Several members of the US Senate Agriculture Committee on Wednesday said they are unsure whether they will embrace a US Commodity Futures Trading Commission recommendation that all carbon emission allowance transactions under a federal cap-and-trade bill take place on a regulated exchange -- a move the energy sector fears will boosts power prices.

"We want accountability and transparency and we want all the [carbon] dealers regulated," said Senator Debbie Stabenow, a Michigan Democrat. "But I think there is a real question about do we need to leave some room for customized contracts."

"I've not reached a conclusion on that," said Senator Kent Conrad, a North Dakota Democrat, when asked if carbon trading should be only on regulated exchanges. "My inclination is that that makes the most sense. But it's fair to say I've not reach a conclusion until we've gone thru this process."

Conrad and Stabenow made their remarks in interviews after CFTC Chairman Gary Gensler testified in favor of regulating all carbon markets that would be created by cap-and-trade legislation pending in Congress. The House of Representatives passed a climate-change bill in June and the Senate is still holding hearings and preparing to draft legislation this fall.

Gensler said that carbon futures should be on regulated exchanges not unlike corn, wheat, oil or natural gas, and that standard carbon contracts, over-the-counter swaps and derivatives, also should be regulated. Dealers in carbon markets also should be fully regulated similar to dealers in other commodities, he said.

"But I do believe there are going to be times when there is tailored product that can't readily be brought on to a centralized clearing," said Gensler. He gave an example of a utility financing project that may want to lock in a carbon emissions price 10 to 20 years out. Still, that deal would be controlled if Congress requires the regulation of dealers of such transactions, he said.

But Exelon Corporation Vice President and Chief Risk Officer Joseph Glace told the committee that having to transact derivatives designed to hedge carbon risk only on regulated exchanges would be "much more expensive" than in the over-the-counter markets.

"This in turn, would mean that we would have to charge substantially more for our product -- electricity -- which means our customers would have to pay substantially more for this vital commodity," Glace said.

Instead, the Chicago-based utility, which has advocated carbon cap-and-trade legislation, supports the expansion of the CFTC into carbon allowance markets and new reporting requirements for OTC carbon transactions, he said.

Asked about Exelon?s concerns and the regulatory recommendations from CFTC, senators said the issue would require further study.

"That's what we're looking at," said Stabenow. "We want to make sure there is adequate oversight, transparency, but I think there is room for some flexibility."

Senator Mike Johanns, a Nebraska Republican who serves on the committee, said he was concerned about higher compliance costs being passed on to electricity consumers as a result of the carbon bill.

"A lot of red flags went up for me," Johanns said in an interview. "It's not just the impact of cap-and-trade. It's the impact of additional regulation. It is the impact of saying to a company--a major utility--'Look, it's going to be different now. You can't trade in the way you're used to in past.' And their response to that is it's going to cost more and that is going to get passed on to consumers." --Cathy Cash, cathy_cash@platts.com