Energy Markets Update

In this newsletter, we cover key factors impacting US energy markets. We discuss another delay in PJM's Capacity Auction and provide updates to NYC's Local Law 97. Additionally, we explore developments regarding data centers and generation, as well as the advancement of a clean energy bill in Massachusetts.

Table of Contents

• Gas & Power Update
• PJM Seeks to Push Back Capacity Auction, Again
• Moments of Clarity : Updates to NYC’s LL97
• FERC Agenda: Datacenter Download
• Significant Clean Energy Bill Advances in MA

Weekly Natural Gas Inventories

Source: EIA

Source: EIA

US Energy Market Update

A summary of recent news in wholesale power and gas markets.

• After rallying in September, prompt month NYMEX gas has slid roughly 20% since the start of the month. CAL 2025 and Cal 2026 futures have trimmed off 9% and 3% respectively over the same period.  
• Power prices have declined more modestly if at all across most major indices and in fact, futures in 2026-2028 ticked up a few percentage points into the first few weeks of October.
• Gas production is holding the line around 101 bcf/d. Market players are in a holding pattern as bullish optimism in 2025/2026 gives way to weak fundamentals near term.
• We are poised to enter the gas withdrawal season with a healthy inventory, likely around 3,900 bcf.
• A weak la Nina weather pattern taking shape indicates a higher likelihood of another warm winter, particularly in the East and South.
• All said, winter is always a gamble but it seems to be favoring the gamblers for the time being.
• Winter basis rates have mostly held steady over the past six months, with the one exception in New England (i.e., Algonquin gas basis forwards) which are down about 20% from August highs. For hedgers still on the sideline, this is looking like a reasonable buying window.
• PJM recently sought approval to delay its upcoming capacity auction by six months. The currently scheduled December 2024 auction would set the rate for capacity for the period June 2026 through May 2027.
• The Rhode Island PUC is soliciting comments on a grandfathering provision inserted into a 2022 expansion of the state Renewable Portfolio Standard. Customers that entered into long term contracts before the inauguration of the expansion are exempt from the cost of the increase, an exemption that RIPUC would prefer to void. 

PJM Seeks to Push Back Capacity Auction, Again...

Following the significantly delayed PJM capacity auction in July 2024, which resulted in a staggering 900% increase in regional capacity prices, PJM has requested a 6-month postponement for its planned capacity auction for delivery year 2026/27.

• This delay from December 2024 into June 2025 further disrupts the intended timeline of PJM’s capacity auctions, which are are supposed to be held 3 years in advance of their respective capacity delivery years. This 3 year ahead schedule was first set off track over five years ago and if approved by FERC, this delay would be the second consecutive auction held approximately 12 months ahead of the delivery year.
• Most stakeholders acknowledge the need for the delay given the many reforms and issues and that need to be addressed. This is also despite the clear fact that 12 months is not nearly enough time to build new capacity…the point of the auction in the first place. Generation owners are supportive but have warned that investor confidence is eroding.  
• The silver lining is that market participants are hopeful this delay will allow the grid operator to reform its flawed capacity market rules, such as the exclusion of reliability must-run power plants which contributed to an estimated $5Billion in excess total cost during the previous auction.
• Postponing the auction reinforces the expectation that no utility-scale generation assets could reasonably respond to the price schedule and be constructed between December 2024 and the capacity year beginning June 2026.
• In all, while this delay and expected changes to the capacity market rules make the next auction’s results less certain, it gives stakeholders a little more time to mitigate what some analysts have predicted to be the pending disaster of a $695/MW-day price cap.
• Veolia will continue to monitor developments in the PJM capacity market and other major markets across the U.S. that we expect will face similar challenges and price spikes related to capacity in the near future.

Moments of Clarity : Updates to NYC’s LL97

LL97 Update: Carbon Offsets and Cogeneration Units

• Our coverage of New York City's Climate Mobilization Act (CMA) often highlights the balance between progressive energy and environmental legislation and the practical concerns surrounding its implementation. These concerns include the feasibility of the regulation itself, ambitious timelines (such as the goal to reduce NYC's building emissions by 40% by 2030), and the implementation costs that are ultimately passed on to the residents of New York.
• This fall, the Department of Buildings (DOB) proposed its third major rules package to Local Law 97 (LL97), which mandates that buildings over 25,000 square feet meet specific carbon emission limits or face penalties for excess emissions. The new proposals provide guidance for the carbon offsets program and update the GHG calculation methodology for cogeneration plants.
• For carbon offsets, a compliance product for buildings facing near-term penalties, the new requirements stipulate that the offsets, which can be purchased for up to 10% of a building's annual emissions limit, must result in permanent reduction. 
• The city is proposing to establish its own carbon offset registry called the Affordable Housing Fund. In this scheme, a third-party fund administrator (TPA) would sell offsets for $268 per ton to compliance buyers. The proceeds from these sales would be used to fund the electrification of low-income housing in NYC, likely with heat pump installations. The New York State Energy Research and Development Authority (NYSERDA) would be responsible for verifying and retiring offsets in the registry on behalf of buyers.
• This scheme appears to be groundbreaking as one of the first carbon offset projects of its kind managed by a city and highlights its commitment to both emissions reduction and housing equity. However, it's worth noting that at $268 per ton – the same cost as the penalty itself – it represents a very expensive offset product.
  Source: NYC Department of Buildings
• Second Major Rule Update: the Department of Buildings (DOB) has proposed a more equitable (and objectively sensible) approach to accounting for emissions from onsite cogeneration units, also known as combined heat and power systems. The new proposal suggests using an alternative greenhouse gas (GHG) coefficient methodology for the grid electricity and steam outputs of these systems, rather than focusing on the natural gas inputs. This change is going to be welcomed by cogeneration unit owners, who had previously felt unfairly penalized by the initial LL97 GHG calculation methodology. It's worth noting that cogeneration systems had been incentivized and celebrated by both the State and City for their environmental benefits and resilience attributes prior to the passage of this legislation in 2019. The change does not incentivize cogeneration but it does remove the rather harsh disincentive.
• These updates provide much-needed clarity to the law's framework while simultaneously highlighting the complexities involved in crafting comprehensive climate legislation. The revisions demonstrate the city's willingness to refine and improve the law based on stakeholder feedback and practical considerations. Our group remains committed to reporting on these developments and advising our NYC clients as these changes can significantly impact your building’s operations and compliance strategies.

FERC Agenda: Datacenter Download

The age of “hyperscale” datacenters is shifting North American energy planning and policy. Nuclear power may be positioned as one of the biggest beneficiaries. 

• This fall, the Federal Energy Regulatory Commission (FERC) is actively addressing challenges posed by datacenters, which are among the most significant consumers of electric power. 
• High on the FERC agenda are review of various collocation requests, wherein proposed datacenters would be located adjacent to nuclear reactors and thereby bypass the transmission system. Examples of this include Talen Energy's request in Pennsylvania, as well as Constellation Energy’s request for clarity on whether FERC has jurisdiction over both the interconnection of load and generation. 
• Ohio Power Co., a subsidiary of American Electric Power Co. Inc., has also been at the forefront, proposing new tariffs specifically designed for datacenters. The proposals aim to mitigate the risks associated with datacenter energy consumption and the required grid enhancements. FERC will review proposals from First Energy on the cost allocation associated with large build outs of the transmission system that have been deemed necessary to meet datacenter demand in Northern Virginia and Maryland. 

Source: JLL Research

• The implications of FERC's regulatory actions combined with the tech industry's renewed interest in nuclear power are interesting. These developments are poised to introduce new dynamics into energy markets, potentially accelerating the adoption of innovative nuclear technologies while reshaping energy consumption patterns and cost allocation.
• It seems more and more likely that nuclear power is the best long-term supply source for hyperscale datacenters who endeavor to match their demand with 24/7 carbon free energy. Clarifications at FERC are an important step to lay the groundwork for the business case. 
• In related news, Alphabet's Google and Amazon recently announced substantial investments in small modular reactors (SMRs), which represent a significant departure from traditional nuclear reactors in terms of cost, scalability, and construction speed.
  •  Amazon is taking a groundbreaking step by financing the construction of multiple SMRs in Washington state and partnering with Maryland-based startup X-energy to spearhead these projects.
  • Google, on the other hand, has entered into a collaboration with Kairos Power to develop several reactors in California, aiming for operational deployment by 2030.
• As energy demands from corporate datacenters grow, and as nuclear power becomes a more viable option, utility providers and energy companies must consider long-term implications for grid management and energy supply security. These developments are not just about meeting corporate sustainability goals but are also part of a broader strategy to secure reliable, carbon-free energy sources, specifically  to power their extensive datacenter operations, essential for supporting growing AI and cloud computing markets. One of the biggest challenges over the near term is timing: datacenters can go up in a couple years but it takes eight years or more to build a new reactor. Better get started now. 
• On the optimistic side,  investments by these tech giants could spur innovations and bring down construction costs in the nuclear sector, which has traditionally been hindered by high expenses and lengthy construction timelines.

Massachusetts Advances Comprehensive Renewables Siting Bill, Preserving Competitive Retail Electricity Market

Last week on Beacon Hill, Massachusetts lawmakers announced that a highly anticipated agreement was reached to include energy siting and permitting reform into a soon-to-be-signed law.

• It has been the year of uncompleted renewables legislation in Massachusetts; in June, the Senate advanced a bill that would allow clean energy projects with a capacity greater than 25 megawatts to be consolidated into a single permitting process and would require the siting board to issue a decision on the permit application within 15 months of submission. The June bill also included a provision to ban the residential competitive electric market in Massachusetts.
• In July, the House also advanced a bill including siting and permitting reforms, along with an emphasis on further procurement of renewable generation and storage capacity.
• The legislature was unable to reach an agreement on the provisions of either of the bills before the formal sessions came to a close on July 31st.
• The October compromise includes provisions to support storage, classify nuclear power as a clean generation resource, and removes the provision to ban residential competitive electric supply in Massachusetts. On this topic, Veolia has previously submitted comments to the Massachusetts DPU suggesting significant reforms to the residential market are needed. Whereas the benefits of competition are quite apparent for larger customers, we have questions whether it has provided much benefit to the residential market overall.
• While the legislation (S 2838 / H 4884) has not yet been passed, the consolidated bill has significant support and will likely head to Governor Healey’s desk before the election on November 5th.
• This legislation is favorable for our clients as supporting renewable generation and expediting permitting may increase access to cost-saving options like community solar projects and renewable PPAs in the near future.

Market Data

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