One of the nation’s top energy regulators discussed the economics of energy at the inaugural Boston University Presidential Lecture on Energy and Environmental Sustainability on Friday, Feb. 6.
Joseph T. Kelliher, who served as chairman of the Federal Energy Regulatory Commission from July 2005 to January 2009, covered the similarities between energy products and commodities, the relationship between financial and physical energy products, and the increasing importance and regulatory challenges of financial energy products. He discussed the evolving role of energy sources, such as electricity and natural gas, as tradable commodities and their convergence into economic markets.
“The financial industry has entered the energy business,” Kelliher said. “Some of the country’s most prominent companies are the largest traders of physical electricity. Electricity and natural gas have similar characteristics of traditional commodities. The link between finance and energy will not disappear. It will only get stronger.”
Kelliher espoused the benefits of energy products in financial markets, explaining that they can mitigate price fluctuation and risk, and can lead to pivotal financial growth and a more stable price relationship between physical energy products.
“Treating energy as a commodity facilitates the development of financial energy products by leveraging off existing market architecture for newer commodities,” he said. “A whole system can develop around these products.”
While the convergence has drawbacks, including prospects of speculation, potential problems with financial transparency, and financial and energy manipulation, recent policies and increased FERC oversight are in place to protect the consumer.
“Companies will be sanctioned if their products negatively affect consumers,” Kelliher said. “The authority is there to bridge the information gap. FERC’s primary task is to protect the consumer.”
Kelliher oversaw the Energy Policy Act of 2005, which altered United States energy policy through tax incentives and loan guarantees for various energy production sources. Throughout his tenure, Kelliher oversaw the approval of 7,400 miles of natural gas pipeline additions, a 500 percent increase in liquefied natural gas import capacity and approved the first significant expansion in gas storage capacity in 20 years.
The lecture, held in the School of Management Auditorium, was co-sponsored by the College of Engineering and the College of Arts and Sciences. Click here for a video of the event.