Public Statements & Remarks

Opening Statement of Commissioner Summer K. Mersinger before the Energy and Environmental Markets Advisory Committee

February 28, 2023

I want to welcome you all to Nashville, Tennessee and thank our host, the Nashville Public Library, for the opportunity to hold the second meeting of the Energy and Environmental Markets Advisory Committee (EEMAC) in this beautiful space.

I also want to thank my fellow commissioners for participating and for their interest in this committee.

Thank you to all of the guests in attendance and online, our panel participants, the committee members and associate members on EEMAC, Chris Lucas, my Chief of Staff and a special welcome to our new EEMAC members, Tara Shaw, Jamila Piracci, and Sneha Bagri.

Finally, a special thanks to our Acting Chair Lauren Fulks, the Secretary for EEMAC, who once again has gone above-and-beyond in organizing today’s meeting.  From finding this space to lining up today’s speakers, I cannot tell you how grateful I am to have Lauren on our team.  She is an amazing asset to the agency.

I also want to say a quick word of thanks to all the CFTC staff who helped with logistics and travel.  There is a lot of work that occurs behind-the-scenes and I am grateful for the hard work and effort of those at the CFTC who take care of the many details that go into these meetings.

At our last meeting in Oklahoma, we talked about the importance of traditional energy infrastructure and how that infrastructure is critical to well-functioning energy futures markets.  As we learned, Oklahoma’s history is deeply intertwined with the production, storage, and transmission of fossil fuel energy.[1]

Crude oil futures contracts, particularly the West Texas Intermediate (WTI) contract, are some of the most liquid and vital contracts for the energy industry and the WTI price sets a benchmark that is used around the world.[2]  But, the energy industry is much more than fossil fuels and current policies are dictating an abrupt transition to other forms of energy.

To that end, today we will discuss electricity and electrification, a source of energy critical to our economy and the well-being of all individuals.  And continuing our theme of tying location to topic, I can think of no better location to discuss electrification, than Tennessee.

The creation of the Tennessee Valley Authority (TVA) was one of the greatest public works projects in US history.[3]  Though it encountered many setbacks, failures, and controversies, the TVA brought electricity to farmers and rural southerners at an affordable price.[4]  Beyond electricity, the TVA also controlled the flood waters of the Tennessee River, improved navigation, and brought modern agricultural techniques to Tennessee Valley farmers.[5]

Rural electrification and the electric grid are truly one of the miracles of the 20th Century.   By the 1930s and 40s, electricity was a common afterthought in urban America, but for farmers and many others living in rural America, it was an unimaginable luxury.  The Tennessee Valley Authority and other public works projects brought electric power to the people.

Before electricity was widespread in rural areas, anything that required the use of water was work.  A Federal study found that, prior to electrification, the average person living on a farm used 40 gallons of water every day.[6]  For a family of five, this meant 200 gallons per day and over 73,000 gallons per year.[7]

The study also surveyed the average distance between a farmhouse and well.  With the average well located 253 feet from a farmhouse, this meant a total of 63, eight-hour days and 1,750 miles walked per year in order to supply the water a farm family needed for drinking, cooking, washing and bathing.[8]

Electrification gave these families indoor plumbing and relief from the drudgery of hauling water from wells, but it also did so much more.  Without electricity, there was no refrigeration, so every meal had to be started from scratch, all produce either eaten immediately or canned, and all clothes washed by hand.[9]

And these changes occurred slowly in rural areas.  In fact, the farm house where my dad grew up still has the outhouse building in the yard and my aunts and uncles share not-so-fond memories of the fights over who was the first to use the bath water in the outdoor stock tank and who was stuck at the end taking a cold bath in dirty water.

Thanks to projects like those built by the TVA, a connection to the electric grid and affordable electricity are a basic part of life for every American. Now, we expect that if we flick a switch, no matter where we are, in an instant, a mass of electrons will go to work making modern life possible.

Today, however, our electricity markets are changing in complexity, size, and scale.  Additionally, commodities that we never thought of as being tied to the energy industry are proving to be vital sources of raw materials for the production, transmission, storage, and use of electric energy.

Functioning commodities derivatives markets are similar to the modern electric grid in that they both take time and investment to build and when things are working, no one complains.  But, just like the grid, when things break down, the resulting issues have a big impact on our day-to-day lives.

So, no doubt we can all agree to the importance of electricity and the role it plays in our economy, whether that electricity is created and supported by traditional fossil-fuel energy sources or as we consider the impact of the push to sources designated as green-energy.  To support these new industry dynamics, at this meeting, we will examine how CFTC-regulated markets can support electrification.

Some of the questions I hope we will answer are;

Will derivatives market reforms be required for the continued production and transmission of abundant and affordable energy?

How do our regulated derivatives markets provide electric energy producers, hedgers, and end users the tools they need to properly hedge exposure?

First, we will discuss Financial Transmission Rights or FTRs with EEMAC committee members Jackie Roberts and Demetri Karousos who will be joined by Joseph Bowring, Independent Market Monitor for PJM.

As the power for electric grids moves from traditional sources such as coal and natural gas to intermittent sources, such as wind and solar, grid operators are challenged to find ways to supply power when the power supply becomes unpredictable.

Power usage has also become a challenge.  For example, the increased use of electric vehicles creates new power usage patterns, which create new stresses on the grid and provide both risks and opportunities for CFTC-regulated derivatives products.

FTRs are of course subject to exemptions issued by the CFTC, as authorized by the Commodity Exchange Act, in recognition of the regulatory interest of the Federal Energy Regulatory Commission in these transactions.

But given the interest in FTR markets by our EEMAC members, the implications of increased risk regarding FTRs for power derivatives markets, and our general surveillance of derivatives markets, I agree that this is an important topic for EEMAC to discuss and better understand.

Second, we will discuss how CFTC-regulated markets are important tools in the widespread expansion of electrification.

In Oklahoma, EEMAC member Derek Sammann from CME spoke to us about the current state of metals futures contracts.

Today, we will continue that conversation.

Dan Bowerson from the Alliance for Automotive Innovation will discuss the needs of end users in the auto industry as they ramp up production of Electric Vehicles.

Following Dan, George Pullen, Senior Economist with the CFTC’s Division of Market Oversight will discuss the actual mechanics of physical delivery and how CFTC regulated contracts for the metals and minerals needed for electrification can be listed in the United States.

Again, thank you to my fellow commissioners, committee members and associate members, and guests for taking time out of their busy schedules to explore these important topics.

With that, I will turn it over to my fellow commissioners who are joining us virtually today for their remarks.  I look forward to a robust and informative discussion.

[1] See Yergin, Daniel. The Prize. Simon & Schuster, 1991 at 87, 213, 223, and 249-250.

[2] Id. At 724-726

[3] Shlaes, Amity. The Forgotten Man. Harper Collins, 2007 at 173-188

[4] Id.

[5] See id.

[6] Caro, Robert. The Years of Lyndon Johnson, The Path to Power. Alfred A. Knopf, 1982, at 509

[7] Id.

[8] Id.

[9] Id.