Energy Markets Update

Editors Note: This newsletter covers three developments: PJM's evolving "backstop" mechanisms, preparation for summer peak load management efforts, and extension of the Jones Act suspension.

Challenges ahead: We're tracking too much sunshine - signs of a strong El Niño could lift average temperatures this summer. Drought conditions are adding another layer of complexity to an already tight market.

Table of Contents

• Energy Markets Update
• PJM’s "Backstop" Capacity Auction
• Hot Days, Cool Solutions : Outsmarting Peak Capacity Tags This Summer
• Watt-a-Scam: Fraud in Capacity Markets
• Jonesing for Relief : Suspension of Jones Act is Extended

Weekly Natural Gas Inventories

Source: EIA, Veolia

Energy Market Update

• NYMEX futures continue their rollercoaster ride in 2026. Now fully on the downswing, customers floating on the market rate are enjoying the ride. The May 2026 NYMEX contract settled at $2.56/MMBtu, a ~65% discount to the $7.46/MMBtu February contract settlement. Strong production helped drive NYMEX prompt month May to a 17-month low.

• Injection season is off to a strong start with 290 Bcf added to storage in the month of April, increasing levels to ~7% above the 5-year average. Production took a slight dip last week but remains strong at ~109 Bcf/d YTD.

• The United Arab Emirates (UAE) announced that it will leave OPEC effective May 1st. The UAE, OPEC’s third largest oil producer, has been vying for higher production output in recent years. Their departure means they are no longer beholden to restrictive production quotas. The decision, however, might not have an immediate impact on global markets as the conflict in Iran continues to drive markets.

• Despite a temporary ceasefire, shipping through the Strait of Hormuz is still halted. Brent Crude Oil’s May contract settled at $108/bbl, and the June contract is currently trading at ~$114/bbl, a 4-year high. It topped $125 earlier this week. 

• Average gasoline prices at the pump were $4.24/gal for the month of April, the highest monthly average since summer 2022.

• Global LNG prices remain elevated amid the conflict in Iran. For the week ending April 24th, European benchmark TTF and Asian benchmark JKM were 35% and 51% higher than before the Strait of Hormuz’s closure. As we’ve covered in a previous newsletter, US LNG terminals are already close to maximum production, lacking the capacity to ramp up further and sell into the higher-value market, or to materially impact domestic prices. 

• Climate models show strong indications of an El Niño pattern emerging in 2026, with some publications calling it a potential ‘Super’ or ‘Godzilla’ El Niño. While we think of other fun names, a strong El Niño will mean higher than average summer temperatures throughout much of the lower 48, testing grid demand and increasing volatility in power markets. Read more about how to manage peak summer load and reduce energy costs in our story below.

 National “Quick Hit” Stories: 

• In his final press conference as Chair of the Federal Reserve, Jerome Powell announced a neutral approach, holding US interest rates steady at 3.5%-3.75% due to increasing inflation (3.3%) and Middle East conflict uncertainties. He highlighted the importance of the Fed’s independence and increasing strain from political pressure.

• Growing uncertainty in US data center interconnections. According to a Bloomberg report last week, about half of the data centers slated to open in 2026 will likely face delays or cancellations. Sightline Climate analysts noted that only a third of the 12 gigawatts planned for this year are actually under construction, and the outlook gets even shakier for future years, as most of the 2027 - 2032 projects haven’t broken ground, leaving tens of gigawatts of announced capacity in limbo. The major factors stalling projects include infrastructure constraints and public opposition driving legislation aimed to slow data center growth.

• In New York, reliability concerns continue to linger as the state faces upcoming plant retirements. AlphaGen announced it will keep the Gowanus and Narrows Generating Stations in Brooklyn operating through at least May 2029, after withdrawing its June 2025 retirement notices originally submitted under the state’s Peaker Rule, which requires older plants to cut emissions or retire. The extension follows updated market conditions and NYISO’s finding that the facilities in Hudson Valley are still needed for reliability, as well echoing a story we last covered here.

• In 2025, renewable energy surpassed coal as the world’s largest source of electricity. Coal-fired generation held the top spot for over 100 years, a symbolic milestone in global energy transition. Solar and wind production met nearly all of the global demand growth in 2025, reducing the need for new fossil fuel generation.
• Last week, Golden Pass LNG shipped its inaugural export cargo from its Sabine, TX facility. Originally operating as an LNG import terminal since 2010, the facility has now been enabled for export. Once it achieves full operational capacity in early 2027, Golden Pass is projected to ship 2.4 Bcf per day. 

 PJM’s "Backstop" Capacity Auction 

• PJM Interconnection, the organization that manages the power grid for 13 states and Washington, D.C., is currently facing a massive challenge. Electricity demand is growing much faster than new power plants can be built. Driven by the explosive growth of data centers and Artificial Intelligence, PJM expects a staggering supply shortage of 50 to 60 gigawatts over the next decade.
• PJM and regional stakeholders have proposed, and FERC has tentatively accepted, an emergency fix called the Reliability Backstop Procurement (RBP). The backstop auction is intended as a one-off mechanism to procure additional capacity quickly enough to preserve reliability while broader market reforms are developed. It would act as a supplement to PJM’s existing capacity market.
• What is the Backstop Procurement? Normally, PJM runs annual auctions to buy enough power from generators several years in advance. Recent auctions haven't secured enough supply to meet the staggering growth in demand. There are various reasons for this, but a crucial one is that generation companies are skeptical of the pace and long-term firmness of that demand imbalance. Power plants are long term investments that could otherwise be “stranded” if capacity is overbuilt. The Backstop is a one-time process designed to quickly secure 14.9 GW of new supply (UCAP) that is guaranteed to be up and running by June 1, 2031.
  
  • Phase 1: The Matchmaker Phase (September 2026 – March 2027): In this first step, PJM will act as a confidential matchmaker. It will pair up massive electricity buyers (like data centers load) with sellers (new generation) who are building new power plants. The buyers and sellers will negotiate their own private contracts. Most importantly, these would be bilateral agreements negotiated outside of the auction for terms of 2-15 years, providing much longer price certainty for the counterparties.
  • Phase 2: The Safety Net (March 2027): After this stage, PJM would administer a central auction for any shortage of the reliability target (which will likely be higher than 14.9 GW), with mechanics similar to a traditional auction. Any bilateral agreements from Phase 1 would bid in at $0, thus offsetting the associated contracted load in the auction.
• What Kind of Supply is Eligible? The plan is "technology-neutral," meaning PJM is open to almost any kind of new resource. Eligible sources include natural gas, battery storage, wind, solar, and demand response (--contact our Flexible Energy Services Group if we can support your project). Basically, all new supplies would be eligible, as long as they haven’t won a contract in a previous PJM auction and can come online by June 2031. Delayed retirements, re-licensing, fuel switching, Capacity Interconnection Rights (CIR)-only uprates and surplus resources would be excluded.
• Market Impacts: Seven state governors recently sent a letter insisting that the tech companies and data centers causing this massive supply drain should pay for the generation that is needed. They want strict rules in place, so consumers aren't left picking up the tab if these massive tech projects fail or scale back. They’ve also requested that any incremental costs be allocated directly to data centers that don’t bring their own capacity or agree to be curtailable.
• For the first phase of the RBP, the mechanism should do just this. However, this is not the full story. The second phase of the RBP will establish an auction price for most customers in PJM, and the underlying parameters and reliability target established for this auction will be crucial to the outcome. Large loads are not required to enter into long-term contracts under Phase 1. The reliability target forecasted by PJM, inclusive of uncontracted large loads, will ultimately tip the central auction into either excess or shortfall, thereby dictating price. Ultimately, the 14.9 GW procurement targets are at least 3-5 GW below what many analysts are projecting for load growth. Therefore, the RBP may not do all that much to stabilize prices; the market looks like it is likely to remain short for at least the next five years, if not longer. 
  
  
• On a positive note for ratepayers, yesterday PJM announced that it had received interconnection applications from producers totaling 220 gigawatts, led by natural gas-fired resources, followed by energy storage. These projects were submitted under the reformed PJM queue framework, with no carryover backlog from previous queues.

 Hot Days, Cool Solutions: Outsmarting Peak Capacity Tags This Summer 

As regional grid networks prepare to meet peak summer demand in 2026, Veolia’s advanced forecasting capabilities and automated response solutions help organizations like yours manage the risks of summer peaks. Let’s explore how these enhancements could impact your capacity charges and review the latest tools available to support your efforts.

• A refresher on the basics for staying cool: The kilowatt (kW) demand recorded by a building’s meters during grid peak hours is a key factor in determining future billing costs, typically over the following year. These charges are often referred to as “Peak Load Contribution” (PLC), “Capacity Tags,” or “Coincidental Peak Contribution,” depending on the ISO. Demand management saving potential are highest in PJM, where each kW of capacity reduced can lower costs by nearly $100.

• Peak consumption hours on the grid typically occur during the late afternoon on the hottest days of the year. This pattern has shifted slightly later in recent years due to increased solar adoption. We summarized the 2025 peak consumption hours per ISO in a previous newsletter.
• Customers can either actively or passively participate in peak load management. Enrollment in a Demand Response (DR) program implies active participation in which a customer enters into a contract and has an obligation to curtail load or dispatch their generation when called upon. These programs pay businesses for cutting back on electricity use during times of high demand, helping both your bottom line and the grid. Veolia also offers annual sessions for clients to review past performance, share best practices, and plan for the upcoming year’s peak management.
• Alternatively, customers can passively participate through our alert program, receiving some of the benefits without the obligation. There are several straightforward energy-saving steps you can take on your own to help manage peak demand (see chart below). These measures are easy to implement and can make a noticeable difference in your building’s energy use and costs.
• Customers with on-site generation can achieve significant revenue and savings through predictive peak load dispatch. Value can be achieved through capacity tag savings, demand response revenue, on-billing demand savings, and ISO market participation, depending on the market. Veolia recently acquired Icetec Energy Services, now named Veolia Flexible Energy Services, which provides advanced dispatch optimization that can help realize the full value of customer assets.

Source: Veolia

• Throughout the summer, Veolia continuously tracks weather patterns and load forecasts from multiple Independent System Operators (ISOs) to anticipate potential peak demand events. When forecast data indicates an elevated risk of a peak, customers receive early-morning notifications. This advance notice enables building engineers to proactively deploy load reduction strategies and optimize building performance ahead of anticipated peak periods.

If your operations or finance groups are interested in receiving these alerts or learning more about Veolia’s demand response programs, please contact us at commodity@veolia.com!

Watt-a-Scam: How American Efficient Turned Lightbulb Receipts Into a Nuclear-Sized Fraud

The Federal Energy Regulatory Commission (FERC) has issued one of its largest enforcement penalties in history, ordering American Efficient and its parent company Modern Energy Group to pay ~$1.1 billion for orchestrating a decade-long fraud in wholesale capacity markets. The company collected nearly $500 million by claiming credit for energy efficiency savings it neither created nor controlled, undermining capacity markets PJM and MISO, passing the costs onto US power buyers. This landmark case serves as a stark reminder that market manipulation, even through seemingly administrative participation, carries severe consequences for all market participants.

• The fraud scheme begins with American Efficient (AE) purchasing retail sales data for energy efficient products like LED light bulbs, refrigerators, and heat pumps. AE paid retailers micropayments for this data claiming rights to the Environmental Attributes. They then bid the theoretical energy savings from the products into PJM and MISO capacity markets; however, the company did not have a contract with the end use customer or any rights to the capacity market attributes. Without the end user agreement they had no ability to ensure load reductions were occurring during peak demand periods.
• This fraud operated from 2014 to 2025 across 23 states and cleared more than 20 GW of fraudulent capacity resources (see Timeline below). They received around $515 million in capacity payments. Throughout the 11 year scam, AE sold PJM an amount of fake capacity equivalent to two nuclear reactors every year. Legal findings include tariff violations, market manipulation and material omission.
• This is not the first time FERC has been involved in illegal activity regarding data scrapping and demand response resources. In 2024, a company named Ketchup Caddy (...queue long sigh) was fined $27 million for a similar fraudulent demand response scheme.

• AE maintains it followed PJM's rules and that the grid operator reviewed and approved its participation over 30 times in a 10-year period. The company has sued FERC in federal court, arguing the enforcement action violates its constitutional right to a jury trial and that FERC's status as an independent agency is unconstitutional. A federal court rejected the company's request for a preliminary injunction in November 2024.

Key Takeaways for Energy Buyers:

• The fraudulent scheme had other negative consequences besides increased prices. During critical events like Winter Storm Elliott (December 2022), the grid was counting on capacity that didn't exist.

• Third party energy programs and participating organizations can learn from this situation in order to not fall victim to scams. Ensure that your provider has a legitimate contract and records across all ISO/RTO markets.

• There will be changes in FERC. We will be entering a new era of enforcement as the Commission is taking a broader view of what constitutes market manipulation.

The American Efficient case demonstrates that FERC has both the will and authority to pursue massive penalties for market manipulation, even when schemes hide behind seemingly legitimate administrative processes. For energy buyers and market participants, the message is clear: capacity market fraud doesn't just risk regulatory penalties, it undermines grid reliability, inflates costs for ratepayers, and exposes organizations to potential liability when phantom resources fail during critical events.

Jonesing for Relief : Inside the Jones Act Suspension

As Middle East tensions escalated and global oil prices remained north of $100 per barrel, the White House reached for a couple of familiar levers to release pressure. Last week, the Trump administration renewed a waiver allowing countries to purchase sanctioned Russian oil at sea for 60 days, while also extending the Jones Act waiver for 90 days.

With this latest extension pushing the Jones Act waiver's expiration into fall, we examine broader questions about the century-old Act, namely the complex trade-offs between maintaining domestic maritime capacity and national security readiness on one hand, and minimizing consumer prices on the other.

Background on the Jones Act

Since World War I, the Jones Act has required that all products, including fuel, shipped between U.S. ports travel aboard vessels that are American-built, owned, crewed, and registered – a measure designed to protect the domestic merchant marine fleet, shipbuilding capacity, and broader national security interests. This protection, however, comes with measurable economic costs.

Oil and LNG shipping illustrate these trade-offs. Compliance costs make importing fuel from abroad less expensive than transporting it along the U.S. coastline. Research from the National Bureau of Economic Research shows that the Act adds a $0.35-$1.00 per barrel premium on refined fuels above competitive international shipping rates. The study estimates that removing these restrictions could reduce average East Coast gasoline, diesel, and jet fuel prices by $0.63, $0.82, and $0.80 per barrel, respectively.

The LNG market presents another notable case. No LNG tankers currently operate under the U.S. flag, as building one at an American shipyard costs roughly $1 billion (about $700 million more than a foreign-built equivalent) and daily operating costs run nearly three times higher. The U.S. has not produced a compliant LNG tanker in over 50 years.

The constraints impact regional oil and natural gas availability as well. During peak demand periods, New England can draw as much as 35% of its daily gas requirement from imported LNG. That fuel is landed in a single terminal outside Boston and typically originates from higher cost and distant locations such as Trinidad and Tobago, Algeria, or Nigeria. In 2018, the terminal even received LNG shipments from the Russian Arctic, more than 4,500 miles away. The US is the leading LNG exporter in the world, however Jones Act restrictions have prohibited cargoes from moving discounted gas on international tankers between the Gulf Coast and Boston. While shipping restrictions aren't solely responsible for New England's winter gas prices being 35% above the national average, restricting fuel deliveries to a region characterized by harsh winters and inadequate pipeline infrastructure compounds the problem.

In Puerto Rico, restricted access to foreign-flagged LNG tankers raises prices by as much as 30%. The Jones Act is estimated to cost Hawaii’s economy approximately $1.2 billion annually, adding about $1,800 in yearly costs for the average family. Even in the continental US, transporting a barrel of crude oil from New Orleans to L.A. costs more than 4x the comparable distance from Houston to London.

 Econofact, 2025 

State of Play

• In March, the Trump Administration suspended Jones Act requirements for 60 days amid wider efforts to address steep oil prices and cargo disruptions stemming from the Iran war. The waiver was recently extended and will now remain in effect until mid-August. Though this brief timeframe does limit the maritime sector’s ability to pivot and implement significant changes, some progress has occurred.

• Throughout the first 60-day period, 40 tankers have completed (or are scheduled to complete) deliveries totaling 9 million barrels of oil to various U.S. ports spanning from California to Texas to Florida and Alaska, effectively expanding the operational fleet by 70%.

• Even so, this comes with trade-offs. Research suggests that waiving the Jones Act long-term could reduce prices on the East Coast, yet raise Gulf Coast costs by $0.30 per barrel. Additionally there is concern that American shipbuilders and the domestic maritime industry more generally – whom the law was designed to protect – could be sidelined.

The Bottom Line

In the wake of the war in Iran we’ve witnessed U.S. leadership change course on Russian Oil Sanctions and the Jones Act with a mere signature. While the Jones Act is complex and involves trade-offs, its return to the headlines gives us an opportunity to examine potential relief for the problem of uneven energy access in the U.S.

For our analysts and fuel buyers, it’s worth considering why barriers persist that keep areas like New England disconnected from domestic energy supplies. This question becomes especially pressing as states like New York and those across New England have lagged in building critical oil and natural gas pipeline infrastructure, making waterborne fuel availability more important than ever.

Market Data

Market data disclaimer: Data provided in the "Market Data" section is for the newsletter recipient only, and should not be shared with outside parties.