In the 1970’s there was a TV commercial for Reese’s Peanut Butter Cups that always had the same setup. It included one person happily eating peanut butter, and another person eating chocolate. The two people, total strangers, end up having some sort of accident, a collision, a trip, a fall or some circumstance that would end up combining the two foods. The chocolate-eating person would say “you got your peanut butter in my chocolate!” and the other would respond “you got your chocolate in my peanut butter!” Since it wasn't quite the 1980s yet, neither of them calls a lawyer! Instead, they accuse each other of ruining their snacks. This was the swinging 1970s when the 5-second rule was more like 2.5 minutes and if someone dropped their food in yours, or yours got in theirs, well yeah baby, you might as well try it and see how it tastes. It turns out that when you mix the two, some magic happens. You get a peanut butter cup! But the point being here is that when things get mixed, it’s hard to pull them apart.

Figure 1 | Reese’s Peanut Butter Cup Ad from the 1970s

This commercial came to mind when thinking about a couple Northeast Market Flashes that we published (as part of the Energy GPS Market Analytics Enterprise Product Offering) recently having to do with rising heat rates, NYC’s Summer (Heat) Rating is High on May 10^th and ISONE Ongoing Outages Lift Heat Rates on May 14^th. Specifically, the question arises how much of the heat rate is energy (or fuel costs) and how much is carbon. The LMP that clears the market doesn’t announce how much each is, but rather it is an inferred value.

In the case of the NYC article, on the cusp of summer weather arriving, we observed a dramatic increase in July heat rates for evening hours ending 17-20 over the past few years, as illustrated in Figure 2. This is typically when peak load occurs for the year in NYISO. The horizontal axis shows lighter to heavier NYISO loads. The colored triangles show NYC heat rates, LMP divided by gas price, for those loads. Since 2023, when loads rise above 26 GWa, heat rates have taken on a rapid ascent shown in the dark orange (2023), light blue (2024) and dark blue (2025), not seen in prior years.  

Figure 2 | NYC July HE17-20 Heat Rates versus NYISO Load

In the ISONE article, we noted that heat rates have been especially high this spring, accompanied by cooler weather and higher outages due to the heavy toll that this past winter took on the thermal generation fleet in New England. This finding is shown in Figure 3. 2026 heat rates are shown as blue circles. The horizontal axis shows day-ahead heat rates for Mass Hub. The leftmost chart shows heat rate against average total outages daily. 2026 features both higher outages and higher heat rates. The middle chart shows heat rate against average daily temperature for Boston which is lower than prior years and corresponds with higher heat rates. The rightmost chart shows that load levels are broadly distributed in 2026 but result in higher heat rates than years with similar loads.

Figure 3 | ISONE DA Heat Rates versus Outages, Temperatures and Load

In both studies, the heat rate shifts are a result of changes in underlying supply and demand balance but there are also other factors at play. Prior to 2023, NYISO lost 1.5 GWa of peaker capacity due to compliance requirements from the NYS Peaker Rule. This loss of peaking supply in NYC in 2023 was likely a contributing factor to the escalating heat rates in that year. Then in 2024, carbon allowances for compliance with the Regional Greenhouse Gas Initiative (RGGI), of which NYISO and ISONE states are participants, escalated significantly.

RGGI auction clearing prices have been moving up steadily in recent years. In a market flash in April “71^st Position – RGGI Auction”, we illustrated the rising price of allowances over the past few years. In Figure 4, we show quarterly results of RGGI auctions since 2018 as brown triangles. The green bars show total auction revenues. 2022 and 2023 averaged around $13.50/ton of carbon emissions. Average annual prices rose to $20/ton in 2024 and $22/ton in 2025. The most recent auction for Q1 2026 came in at $24.99/ton.

Figure 4 | RGGI Auction Clear Prices and Total Auction Proceeds

This brings us to the past few months where we await the next RGGI auction results while monitoring how the market is valuing the forward outlook of carbon. Like the peanut butter and chocolate analogy in the opening section, as some point the two come together to form the next anchor point. The graph below is an illustration of where ‘cash’ RGGI prices have traded over the past two years for Vintage 2026 RGGI Futures.

Figure 5 | RGGI Vintage 2026 Futures Marking

We have highlighted the recent trend (since the last RGGI auction results of $24.99/ton). Once Q2-2026 rolled around, the sentiment in the market considered the harsh winter conditions where natural gas units were running at recent all-time highs. The other factor that is inherently in the numbers is how the summer months are going to play out with load growth conversations at the forefront of all conversations and what the hydro landscape looks like in Eastern Canada as the Northeast United States is dependent upon intertie flows to ward off going deeper into the local supply stack (natural gas-fired generation).

With increased carbon costs and modest natural gas prices (for the most part), the emissions compliance element is becoming more pronounced. As a ballpark figure, we can roughly estimate that an average gas plant may emit 0.42 tons of carbon per MWh, some higher and some lower. If carbon costs are $25/ton, then this results in $10.50 carbon/MWh. If we assume a natural gas price of approximately $2.50/MMBtu, this yields a carbon heat rate of 4.2 ($10.50 divided by $2.50). It implies that a market clearing heat rate of 20 in a RGGI state would otherwise be 15.8 absent the carbon cost. Using the high water mark of $57/ton (in Figure 5), the same math places the MWh equivalent at $23.94 which translates to a carbon heat rate of 9.6. This would push the energy only heat rate to the 10.4 level which is a reasonable assumption during the spring. The other approach we discuss inside the Enterprise package is converting the carbon price to $/MMBTU and using different unit heat rates to determine which one is likely on the margin when it comes to balancing the system. This is all back of the envelope sort of stuff, but it gets at the real-world cost of compliance and how that affects LMPs. The next RGGI auction will take place on June 3^rd, and we anticipate that prices will remain high as there are no cost containment reserve allowances available in this auction, unlike the Q1 2026 auction. The next time you have a Reese’s Peanut Butter Cup, think about how it resembles regional energy prices as the marginal cost tied to the unit represents chocolate and the carbon component is tied to peanut butter.

If you’d like access to the reports and content referenced in this blog or interested to learn more about the data platforms and dashboards, forecasts, flashes and other services including bespoke consulting services that EGPS provides, please contact us using the form on the website or emailing [email protected].

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