Energy Markets Update

In this newsletter, we cover key factors impacting US energy markets. We report on Con Edison's potential significant rate increases in New York and natural gas rate scrutiny in Massachusetts. Additionally, we will discuss strategies to optimize your energy purchasing as we transition out of the winter months and provide updates from FERC. 

Table of Contents

• Gas & Power Update
• Con Edison: New Year, New Rate Cases
• Massachusetts Utility Rates Get Political
• Hedging Strategies: What to do Now
• FERC : Who’s in Charge

Weekly Natural Gas Inventories

Source: EIA

Source: EIA

US Energy Market Update

• Colder for longer is the theme this winter. This is the first winter since Q1 2019 that gas inventories have dipped by more than 200 bcf below the 5-year average.
• While it has been cold compared to recent winter, heating degree data indicates this winter is tracking at about the 30yr average. And there may be signs of a break in the cold. An updated forecast from NOAA indicates a gradual warming over the coming weeks and more moderate temperatures, particularly in the Midwest.
• If this bears out, traders would have been wise to follow the guidance of Staten Island Chuck on February 2nd. Though less notorious than his groundhog brethren Punxsutawney Phil, Chuck did not see his shadow, indicating an early spring. Punxsutawney Phil called for six more weeks of winter, but apparently that’s the position he usually takes.  
  
  Source: Constellation Energy
• One of the dominant trends over the past couple months is the rally of NYMEX gas for the summer of 2025, now at $4.25/MMbtu. Summer gas has increased by roughly $1.25 or 41%, since lows in October. Calendar year 2026 has increased by 15% over the same period. Granted much of this movement in summer 2025 was a function of colder weather and the $3.00 baseline was arguably too low, but this will precipitate higher energy costs in 2025. It also paints a compelling narrative as to why hedging summer opportunistically still has some strategic value.
• From the start of the month, power forwards for 2026 have traded up by about $2/MWh in PJM and New York and $4/MWh in New New England. While all regions have sailed through this winter with few issues, nervousness about the 2026/2027 imbalance has generally supported higher prices, and regions such as New England are particularly prone on the winter strip. A large transmission line bringing hydroelectric power into New England is expected to commence commercial operations on December 31, 2025. Look for volatility in the Q1 2026 strip as updates are published.  
• All considered, 2025 is shaping up to be a rather expensive year for energy consumers due to a confluence of many factors, in addition to NYMEX baseline increase:
  • Significant utility rate case activity — see below
  • Natural gas pipeline rate increases from major transporters on the east coast such as Algonquin in the Northeast and Transco in the Mid-Atlantic
  • Most customers in PJM will incur ratable increases of at least 20% in supply costs due to last year’s PJM capacity auction and higher wholesale energy benchmarks. These increases are expected to stick around at least for the next 2-3 years and maybe longer.
  • Overall growth in carbon mitigation programs as states progress towards their 2030 goals
    
• Managing budgets in 2025 & 2026 will be a challenge. Buyers should be looking at ways they can adapt: (a) set realistic budget forecasts, don’t just plug in prior year rates, (b) don’t chase runaway forwards markets and consider some index exposure, (c) review demand response and peak shifting opportunities, (d) set price triggers so that you can quickly react if desired prices thresholds become available. 
   

Con Edison: New Year, New Rate Cases, and an Audit?!

• Con Edison (NYSE: ED) has proposed another round of significant rate increases, seeking double-digit percentage hikes for both electricity and gas services in New York City. This latest request comes while customers are still adapting to the company's previous rate increase package, which was approved in July 2023 and implemented a series of incremental increases scheduled from 2023 through 2025. The timing and scale of this new proposal highlights the ongoing challenge of balancing infrastructure investment needs with consumer cost concerns in one of America's largest utility markets.

Data source: Con Edison

• As visualized in the chart above, the company’s newest rate proposal is substantial with approximately $1.6 billion for electricity and $440 million for gas services. Con Edison justifies these increases by citing several key investment needs including: strengthening the distribution system, covering property tax increases, funding customer affordability programs, and upgrading its IT infrastructure (see detailed cost breakdown below).
  
  Source: Con Edison

• As part of their proposed rate increase, Con Edison has earmarked $370M specifically to advance the goals of New York State's Climate Leadership and Community Protection Act (CLCPA) of 2019. The utility's CLCPA investment strategy includes two major infrastructure projects: a new substation complex in Queens that will support JFK Airport's modernization while reducing emissions, and an innovative clean energy hub in Brooklyn designed to facilitate renewable energy integration from offshore wind farms scheduled to be developed in the second half of the decade.
• It's apparent that Con Edison and other utilities around the state are bracing for some major load growth. NYISO's statewide projection of approximately 25,000 MW will be driven by mandated building electrification requirements and electric vehicle adoption. 

Source: NYISO

• Governor Kathy Hochul has already requested the New York Public Service Commission (PSC) to reject utility rate increases and called for an audit of several utilities in the state. In response, on February 14th, the PSC complied with Hochul's request by initiating an independent audit specifically focused on examining non-union utility management incentive compensation programs.
• Con Edison's one-year rate increase proposal has begun a months-long review process with the PSC, which will include gathering input from both the public and stakeholders. It's worth noting that the previous one-year rate case, filed in 2022, took roughly 18 months to reach a joint proposal settlement and resulted in a three-year rate increase.
• Our analysts will continue to monitor and provide updates on both the rate case proceedings through regulatory channels and share findings from the independent audit as they become available.

Massachusetts Utility Rates Get Political

• Customers in Massachusetts have experienced significant cost increases this winter; bills have doubled according to complaints logged from residential customers. A letter from senators and representatives across Massachusetts was sent to the Massachusetts Department of Public Utilities (DPU) on February 14th about this issue. The letter asked the DPU Chair, James Van Nostrand, to further investigate rate adjustments from the utilities and hold them accountable for increased costs.
• An Eversource spokesperson said that customers saw an increase in rates this winter due to increasing cold weather, which drives up demand for gas and therefore its cost. While this is accurate, there are other factors at play. A recent rate increase from the regional pipeline and allocation of costs associated with the LNG terminal in Everett, MA have made their way into rate base this year, in addition to various utility rate cases approved over the past year. All this is further exacerbated by the pipeline constraints in New England, which makes gas even more expensive than many areas around the country.
• Some state lawmakers, including Representative Orlando Ramos, have stated that they think these increases are being approved unlawfully. Utilities are not allowed to profit from the cost of gas and are required to pass through the costs to customers with no markup. There is also a citizens’ petition that has garnered more than 10,000 signatures demanding a halt to increasing rates, as well as a judicial review of past rate case approvals and the DPU’s process for making these approvals.
• On February 20th, Governor Maura Healey and her administration also sent a letter to the DPU asking them to investigate these increases and immediately decrease rates to make heating more affordable for customers.

Hedging Strategies: What to do Now?

• With Spring on the horizon, many energy buyers who weathered fluctuating index prices during this extra-cold and expensive winter are wondering: what’s next? Is there value in fixing my positions now?
• The most fundamental aspect of successful energy purchasing is understanding what moves the market and translating this into a strategy for mitigating risk, both in the near and long-term. Energy markets, like all commodities, operate on a delicate supply-demand balance that follows predictable patterns, but can also experience sudden, unexpected shifts that materially impact price. Being aware of this will shield you from the sticker shock of peak season price spikes, and will enable you to make purchasing decisions that take advantage of favorable market conditions.
• Weather heavily influences energy pricing and for the most part follows a seasonal pattern. Highest prices occur during extreme weather months – Winter (November-February) and Summer (July-September) – due to peak heating and cooling demand. Winter is typically the most expensive because natural gas is used both for heating and as the primary fuel for power generation in the US, which puts upward pressure on both commodities.

• While this winter we’ve experienced sustained cold and higher near-term or “spot” prices as a result, some of this premium is a normal part of winter seasonality. In terms of a buying strategy, when prices are trending upward, trying to lock in at the lowest current price should not be the sole priority and may actually cost more as the price for fixing power and gas during peak times may be more expensive than riding the index.
• Instead, we recommend planning ahead; targeting “shoulder months” (spring and fall) as the time to make procurement decisions, which offer more stable market conditions and often lower prices. Most customers benefit from fixing some portion of their supply portfolio for the high-risk winter period (November-February). This strategy will limit exposure to index fluctuations during the most volatile months. The exact percentage or quantity of the portfolio to be fixed will vary by customer budget, risk tolerance, and other factors.
• This Spring, the cost of both gas and power will be materially higher than Spring 2024 because of how this winter played out, as well as other factors such as new Liquified Natural Gas (LNG) terminals that became operational in December. Buyers who have weathered index exposure this winter have already felt the toughest months. It makes sense to wait and let the market come down from recent run-ups. Fixing supply positions going forward should pay particular attention to winter 2025-26 (Nov-Feb) and perhaps a longer-term strategy (covered below).
• Supply-side dynamics such as LNG exports, infrastructure constraints, and geopolitical events can skew supply availability. In previous newsletters, we’ve paid special attention to the expected growth in LNG exports over the next decade as we see this leading to major upside risk in ‘26/27 and beyond. Pursuing a long-term strategy for NYMEX purchasing may be worthwhile given the bullish long-term outlook.
• The outlook for power also shows value in a longer-term procurement strategy. Demand is forecasted to increase ~16% by 2029 due to the expansion of AI and datacenters, electrification, and manufacturing growth. This will contribute to pressure on pricing and raise issues of supply-demand imbalance, which is already being reflected in another big wholesale market – forward capacity. Read our recent reporting on forward capacity markets and the impact on electricity prices here.
• Building custom procurement strategies for our clients is the bread-and-butter of our Commodity Advisory group. For more information about pursuing strategies to benefit your organization, please reach out to our team commodity@veolia.com

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What (is) the FERC & Who’s in Charge

• On February 18th, the president signed an executive order meant to expand presidential oversight of agencies and assert “authoritative interpretation” of executive branch law by the President.
• The order states, “No employee of the executive branch acting in their official capacity may advance an interpretation of the law as the position of the United States that contravenes the President or the Attorney General’s opinion on a matter of law… unless authorized to do so by the President or in writing by the Attorney General.”
• The Federal Energy Regulatory Commission (FERC) is the independent agency that regulates the interstate transmission of electricity, natural gas, and oil, and is impacted by this executive order.
  Mark Christie, the new FERC chairman appointed by President Trump this year, discussed the order during a media briefing.
  • He stated that many aspects of this order just restated processes that already exist at the FERC, such as budget and rulemaking reviews.
  • While some concerns about the EO involved the possibility of a more highly politicized FERC, Christie commented that the concern should be focused on the FERCs “regulatory capture” by special interest groups rather than working for public interest.
  • Christie also commented on the EO’s provision giving executive power over independent agencies to the President, and he said that this does not seem limiting to a FERC commissioner’s ability to dissent from an order.
• Overall, it is unclear how this order will affect the FERC, as the agency was created by the Department of Energy Organization Act, which contains a provision that bars anyone at DOE from directing FERC’s actions, which an executive order cannot override. The legality of presidential authority over the FERC rulemaking process is tenuous, at best, as is presidential authority to remove commissions outside of their appointed terms for reasons other than “inefficiency, neglect of duty, or malfeasance in office,” a standard that has been upheld by the Supreme Court in Humphrey’s Executor v. United States.
• FERC also announced that they have not had any probationary staff cuts after more than 200,000 federal workers lost their jobs in the past month, and FERC has not been contacted by the Department of Government Efficiency (DOGE) regarding budget cuts as they are funded by fees levied on the companies the agency regulates, not from tax dollars.

On the Docket: Datacenter Colocation

• As data centers proliferate across the nation, the demand for power continues to rise steadily. In an effort to minimize cost and ensure power supply, colocation of data centers with existing nuclear power plants have become increasingly popular amongst large data firms.
• FERC announced on February 20th that it will be reviewing issues surrounding colocating large loads in PJM, with the ultimate goal of approving new PJM colocation rules some time this year.
• The stakes are significant as the rulings could clarify questions around cost allocation and pace of datacenter expansion, e.g., who ultimately pays for the anticipated costs of grid constraints and transmission if datacenters physically bypass the transmission network.  

On the Docket: PJM Capacity Reforms

• PJM’s proposal to extend its capacity must-offer requirement to intermittent resources, storage resources, and hybrid resources, as well as to update its market seller offer cap, was approved last week.
• On Feb 20, PJM filed with FERC to establish a capacity auction price cap of approximately $325/MW-day and a price floor of approximately $175/MW-day, both in unforced capacity (UCAP) for all capacity auctions for the 2026/2027 and 2027/2028 delivery years. 

Market Data

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