January Meeting of CAEM IDEAS Foundation Board

Energy trading is going through a natural shakeout period but will continue to be a vital part of the energy business, the Board of Advisors of the IDEAS Foundation of the Center for the Advancement of Energy Markets (CAEM) concluded at its recent Winter Meeting.

The IDEAS Foundation is CAEM’s think tank arm, and the Board of Advisors makes policy and project recommendations to CAEM.

The Board strongly believes that energy trading is critically important to the long-term success and stability of the industry. The success of competitive energy markets on any level is directly tied to the viability of energy trading. Board members felt that the industry will not go backwards, energy traders are going through a natural “sorting out” period of who should be in the business, new businesses are entering and will continue to enter the market, and finally, that energy traders will again find credit-worthy counterparties and liquidity in the market in the short-term.

Regulators, especially the Federal Energy Regulatory Commission (FERC) and the Securities and Exchange Commission (SEC), need to establish guidelines and regulations governing energy trading, and that new guidelines and regulations were desirable and understandable insofar as they increased trust in the market, were market-based and facilitated increased trading, and that regulators were very careful about any rule changes for a period of time once implemented. Otherwise, without energy trading, risk and volatility would increasingly be shifted from the investor to the customer.

The Board also discussed FERC’s development of Standard Market Design (SMD) for the electric industry, concluding that the Commission’s efforts are welcome and very much alive. FERC’s leadership in providing more uniform direction and certainty are important to the long-term success of power markets.

However, many Board members also welcomed the delay, believing that there was merit to the debate that regional differences do exist and they should be accounted for in the plan. Board members also felt that there should be much more work done on policies for transmission capacity additions, upgrades, obstacles to allow for a robust forward power contracts market and energy trading, and the deployment of new grid technologies.

Congress is unlikely to pass federal energy legislation this year, the IDEAS Board concluded. This is fortunate, the Board said, because bills proposed last year and likely to be revived this session of Congress were too supply oriented and did not have enough focus on infrastructure and demand for energy. Board members felt that the legislation put the government in the position of picking winners and losers on a political basis rather than allowing the market to work.

The IDEAS Board authorized four new projects to begin in the first half of 2003:

A forum on supply demand integration strategies (a facet of demand response) which will seek to treat energy as an asset rather than a commodity and create a new framework focused on making the value proposition of electricity clearer and more useful to consumers. The forum will pay particular attention to filling in the details of the NOPR recently issued by FERC on this subject.
The establishment of a working group on forward contracts for power.
The creation of an executive-level strategy group for competitive markets to provide leadership and vision in the industry.
The establishment of Education in Energy Markets (EEM) to provide objective, unbiased information relating to natural gas and electric markets, regulation and restructuring, with industry terminology and complex concepts presented in a way that opinion makers can understand them.

Four new Board members to the IDEAS Foundation were also welcomed: Alan Herrick, Senior Vice President, Sapient; John Anderson, Vice President, PSE&G; Emmitt Kelly, Director of Regulatory Affairs, ITRON; and, Michael Volker, Manager, Midwest Energy. Herrick and Anderson were also elected to CAEM’s Board of Directors.