High energy costs are having a devastating impact on our economy and our people – especially in large, rural states like Maine. Truck drivers, loggers, 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 afford to keep warm next winter.

The high cost of energy is also taking a toll on businesses, both large and small. Katahdin Paper recently announced plans to shut down its plant in Millinocket due to the cost of oil. If this occurs – and everyone is working to prevent it – the community would 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 the fundamentals of supply and demand. The market seems to be going in only one direction – up – even when there is periodic good news on the supply side.

What’s going on? While increased demand from China and India and the devalued dollar certainly are significant factors driving up prices, compelling evidence gathered by the Senate Homeland Security Committee suggests that excessive speculation in the commodities futures markets is also a cause. Our committee has held three hearings on the rising cost of energy and food and has focused specifically on the relationship between rising prices and excessive speculation in commodity markets.

At issue is the activity of noncommercial traders who do not produce or take delivery of oil or agricultural products, unlike commercial traders such as oil producers and heating oil dealers, farmers and cereal companies. Rather, these noncommercial investors use futures contracts and related transactions solely for the purpose of financial gain. Massive new holdings of oil-futures contracts by pension funds, university endowments, sovereign wealth funds controlled by other countries, and other institutional investors appear to be driving up prices beyond what they would otherwise be. These investors’ intentions may be simply to provide good returns, a hedge against inflation and diversification, but many experts believe their activities are distorting commodity markets.

Speculation in commodity markets by noncommercial investors has grown enormously in recent years. In just the last five years, the total value of their futures-contract and commodity index-fund investments has soared from $13 billion to $260 billion.

I am working with Sen. Joe Lieberman to write bipartisan legislation to prevent excessive speculation in energy and agricultural commodity markets. We propose limiting the percentage of total contract holdings that noncommercial investors could maintain in any one commodity and closing a loophole that allows financial institutions to evade limits intended to prevent an investor from trying to distort prices.

Our bill would also address two other concerns: “dark markets” and resources for the Commodity Futures Trading Commission. There are still gaps in publicly available data for certain commodities markets. Price manipulation can go undetected on these markets because trades are not adequately disclosed to regulators. That is why I have called for increased regulation and transparency in futures markets to guard against excessive speculation and price manipulation. Closing the “Enron Loophole” for electronic exchanges – a corrective measure now law – was a good first step, but more needs to be done.

In addition, the CFTC must have adequate resources to collect and analyze market data, monitor trading and police markets. The CFTC chairman testified before our committee that the trading volume of commodity futures contract has soared from 37 million contracts in 1976 to more than 3 billion last year, yet there are fewer employees at the CFTC today than 30 years ago, leaving much more work for fewer staff. Our comprehensive bill would allow the CFTC add much-needed staff and technology to support more robust monitoring and enforcement.

We intend to introduce our legislation shortly after the July Fourth recess in the hope of bringing some relief to consumers weary of paying ever-escalating energy and food prices.

In reforming these markets, we must also take care not to undermine the usefulness of futures markets for the producers, handlers and purchasers of commodities who need to lock in prices, hedge risks and discover price trends. We also must be careful not harm retirees by banning institutional investors such as pension funds from investing in futures markets altogether. Working together, I believe that the Senate can develop effective measures to curb excessive speculation, guard against price manipulation, and protect consumers who are suffering from high energy and food prices.

Susan Collins is the ranking member of the Senate Homeland Security and Governmental Affairs Committee.