Potomac Economics Releases the 2025 State of the NYISO Market Report

On May 19, 2026, the NYISO’s Market Monitoring Unit (MMU), Potomac Economics, released its 2025 State of the Market Report. The headline finding is that markets performed competitively and mitigation measures worked as intended. The deeper market picture sits beneath the headlines. Retirements are outpacing new entry, the planning-market gap has widened, and the MMU reports that it is pushing harder than it has in years for market reforms that align capacity revenues with reliability value. Notably, CHPE entered commercial operation on May 13, six days before the report was published, confirming one of the planning assumptions the report relies on most.

Here is what stood out and what it means for market participants.

2025 by the Numbers

Average gas prices rose 60-112% across the state from 2024 to 2025. Energy prices rose 66-79%. Capacity prices outside prices rose 66-79%. Capacity prices outside New York City rose 21-36%, while New York City prices fell 8% on a lower LCR. RGGI averaged about $23 per ton, adding roughly $10 per MWh to a typical combined cycle generator. Peak load was up 10% year-over-year, and the reconstituted peak was the highest in over a decade.

The Investment Problem

Since the CLCPA was approved in 2019, 3.7 GW of conventional generation within New York State has retired. In the past year alone, 1.2 GW of generators submitted retirement notices, all of which were subsequently retained by the NYISO for reliability. No new fossil-fuel generation has been permitted in New York since the state enacted its landmark clean energy legislation, the Climate Leadership & Community Protection Act (CLCPA) in 2019. Renewable generation and energy storage build is dramatically behind schedule, and the report estimates wind, solar, and battery resources still require subsidies equal to roughly half of their levelized costs to be financially viable. Recent federal changes will eliminate key wind and solar tax credits for projects not under construction by July 2026 and in service by the end of 2027.

The State has begun to acknowledge this. Governor Hochul has called current 2030 emission targets “costly and unattainable,” and the 2025 State Energy Plan now anticipates the need for new or repowered combustion capacity. The recently approved State budget formalized this shift on the economy-wide targets, adding a new 2040 target of 60% emissions reduction from 1990 levels, extending the deadline for implementing regulations to 2028, and changing the emissions accounting standard from a 20-year to a 100-year basis. The power-sector mandates were left unchanged, with goals of 70% renewable electricity by 2030 and a zero-emission grid by 2040.

The Planning-Market Gap and the MMU’s Proposed Capacity Market Reforms

The MMU estimates an effective target level of excess of 750 MW in New York City under planning, against just 200 MW in the capacity market. The NYISO’s proposal to assume large amounts of unplanned retirements would push the planning target to roughly 1,000 MW in NYC and 1,800 MW statewide. The MMU recommends raising the capacity market’s level of excess to match the planning target, which would tend to push capacity prices upward.

The MMU also recommends moving the demand-curve proxy unit off the two-hour battery used in 2025 and back to a gas turbine with a 20-year amortization period, which it argues better reflects the true net cost of new entry in the rest-of-state region, plus a residual-value adder to capture worth beyond the 20-year life. This change, like the higher level of excess, could push capacity prices upward.

Because the four-zone market does not price these locational differences, the work of identifying where capacity is deliverable falls to the interconnection Deliverability Study instead. The MMU argues that study has structural flaws, since it assumes all proposed projects enter service at once and no existing units retire, which produces unrealistically high upgrade costs assigned to new projects in certain areas. Recent Cluster Study results identified $2.2 billion in preliminary upgrade costs. The MMU contends that much of this burden on new interconnection projects could be avoided if the capacity market priced reliability value by location, allowing the NYISO to address deliverability through market signals and eliminate major portions of the study.

The practical implications cut in different directions:

• Non-firm gas resources in New York City face a 42% reduction in capacity payments starting May 2026 under the new non-firm CAF framework.
• SCRs, offshore wind, and large-contingency units are estimated to be overpaid by $74 million in NYC for the 2026/27 capability year, because they count as less available in the NYISO’s transmission security studies than in capacity accreditation, prompting the NYISO to raise the Transmission Security Limit (TSL) floors to offset the capacity they sell.
• Resources with firm winter fuel stand to benefit as seasonal Capacity Accreditation Factors take hold. The capacity market was built around the summer peak and uses a single annual requirement, so it does not distinguish a resource’s summer value from its winter value. Seasonal CAFs would credit capacity for the season it is actually available, which rewards firm-winter-fuel resources as winter reliability risk grows.
• Potomac Economics argues that downstate flexible resources would benefit from higher reserve demand curves, corrected gas turbine pricing, and locational CAFs.
• Large loads that peak-shave only to avoid ICAP tags are being paid as net suppliers, an estimated $34 million cost-shift to other consumers last year. The MMU would address this by measuring load obligations over more hours and barring demand response from becoming a net seller.

The Warning Signs Are Already in the Data

Supplemental commitments occurred on 121 days in 2025 across New York City load pockets. On the eastern end of Long Island, OOM commitments of oil-fired peakers ran for nearly 600 hours, depressing average LBMPs by about 14%. At Far Rockaway, OOM hours nearly doubled from 370 in 2024 to 695 in 2025, the oil-fired generation share of electricity production jumped from 2% in 2024 to 50% in 2025, and uplift rose from $0.6 million to $4.5 million. Far Rockaway and Pinelawn were both retained as Interim Service Providers at roughly $1 million per month above market.

Both situations have since shifted. Far Rockaway entered a new LIPA contract and withdrew its retirement notice in April 2026. The NYISO concluded Pinelawn may retire, and its ISP rate ended in May 2026. The broader pattern remains: most LIPA contracts supporting the Long Island fleet expire before summer 2028. The report also flags overstated Long Island reserve prices: despite the largest summer surplus in the state, Long Island revenues sit closest to net CONE because of day-ahead reserve sales that the MMU says do not reflect true reserve value, and a repricing recommendation is expected.

Generator performance is another focus. Across two summer heat waves in 2025, fossil units posted forced-outage and derating rates above 10%, roughly double the 5.5% implied by their EFORd values. The MMU links this gap partly to forced outages being under-reported as planned or maintenance outages, and addresses this concern with a recommendation to tighten GADS compliance. The resulting out-of-merit commitments drive uplift that generators cannot hedge.

Large Loads Change the Math

Over 12 GW of large load projects are now in the NYISO’s interconnection queue, with more than 8 GW added in 2025 alone. For comparison, only about 500 MW of large loads entered service over the previous decade. Most of these projects have not proposed on-site generation or committed to flexible operation. The NYISO has limited visibility into which will actually be built, and the NYPSC has opened a proceeding to consider reforms to the State’s large load interconnection framework. The MMU recommends improved coordination between the NYISO’s short-term reliability planning process and State and local authorities, along with separate tracks for large loads seeking firm or non-firm service.

What’s Decision-Relevant in the Next 12 Months

A few items in the report force near-term action:

• CHPE participation in the ICAP market. CHPE-Out parameters apply for the May and June spot auctions, but CHPE entered commercial operation in May and will commence capacity market participation starting in July. CHPE-In parameters will apply for the remainder of the 2026/27 capability year, which shifts the NYC capacity outlook from the report’s baseline.
• Firm fuel elections for winter 2026/27. Gas-fired resources without firm winter fuel face capacity revenue reductions in NYC starting May 2026.
• Retirement and repower decisions. Five generating plants, totaling 1.2 GW, notified the NYISO of their intent to retire in 2025, and the NYISO identified a Reliability Need driven by each one. That changes the calculus for older units considering deactivation.
• LIPA contract renewals. Most contracts expire before summer 2028, and capacity prices on Long Island have historically been below going-forward costs.
• CMSR workstreams. Locational CAFs, granular zones, seasonal requirements, DCR reform, and attribute-based pricing all are reflected in the MMU’s recommendations and are moving through the stakeholder process now.

Bottom Line

The MMU’s recommendations have been consistent across State of the Market cycles, but the urgency has changed and the political environment has caught up. Though the stakeholder review process is still in the early stages of development, these conditions are pointing in the same direction: capacity market reforms that better reflect locational and seasonal reliability value, higher shortage prices, and a clearer treatment of large loads is needed. These market reforms are necessary to support grid reliability while protecting consumers from unnecessary costs and risks.

Luminary Energy LLC provides advisory services to wholesale power generators and market participants in NYISO and ISO New England. To learn more about Luminary Energy’s services or to connect with a member of our team, contact us.