The Federal Energy Regulatory Commission (FERC) recently released its “Energy Primer: A Handbook of Energy Market Basics.”
The 140-page document, posted online shortly before Thanksgiving, is a staff report of FERC’s Division of Energy Market Oversight/Office of Enforcement. The report explores multiple aspects of market trading that concerns electricity, natural gas, electric transmission, and liquefied natural gas.
The primer provides a detailed overview of energy markets trading – touching on everything from fuel pipelines to energy storage to investment grade credit ratings.
Natural gas, electricity, and oil are forms of energy that are of particular interest to FERC pursuant to its authority under the Natural Gas Act, the Federal Power Act, and the Interstate Commerce Act. “This primer explores the workings of the wholesale markets for these forms of energy, as well as energy-related financial markets,” FERC staff said in the report.
Energy markets involve both physical and financial elements, FERC notes in the new Primer.
Roughly a third of the natural gas consumed in the United States goes into power plants for the production of electricity. Electricity, a secondary energy source, results from the conversion of primary fuels such as fossil fuels, uranium, wind, or solar into a flow of electrons used to power modern life.
Retail consumers have few options for storing natural gas and electricity. For natural gas, large consumers and entities that sell to retail consumers may be able to store gas, but smaller consumers do not have this option. For electricity, smaller consumers may have batteries, but nothing adequate to ensure refrigeration, for example. Without storage, consumers cannot buy when prices are low and use their stored product when prices rise.
The energy industries are capital intensive, requiring access to financial markets to support daily operations, trading and investment programs. Access to financial markets requires maintaining an investment grade credit rating to support activities ranging from daily transactions to long-term development of infrastructure.