LIHEAP

Floor Speech

LIHEAP -- (Senate - July 25, 2008)

BREAK IN TRANSCRIPT

Ms. COLLINS. Mr. President, high energy prices are having a devastating impact on our economy and our people--particularly in large, rural States such as Maine. Eighty percent of Maine homes use oil as their primary heating source, so thousands of families are worried about how they can afford to stay warm next winter.

The high cost of energy is also taking a toll on businesses, both large and small. Truckers, paper mills, fishermen, farmers, and countless others are struggling with the high cost of oil, gasoline, and diesel.

Many factors affect energy prices, including the value of the dollar, global tensions, and demand in other countries, such as China and India. Supply concerns also enter the picture. Business Week has reported that data on Saudi production potential indicate that the kingdom may be unable to sustain their projected output of 12 million barrels a day past 2010, while International Oil Daily reports that Mexico's crude-oil exports are down 17 percent versus 2007, and ``could represent the start of a precipitous decline.'' Other supply concerns for places like Iran and Nigeria also affect expectations, and prices.

These and other considerations have led many of us to advocate a comprehensive energy policy that would promote more exploration and production, more conservation and efficiency, and more alternatives in the energy sector. We need more American production to meet America's needs, while protecting our environment. In short, we need to produce more, use less, and pursue alternatives.

It is imperative for both economic and national-security reasons that we reduce our dependence on imported oil and the supply shocks that our dependence entails, that we develop new resources here, and that we promote more efficient use. I have a 10-point energy plan that includes proposals to accomplish those objectives.

Those ideas deserve a full debate. I sincerely hope the current procedural obstacles to considering a variety of amendments will be removed. Holding a lengthy debate on our energy problems is a fruitless exercise if the ground rules choke off consideration of the many ways we can tackle those problems by reducing our reliance on imports, by promoting more development of American conventional and alternative fuels, and by advancing efficiency and conservation initiatives.

There is, of course, another critical factor in the energy-price crisis that demands careful attention and effective action. That is the role of excessive speculation in energy markets, especially by institutional investors and index funds.

Senator Lieberman and I have heard persuasive and troubling evidence in three hearings of our Committee on Homeland Security and Governmental Affairs on this issue. We heard testimony from Federal officials, from exchange officials, from academics, from institutional investors, and from a bakery owner and a farm representative.

The evidence that we found of greatest concern involves the impact of noncommercial investors who do not produce or take delivery of oil or agricultural products--unlike commercial participants such as oil producers and heating oil dealers, farmers and cereal companies. Instead, these noncommercial investors use futures contracts and related transactions solely for financial gain.

Speculation in commodity markets by noncommercial investors has grown enormously. In just the last 5 years, the total value of their futures-contract and commodity index-fund investments has soared from $13 billion to $260 billion.

Many experts have concluded that these massive new holdings of oil-futures contracts by pension funds, university endowments, and other institutional investors have driven prices beyond levels that normal marketplace factors would produce.

These investors' intentions may be simply to provide good returns, a hedge against inflation, and asset diversification, but the effect of their activity appears to be driving up prices for traditional users of commodity markets, not to mention American families and businesses that are affected by the ultimate price increases.

I worked with Senator Lieberman to produce a comprehensive and bipartisan bill, the Commodity Speculation Reform Act of 2008, which we and Senator Cantwell introduced on July 10.

Our bill, S. 3248, takes some very strong steps toward countering excessive speculation.

First, it would remedy staffing shortfalls at the Commodity Futures Trading Commission by adding 100 staff to improve its market oversight and enforcement capabilities. This is a vital step. The CFTC tells us that more than three billion futures and options contracts were traded last year, up from 37 million in 1976. Yet the Commission is operating with fewer employees than it had 30 years ago.

Second, our bill closes the so-called "swaps loophole,'' which currently allows financial institutions to evade position limits on commodity contracts that regulators use to prevent unwarranted price swings or attempts at manipulation.

Third, our bill directs the CFTC to establish position limits that will apply to an investor's total interest in a commodity, regardless of whether they originate on a regulated exchange, the over-the-counter market, or on foreign boards of trade that deal in U.S. commodities.

I would note that our bill instructs the CFTC to set and administer these position limits. That task is currently delegated to the exchanges, subject to Commission review. The regulated commodity exchanges have good reputations as self-policing operations, but we believe as a matter of principle that regulators should be setting speculative position limits.

Fourth, our bills instructs the CFTC to permit no foreign boards of trade to deal in U.S.-linked commodity contracts unless they agree to reporting and data-accessibility standards at least equivalent to that required of U.S.-regulated exchanges. This is not a matter of telling other countries what to do: foreign boards of trade request ``no-action'' letters from the CFTC so they can maintain trading terminals here while remaining regulated by their own authorities. The CFTC has recently taken positive steps to require comparable reporting, and our bill codifies those improvements.

These are powerful measures, but they are also carefully designed. We recognize that producers, handlers, and purchasers of commodities who use those markets to lock in prices, hedge risks, and see clues for price trends require some level of participation by non-commercial, financial investors.

Thus, our bill does not prevent financial investors from participating in commodity markets. It simply places some limits on their activity by directing the CFTC to set position limits across trading venues at a level no higher than that needed to ensure that commercial participants can always find counter-parties for their contract needs.

The bill pending before the Senate parallels key provisions of the bill that Senators Lieberman and Cantwell and I introduced.

The majority leader's bill has some additional features, such as the working groups to study the regulatory framework for commodity-market regulation and to consult on internationally agreed standards, that deserve support.

Two aspects of the majority leader's bill, however, raise some concerns, and I have filed two amendments to address them. Senator Lieberman has joined me as an original cosponsor of the amendments.

The first simply extends the reach of S. 3268 to include agricultural as well as energy commodities, mirroring our bill's approach. We believe this is important because high energy prices affect the costs of fertilizing, producing, harvesting, transporting, processing, and distributing commodities. Consumers know this is a real problem, and price data prove it: the Bureau of Labor Statistics reports that the annualized rate of food-price inflation in the second quarter of 2008 was 8.5 percent. Meanwhile, the Bureau's energy price index for the second quarter was climbing at an amazing annualized rate of nearly 54 percent.

Energy and food commodities are linked, and both have been subject to large-scale, noncommercial speculation. When we note that the BLS rate of price increase for nonfood, nonenergy items was only 2.5 percent, it is clear that both agricultural and energy future markets need protection against excessive speculation.

My second amendment replaces the definition of commercially related hedging in the majority leader's bill with the language from our bill. This will not impair the CFTC's ability to monitor and police hedging activity across trading venues, but it will reduce an apparent potential for unintended consequences. We have heard concerns that the bill's restrictive language about hedge-trade proximity and equivalence to the initial commercial transaction could make bona fide hedging impossible or more difficult and expensive for the intermediaries who provide that service. My amendment is fully consistent with the intentions of the pending bill, but mitigates the risk that we might unintentionally impede hedging that has a genuine commercial basis.

Mr. President, I hope the Senate will consider a full range of amendments to the majority leader's bill. I urge my colleagues to support my amendments--and then to support the underlying bill. We can all agree that excessive speculation is not the only factor affecting energy and food prices. But it is one that we can influence, and action is already long overdue.

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