posted on Tuesday, February 20, 2007 3:14 PM by Tracy Davis

Senator Investigates Recent Natural Gas Price Volatility

Citing the "critical consumer protection issue" of natural gas price volatility, on February 6, Senator Jeff Bingaman (D-NM) sent letters to FERC Chairman Joseph Kelliher and Commodity Futures Trading Commission (CFTC) Chairman Reuben Jeffrey, posing a series of questions to both agencies about how they monitor gas futures trading on the New York Mercantile Exchange (NYMEX) and on the Intercontinental Exchange (ICE).  The Senator, who is the current chair of the Senate Energy and Natural Resources Committee, also asked for the agencies' cooperation in monitoring future market activity. 

At the heart of Senator Bingaman's concerns were price volatility seen at the end of January, as well as last fall's collapse of hedge fund Amaranth.  Amaranth, which had large positions in financial natural gas markets, lost hundreds of millions of dollars when it bet in the wrong direction on gas prices.  In the wake of the collapse, some at the company expressed concern that the markets had been subject to manipulation.  Senator Bingaman also cited a recent GAO report, which found that gas commodity prices have risen 190% since 1993 and that more of these costs are being passed on to end-use consumers. 

In his letter to Kelliher, Senator Bingaman asked how FERC can continue to find contract prices pegged to NYMEX price indices "just and reasonable" in light of this increased price volatility.  Senator Bingaman also highlighted the increased authority given to FERC by the Energy Policy Act 2005 to review transactions in financial markets, as well as the increased cooperation promised by FERC and the CFTC in an October 2005 Memorandum of Understanding.  The letter to CFTC focused additionally on whether ICE had been responsive to recent requests by CFTC for information related to the Amaranth collapse.