

(1) by inserting `or covered entity under section 2(g)' after `direct the contract market';

(2) by striking `on any futures contract'; and

(3) by inserting `or covered entity under section 2(g)' after `given by a contract market'.

END