Is it time to rein in the speculators? That’s the intent of the “Close the Enron Loophole” campaign.

Using this unwieldy slogan, a coalition of heating oil distributors and consumers is trying to clamp down on unregulated trading of energy products, which they say has sent oil prices skyrocketing. Their rallying cry? “Tell Congress to bring an end to ‘dark market’ energy trading.”

Given the recent spate of outsize trading losses in various sectors of the financial markets, including the most recent $7 billion catastrophe from Société Générale, Americans are losing patience with dark pools and dark corners. They are also tired of soaring energy costs.

The “Close the Enron Loophole” pitch can be heard on our local radio stations, and it is having an impact: So far this month, 14,500 letters have been sent to Congress demanding a change in how commodities markets are regulated. Guess what? Congress is working on a bill that will indeed partially close that loophole.

The “Close the Enron Loophole” initiative says freewheeling trading by hedge funds and investment banks has hurt consumers and threatened the financial soundness of distributors. The director of Public Citizen’s energy program, Tyson Slocum, says: “There’s no question there’s been an impact. We think at least $20 per barrel can be traced to runaway speculation.”

Mr. Slocum, whose organization is typically anti-big business, is not alone. “Any number of different people, including the secretary of energy, the head of OPEC, the head of the International Energy Agency — all of them think that unregulated speculation is having a big impact on oil prices,” the head of the Oil Heat Institute of Long Island, Kevin Rooney, says.

Mr. Rooney explains that in 2000, a lame duck Congress passed the Commodities Futures Modernization Act. This bill removed the words “and energy” from language that previously required the Commodity Futures Trading Commission to oversee agricultural and energy trading. The impetus for the change, according to Mr. Rooney, was Enron’s desire to develop an electronic platform for trading energy futures, Enron Online.

Mr. Rooney says the change meant that the bulk of energy trading migrated away from regulated markets such as NYMEX to non-regulated electronic platforms such as InterContinental Exchange, commonly known as ICE, where trades are not reported or regulated, and which do not have margin requirements. Some observers put the portion of unregulated trading as high as 75%.

Yesterday, news broke that CME Group is in talks to acquire NYMEX for approximately $11 billion in cash and stock. While the deal won’t increase transparency — both are overseen by the CFTC and have the same standards — it comes on the heels of last year’s combination of the Chicago Board of Trade and the Chicago Mercantile Exchange.

The “Close the Enron Loophole” campaign comes at a good time. Not since the Egyptians invented glass has transparency been such a hot topic. Everyone is looking for greater transparency — from sovereign wealth funds, from corporate boards, from political campaigns, and certainly from hedge funds and private equity firms.

The public is weary of investment and trading practices so opaque that they can result in large unforeseen losses that cause shocks to the financial fabric. As Mr. Slocum says: “We need more transparency over our financial markets. When Ben Bernanke has to go before Congress and say that the government does not have adequate information about credit markets to determine the extent of the damage, something is wrong.”

Apparently some in Congress are sympathetic to this view. The CFTC held hearings last fall and then sent a proposal to Congress that would allow the agency to regulate trading that met certain tests. Bills now have been passed by both a committee in the House of Representatives and by the Senate that would partially reestablish control over the electronic markets. Though the bills represent progress, they do not satisfy the heating oil contingent.

“They gave us a cop, but only a traffic cop,” Mr. Rooney says. “You can get around a traffic cop.”

The vice president for government affairs at the New England Fuel Institute, Jim Collura, explains that the bills fail to reverse the 2000 change but instead require a litmus test for regulators. They are required to provide oversight of markets that perform a price discovery function. That is, the CFTC is given discretion over which markets it chooses to regulate. Mr. Collura points out that the CFTC does not have adequate resources to meet the demands of the bills. (A spokesman for the CFTC counters that President Bush’s new budget significantly raises monies allocated to the agency.)

At the same time, markets that operate overseas are exempted by so-called no-action letters, which in effect assume that foreign countries will provide equivalent oversight. This is simply not the case, Mr. Collura says. He points to the FSA in London, which, for instance, does not establish position limits, as the CFTC does. He says that is why the ill-fated Amaranth hedge fund moved contracts to London as it piled up excessive natural gas positions, which ultimately went sour and caused the firm to fail.

Those supportive of the bills before Congress, and resistant to greater regulation, include the acting chairman of the CFTC, Walter Lukken, who describes the proposed change as striking the right balance while “allowing the markets to grow and innovate on U.S. soil.”

The head of policy for the International Swaps and Derivatives Association, Gregory Zerzan, says, “The approach taken thus far is careful to avoid overly burdensome regulation which would drive U.S. business overseas.”

Is this a fight that ordinary citizens care about? The executive director of the National Association of Oil Heating Service Managers, Judy Garber, says heating oil companies are engaged in this dispute for two reasons. First, she says, “They don’t like to see their customers get hurt.” Second, heating oil suppliers are “taking tighter margins. People are worried about losing their businesses.” She points out that heating oil distributors are typically fairly small companies that are struggling to cope with their growing receivables.

As policy-makers focus on sagging consumer spending, they may look for ways to bring energy prices under control. Re-regulating energy markets may appear to be one step in that process, which could be a harbinger of more such changes. The benefits of laissez-faire regulation may pale in comparison to reining in energy costs.

As Mr. Slocum says, “We’re not talking about Hugo Chavez-style intervention in the marketplace here; we’re just looking for more transparency.”

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