High energy costs are having a devastating impact on our economy and on the people of Maine. Truck drivers, small business owners, fishermen, farmers, and countless others are struggling with the high cost of oil and gasoline. Here in Maine, where 80 percent of our homes are heated with oil, many families do not know how they are going to cope with the record high cost of heating oil this coming winter.
The high cost of energy is also taking a toll on businesses throughout our state. Sadly, the paper mill in Millinocket just recently announced it would be closing down because it is no longer profitable due to the cost of oil. If this occurs, the community will be devastated by the loss of more than 200 good jobs.
What is troubling is that the harmful spike in energy costs does not appear to be caused solely by supply and demand factors. Compelling evidence gathered at our Senate committee hearings suggests that excessive speculation in futures markets is a significant factor pushing up oil prices.
The increased cost of energy certainly reflects fundamentals like increased demand from China and India and dollar depreciation, but massive new holdings of oil-futures contracts by pension funds, university endowments, and other “institutional investors,” who neither produce nor take delivery of oil, appear to be driving up prices. Their intentions may be simply to provide good returns and investment diversification, but many expert believe their activities are distorting commodity markets and pushing prices upward.
Together with Senate Homeland Security and Governmental Affairs Committee Chairman Joe Lieberman, I am exploring possible legislative options that will help the federal government prevent excessive speculation in energy and agricultural commodities. In addition, an investigation underway by the U.S. Commodity Futures Trading Commission (CFTC), which regulates futures markets, will help us better understand potential remedies. Combined, these efforts should shine some light on the role commodity trading is having on driving up the cost of energy and food prices and help us shape policies to provide corrective action.
There are still gaps in publicly available data to track the effect of speculation on prices, and price manipulation can go undetected on certain electronic markets that are unregulated. This is why my Energy Plan calls for increased regulation and transparency to guard against excessive speculation and price manipulation.
A related concern is ensuring that the CFTC has the resources it needs to collect and analyze market data, monitor trading, and police markets. Acting CFTC Chairman Walter Lukken testified recently that the trading volume of commodity futures contracts and options has soared from 37 million contracts in 1976, to more than 3 billion contracts last year. Yet, there are also fewer employees at the CFTC today compared to 1976 leaving much more work for fewer staff. In addition to lacking resources, the CFTC has been less than aggressive in requesting assistance from Congress until just recently.
Chairman Lukken went on to warn that the CFTC is on an “unsustainable” path and that additional funding is “imperative” to increase staff, update technology, and meet new responsibilities. Along with Senator Lieberman, I plan to propose legislation that provides the CFTC with a level of funding that will allow it to make critical technology improvements, add a hundred staff, and support more robust monitoring and enforcement.
Chairman Lieberman and I will be holding additional hearings exploring other policy options to address this issue. Some of the proposals that will be explored include limiting the percentage an investor has in a commodities market, giving CFTC jurisdiction over markets currently not regulated in the U.S., and closing loopholes that currently allow financial institutions to evade position limits intended to prevent an investor from cornering the market.
We must also, of course, take care to avoid unintended consequences that could harm the markets and increase volatility or decrease liquidity. Each proposal must be carefully weighed. Working together, we will determine the most effective measures to curb excessive speculation, guard against price manipulation, and protect the farmers, fishermen, businesses, and consumers who are suffering from high food and energy prices.