Remarks as Prepared for Delivery

I am pleased to be here with the members of the Energy and Environmental Markets Advisory Committee in Washington, D.C.  The last time I saw you, we were all standing outside on the edge of one of our nation’s largest copper mines in Utah.  I thank Commissioner Mersinger for her vision for this committee to have that real world, field experience, and Lauren Fulks for coordinating these events.

Power Markets and Related Derivatives Markets Matter to Households

I look forward to hearing the update on the state of power markets.  Power and related energy markets are necessary for American families and small businesses to keep the lights on, stay cool in the summer, and warm in the winter.  These markets matter to families and businesses.  This summer, record heat drove up wholesale power prices to as high as $5,000 per megawatt hour, 100 times the normal price.  The Texas grid set 10 all-time peak-demand records.

We know that winter is coming—a winter marked by El Nino.  In 2021, grid failures caused by Winter Storm Uri cost more than 200 lives in Texas and left more than 4 million homes without power.  The North American Electric Reliability Corporation has warned that much of North America is at elevated risk for having insufficient energy supplies if there is extreme weather this winter.[1]

In order to keep the lights and heat on, there are several ways to strengthen our nation’s resilience against these type of severe climate events that can impact our nation’s power grid—ways that require a coordinated approach across the government.  One of those with potential promise is artificial intelligence—bear with me as I sponsor the CFTC’s Technology Advisory Committee that looks at emerging technologies including AI.  Under President Biden’s recent Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence, the Department of Energy, the Federal Energy Regulatory Commission and others have been directed to “issue a public report describing the potential for AI to improve planning, permitting, investment, and operations for electric grid infrastructure, and to enable the provision of clean, affordable, reliable, resilient, and secure electric power to all Americans.”[2]  Additionally, the executive order on AI discusses the Department of Energy’s ability to partner to build foundation models that enhance grid reliability and resilience.

Properly regulated markets also create opportunities to strengthen resilience, to help build reliability, and reduce power prices for households.  In the short term, rising power prices may act as a signal to reduce or shift unnecessary demand, avoiding blackouts, like Texas did this summer.  In the longer term, higher prices could lead to investments in new energy sources, including with government incentives through the Inflation Reduction Act.

Well-functioning derivatives markets can help manage risks of the major projects that states and utilities are pursuing to meet their goals of cleaner and more resilient power markets.  Larger projects by states and companies, like offshore wind turbines, require borrowing over many years.  The ability to use derivatives markets to hedge risks like changing interest rates will help project developers make investments with confidence.

Additionally, this year marks a new record for global adoption of renewables, with over 500 gigawatts of capacity added.  A study published in Nature Communications last month recognized the growing potential of solar power, with its declining costs, while recognizing challenges such as intermittent generation and storage costs.[3]  I hope to hear about how the power markets are changing as the adoption of renewable energy continues to accelerate.

Investment in solar power, wind turbines, or storage batteries requires critical metals and minerals, like copper, lithium, and cobalt.  As mineral markets grow, prices may rapidly shift.  After lithium prices spiked in 2022, they have fallen by nearly 70%.[4]  New lithium futures contracts in 2023 shows the interest market participants have in using derivatives to manage this kind of price volatility.

The CFTC’s Role Is to Make Sure That Derivatives Markets Work for Those Who Need Them

If the CFTC meets its mission and ensures integrity in these markets, it means consumers can be confident that prices for food, fuel and power are not artificially inflated.  Our enforcement program polices fraud and manipulation, including through our new Environmental Fraud Task Force.  Our Division of Market Oversight monitors and surveils markets.  If we see spiking power and energy prices this winter, the CFTC should study market forces and the specific trading that drove these spikes to determine whether the prices are driven by market fundamentals of supply and demand.  I have been calling for us to do deep dive studies in certain cases where there is extreme volatility or spikes in prices. 

Thank you to all the members for your service, and your continued attention to these critical issues.