For over a decade, natural gas has been the dominant source of power generation in the Northeast, supplying 51% of New England’s electricity needs (ISO-NE). The Marcellus Shale region has played a critical role in this, providing affordable natural gas that has supported grid reliability and pricing stability. However, this dominance may be shifting due to corporate green energy initiatives, evolving state and federal policies, and increasing electrification efforts that are reshaping energy demand patterns. In the coming years, New England is expected to transition from a summer peak demand season to a winter peak season, driven by electrification and extreme weather events (ISO-NE Updated Report).

Adding to the complexity, the region’s limited natural gas pipeline infrastructure is struggling to keep up with demand, particularly during extreme cold snaps. With renewable energy sources like wind and solar gaining ground, policymakers and grid operators are reevaluating how to ensure long-term reliability and affordability for both consumers and businesses (ISO-NE Key Projects).

Capacity Market Reforms: Adapting to a New Era

To maintain a reliable power supply, ISO New England (ISO-NE) has historically relied on the Forward Capacity Market (FCM), which was designed around the three-year timeline needed to bring a natural gas generator online. This market structure has provided price signals to incentivize new capacity resources when and where they are needed. However, with a shifting energy mix, ISO-NE is actively exploring reforms to better align with the region’s evolving needs (ISO-NE Capacity Auction Reforms).

One of the key proposed changes is shifting from an annual forward auction to a prompt auction—a market mechanism that would take place closer to the actual capacity commitment period. This adjustment would provide a more accurate reflection of real-time supply and demand, reducing the risks associated with over- or under-procuring capacity based on outdated forecasts. The current forward model often results in mismatches between anticipated and actual capacity needs, leading to inefficiencies in the market (FERC Announcement).

Another significant proposal is the introduction of a seasonal capacity market, which would allow grid operators to address supply needs on a more granular basis. Given the increased volatility of winter weather, a seasonal approach could provide better insights into resource availability and ensure the grid remains resilient during prolonged cold periods. Currently, ISO-NE has postponed its next capacity auction to finalize these potential reforms (ISO-NE Capacity Auction Reforms).

The Day-Ahead Ancillary Services Initiative (DASI): A New Approach to Grid Stability

Beyond capacity market changes, ISO-NE has implemented the Day-Ahead Ancillary Services Initiative (DASI), a major market redesign aimed at improving grid reliability. Effective March 1, 2025, this program has replaced the Forward Reserve Market, focusing on rewarding fast-start services that can meet real-time energy needs. This initiative is particularly important as the region’s energy mix becomes more reliant on intermittent renewable sources, which require additional grid flexibility (ISO-NE Key Projects).

With more renewables entering the grid, ensuring stability is becoming increasingly complex. DASI aims to optimize the day-ahead scheduling of energy resources, improving efficiency and reducing unexpected shortfalls that could lead to price spikes or reliability concerns. This aligns with FERC’s broader push to modernize energy markets and ensure sufficient ancillary services to meet real-time demand (Utility Dive).

What This Means for Retail Energy Consumers

As these market changes unfold, retail electricity customers in New England should prepare for potential shifts in energy costs. With uncertainty surrounding future capacity charges beyond May 2028, many retail energy suppliers are passing through capacity costs beyond the known pricing period to hedge against market volatility (ISO-NE Updated Report).

Additionally, as DASI takes effect, suppliers are evaluating how this new cost component will impact retail electricity pricing. Some have already incorporated it into their energy cost calculations, while others may introduce pass-through charges if actual costs exceed their initial estimates.

With natural gas’s role evolving and grid dynamics shifting, businesses and consumers should stay informed about these developments to better navigate future energy costs and contract decisions. As ISO-NE continues refining its market structure, adaptability will be key for energy buyers across the region.