UPDATE 3-Citi trader exempt from czar's oversight -- source

* Andrew Hall signed deal in time -- source close to bank

* Pay czar may have say on grandfathered pacts -- source

* Pelosi, Frank urge curbs on compensation at TARP firms (Adds byline, background, comment, and information lawmakers letter)

By Steve Eder and Karey Wutkowski

NEW YORK/WASHINGTON, Aug 12 (Reuters) - Citigroup Inc's (C.N) contract with an energy trader who may be owed up to $100 million in compensation this year is exempt from rulings by the Obama administration's pay czar, a source close to the bank said on Wednesday.

While pay czar Kenneth Feinberg has authority over Citi's 100 top-paid employees' -- and Hall surely ranks among those -- the source said Hall's contract will be exempt from review because it was signed before a cut-off date of Feb. 11, 2009.

But not everyone who has examined the issue agrees that trader Andrew Hall's contract will escape scrutiny. A separate source familiar with the matter told Reuters Feinberg will have flexibility in applying his authority on a case-by-case basis, potentially impacting future outsized payments to employees.

As the debate raged over what power the pay czar will possess, two leading U.S. lawmakers warned on Wednesday of signs that companies bailed out by taxpayers were resuming risky pay practices and urged the Obama administration to act on limiting bonuses.

The warning arrived two days before Feinberg is expected to begin reviewing compensation structures at several companies that received bailouts, including Citi, which has taken $45 billion from the U.S. Treasury's Troubled Asset Relief Program, known as TARP.

"Congress and taxpayers alike are rightly alarmed that companies would enrich their executives while deferring repayment of the federal financial assistance that helped them avoid financial catastrophe," House of Representatives Speaker Nancy Pelosi and Representative Barney Frank, both Democrats, said in a letter to U.S. Treasury Secretary Timothy Geithner.

Feinberg has been consulting with seven companies that have yet to pay back money they borrowed from the government, including Citigroup, American International Group Inc (AIG.N), Bank of America Corp (BAC.N), Chrysler Financial, Chrysler Group LLC, General Motors Co [GM.UL] and GMAC Inc, a Treasury spokesman has said.

PAY FLEXIBILITY

According to compensation rules announced in June, TARP recipients are permitted to make bonus payments required under written contracts executed on or before Feb. 11.

The source close to Citigroup said that clause in the rules would apply to Hall, the top trader at Phibro LLC, the bank's Connecticut-based energy trading arm, which has become famous for outsized profits in the oil markets.

Citigroup declined to comment about its submission to the pay czar, but said in a statement that Phibro operates under a "pay-for-performance" contract, with compensation determined by year-end profits produced by the unit.

A Treasury spokesman said the department would not comment on the pay reviews of individual companies.