CFTC advisory committee focuses on power markets, touches on bank capital rules

Energy and Environmental Markets Advisory Committee also discusses sustainability

13 November 2023


The US Commodity Futures Trading Commission's Energy and Environmental Markets Advisory Committee (EEMAC) held a meeting on 13 November in Washington, D.C., to discuss recent changes to electricity markets, energy infrastructure, and other topics. 

This marks the fourth EEMAC meeting held under the sponsorship of CFTC Commissioner Summer Mersinger. 

The meeting featured a presentation by the Electric Power Supply Association (EPSA) as well as updates from the EEMAC subcommittees focusing on physical energy infrastructure and the metals market.  

During the open discussion portion of the meeting, concerns were raised by members of EEMAC about the impact pending bank capital proposals may have on liquidity in energy markets broadly, and how they could limit hedging for end-users.  

Presentation on the Current and Future US Power Needs 

Sharon Theodore, Vice President of Regulatory Affairs at EPSA, focused her presentation on role of derivatives markets in facilitating the expansion of US power markets. EPSA is a national trade association for power suppliers and wholesale electricity markets in the US.  

Theodore spoke about the transition to a clean energy future and concerns that the timing of new power generation may not be keeping pace with this goal. While there is rising demand for electric power, she said it remains unclear how this additional demand will be supplied. These trends require a tremendous amount of resources and investment in renewable energy, Theodore said.  

Theodore also emphasised that the energy sector has been very focused on addressing energy reliability concerns, which have become increasingly widespread thanks to recent adverse weather events. Theodore also expressed concern about recent Enviromental Protection Agency (EPA) proposed carbon emissions standards for coal and natural gas-fired power plants which could impact existing capacity and reliability.  

Theodore concluded her presentation by noting that emission reduction goals can be achieved through market-based mechanisms while maintaining reliability, but timelines and milestones cannot be arbitrary and must align with the commercial and cost-effective evolution of power grid operations.  

Theodore emphasized the important role derivatives markets can play in hedging the price volatility of extreme weather and the risk of the significant infrastructure and technology transition taking place today.  

During open discussion, Demetri Karousos of Nodal Exchange raised concerns about pending bank capital regulatory proposals that could impact bank FCM members ability to provide liquidity to critical hedging markets. Kara Dutta of ICE echoed those concerns and encouraged the Committee to continue focusing on these bank capital issues. Commissioner Mersinger agreed that the potential impact of the proposed capital requirements on bank FCMs and the liquidty of hedging energy markets should be considered. 

Update from EEMAC Role of Metals Markets in Transitional Energy Subcommittee  

Ian Lange, associate professor of economics and business and director of the Mineral and Energy Economics program at Colorado School of Mines, is chairing the subcommittee focused on the role of metals markets in the energy transition. Lange discussed the possibility of including downstream and upstream members in the supply chain to help understand issues impacting the markets.  

The current plan for the report, according to Lange, includes an overview of the state of the markets, both physical and derivatives, a focus on geopolitical issues that impact the markets, and the impacts of recent government policies on metals markets.   

Update from EEMAC Physical Energy Infrastructure Subcommittee 

Tim Fitzgerald, Associate Professor of Energy Commerce & Business Economics at Texas Tech, is chairing the subcommittee focused on physical energy infrastructure. Fitzgerald said the subcommittee has established three working groups (petroleum, natural gas, and electricity) and will provide insights of the current state of the physical infrastructure and their intersection with derivatives markets.   

Access an archived webcast and agenda here.

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