On November 13, the Commodity Futures Trading Commission (CFTC) Energy and Environmental Markets Advisory Committee (EEMAC) held a public meeting. The meeting covered the state of the power markets, discussion of metals markets with a specific focus on copper, and an update from the physical energy infrastructure subcommittee.
Below is a summary of the meeting prepared by Delta Strategy Group.
OPENING REMARKS
Committee Sponsor Summer Mersinger said that the Committee will be focused on the convergence of energy and metals markets and required investments in energy infrastructure and their impact on derivatives markets.
Commissioner Goldsmith Romero said power and related energy markets are necessary to families and businesses throughout the country, and we have seen massive increases in price and volatility. She emphasized a need to do a study of whether spikes in prices are due solely to normal market supply and demand or a result of market manipulation.
THE STATE OF POWER MARKETS
Sharon Theodore, Electric Power Supply Association
We are seeing an increased concern over electric grid reliability in the face of extreme winter weather. This can be amplified by efforts to make grids more reliant on renewable energy. GHG standards could have a serious impact on electric reliability standards, especially before we have universal standards for reliability associated with wind and solar. Rules being set throughout the administration from agencies such as the EPA to reduce carbon may not be taking a full account of potential reliability impacts, especially as we retire significant amounts of energy production. Retirement is outpacing the introduction of new renewable sources. There are also significant issues with forecasting the energy needs of the future particularly surrounding data centers and electric vehicle charging infrastructure. Hedging will continue to be a vital way to address all of these concerns.
UPDATE FROM EEMAC ROLE OF METALS MARKETS IN TRANSITIONAL ENERGY SUBCOMMITTEE & PHYSICAL ENERGY INFRASTRUCTURE SUBCOMMITTEE
Ian Lange, Chair of the EEMAC Role of Metals Markets in Transitional Energy Subcommittee
We are currently looking to add a representative from the downstream and upstream sides of the market, like car companies and mining companies, to help the subcommittee gain a broader perspective of the metals markets. Right now, there is a lot of interest in having a better price discovery method for nickel. We are thinking about how metal markets have evolved internationally and specifically how they interact with each other. It is important to ensure that the metal markets in the U.S. stay competitive with foreign markets. We are also considering the impact of recent government policy like the Inflation Reduction Act (IRA). We are considering how to address the upcoming recycling boom. Throughout international government agencies, there is a lot of discussion surrounding large increases in mineral demand. In futures markets, we do not see the markets pricing in increases in mineral demand. We are thinking about whether this poses an issue in the market.
UPDATE FROM EEMAC PHYSICAL ENERGY INFRASTRUCTURE SUBCOMMITTEE
Tim Fitzgerald, Chair of the EEMAC Physical Energy Infrastructure Subcommittee
The subcommittee has now identified a plan of work that will lead to a report responsive to the tasks assigned by the commissioners. We now have various working groups within the subcommittee dedicated to engagement with issues relevant to petroleum, natural gas, and electricity. Each of these groups will provide an analysis of the current state of physical infrastructure and its impacts on both physical and derivatives markets. The subcommittee has identified several interesting topics deserving special analysis. We are researching the changing relationships and dependency across commodities and their respective infrastructures, and how peak flows and physical volatility affect the sizing and utilization of infrastructure. Another issue we have identified is how market design choices affect incentives to invest in physical infrastructure. Finally, because energy infrastructure involves high initial fixed costs, new projects may be affected by financing conditions. The subcommittee looks forward to engaging with the many complex issues that arise around physical infrastructure and providing clear recommendations to the commissioners in the spring.