The Senate is now considering a substitute amendment that Senator Domenici has offered for his electricity title. Democrats believe its protections are inadequate to protect consumers in these trying times. To help in your coverage of these complex issues, key differences between this substitute and amendments that Senators Bingaman, Cantwell, Feingold, Dayton and others either have offered, or intend to offer, are noted: 1. Ensure Effective Review of Proposed Mergers (Bingaman). The battered finances of numerous utilities – coupled with the proposed repeal of the Public Utility Holding Company Act (PUCHA) – are likely to lead to significant consolidation in the industry. The Domenici substitute closes some regulatory gaps, but does not address the important issue of acquisitions of generation facilities. This amendment assures upfront review of such acquisitions. Given the current financial condition of many merchant generators, many entities are looking to sell-off generation assets – and many companies (including financial institutions and other non-utilities) are looking to acquire these assets at bargain prices. Without careful review, considerable consolidation can occur in already concentrated generation markets, choking off effective competition in wholesale power markets and leading to market power problems. Section 203 of the Domenici substitute is based on merger provisions contained in last year's bill but is significantly weaker. First, generation facilities are not included as jurisdictional for purposes of review. Second, the list of matters that FERC must make determinations on in order to approve mergers is changed to be a list of matters that FERC must consider in determining whether or not the merger is consistent with the public interest. Third, that list of factors is watered down considerably, the most notable change being that the outright prohibition on cross-subsidy and encumbrance of assets is turned into something vague about the financial integrity of the company. Senator Bingaman’s amendment is the same merger review provision contained in last years' bill and approved by the Senate. 2. Prevent Market Manipulation (Cantwell-Bingaman-Feinstein-Hollings). The Domenici substitute only bars one type of manipulative trading practice – round-trip trading -- the form of market manipulation that generated the biggest and most sensational headlines last year. The Domenici substitute allows parties that have knowingly engaged in other manipulative activities to continue to participate in competitive energy markets. Senator Cantwell’s amendment would prohibit all forms of fraudulent market manipulation, would make it unlawful to undertake any fraudulent, manipulative or deceptive actions in wholesale energy markets and would require the revocation of market-based rate authority when FERC finds that a utility has knowingly engaged in manipulative practices. 3. CFTC Authority (Feinstein-Levin). A new section added in Senator Domenici's substitute is an amendment to the Commodities Exchange Act that purports to clarify the Commodity Futures Trading Commission's authority over derivatives and contract markets. This new provision, which appears to make fundamental changes to the Commodities Exchange Act, has never been reviewed by any committee of the House or Senate. Senators Feinstein and Levin will offer an amendment on this section. 4. A Firewall for Affiliate Transactions (Feingold-Brownback). This amendment creates what is known as “ring-fencing” around a utility affiliate to provide a measure of financial stability and integrity to the industry while promoting competition. It directly addresses numerous rating downgrades faced by the utility sector by insulating the regulated utility from market fluctuations and risks impacting unregulated affiliates. Consumer protection against bad investments made by unregulated affiliates of the utility is achieved through separation of regulated and unregulated operations, transactional standards between utilities and unregulated affiliates and reducing regulated utility debt liability for unregulated business operations. 5. Standard Market Design Clarification (Bingaman). Senator Domenici's substitute would also prohibit FERC from issuing an SMD rule until July 1, 2005. In doing so, it prohibits during that period any rule or order of general applicability on matters within the scope of the proposed rule. This would limit FERC's ability to deal with any matter included in the proposed rule, which covers almost everything done in relation to electricity markets. Senator Bingaman’s amendment clarifies that FERC may not issue a rule that is substantially the same as the SMD rule, without prohibiting FERC from dealing with the many issues that are essential to stability in the electricity industry. 6. Restoring PUHCA (Dayton). If these above-described amendments that attempt to prevent the types of abuses harmful to electric consumers and shareholders fail, Senator Dayton intends to offer a motion to strike the repeal of PUCHA. Repealing PUCHA, as proposed in the Domenici substitute, without commensurate measures to protect consumers, won’t fix the problems in the industry and will likely make things worse.