Neel Somani analyzes the main reasons for the increases in power prices on the East Coast.

      If you reside on the East Coast, you may have opened a winter utility bill and questioned how your electricity expenses could be so high. Every few years, the narrative makes the news: a cold snap grips the Northeast, power prices soar to hundreds of dollars, and politicians seek explanations. However, the true reasoning rarely escapes the financial trading desks and utility commission meetings where it is actually addressed.

      Neel Somani, a former quantitative researcher at Citadel specializing in power markets, has spent time analyzing this issue. With experience studying the dynamics of energy pricing across various regions, Somani provides insights shaped by both the economic structure of electricity markets and the practical realities that render the East Coast particularly susceptible to these price surges.

      Understanding the Generation Stack: Who Goes First

      To grasp why prices surge, one must first understand how electricity is priced. It is neither averaged nor blended. The cost of power at any moment is determined by the last, least-efficient unit of generation that must be activated to satisfy total demand.

      In New England, the grid follows a layered generation stack. At the base are the least expensive sources, such as renewables and nuclear, which operate at nearly zero marginal cost and are utilized first. Following these are natural gas generators, which differ in efficiency and expense. At the top of the stack sit the oil generators: costly, outdated, and seldom utilized.

      "The primary thing to recognize is that the price for power is determined by the last megawatt produced," Somani explains. "In New England, there are renewables, a nuclear facility called Millstone, natural gas generators, and then oil generators, which I rarely mention because they are so inefficient."

      This near-invisibility is intentional. Oil-fired peaker plants function as emergency units, like a backup generator in your home that you prefer never to use. However, in New England, they are meaningful in ways that are not seen in other regions, and understanding this is central to the price spike issue.

      The Winter Squeeze

      New England is at the end of a lengthy, restricted natural gas pipeline network. The region does not produce its own gas and relies on imports. In winter, that pipeline capacity is stretched in two competing directions.

      "The winter is when things become interesting," Somani notes. "In winter in New England, natural gas must be used for heating homes. If you fail to heat your home, your pipes may freeze, which can be very costly to repair. Hence, people have a fixed amount of natural gas demand."

      This establishes a structural issue. Demand for residential and commercial heating is relatively inelastic: individuals need to heat their homes regardless of costs. When temperatures drop, that demand becomes locked in, directly competing with the natural gas power plants' need to produce electricity.

      The outcome is predictable. There isn't sufficient natural gas flowing through the pipelines to satisfy both heating and electricity generation demand simultaneously. When this limitation becomes critical, grid operators have to tap into the higher levels of the generation stack. This necessitates the activation of oil units.

      "There’s no longer enough natural gas available to meet electricity demand," Somani explains. "In New England, this is addressed by activating some of the oil generators. As I mentioned, the price is set according to the least efficient unit of power, which is oil. Since this is quite expensive, it is one reason power prices can escalate significantly."

      This dynamic has been observed repeatedly in recent years. During Winter Storm Fern in early 2026, real-time power prices in New England surged to between $400 and $700 per megawatt-hour. In January 2026, Massachusetts recorded the highest natural gas price ever noted in ISO-New England’s pricing database, which dates back to 2003. On January 27 that year, wholesale electricity prices skyrocketed to $441.8 per megawatt-hour, compared to an average of $135.08 for all of January 2025.

      The Gas Price Feedback Loop

      This is where the economics become particularly sharp, and Somani's market insights provide clarity often missed in reports. Electricity prices rise when oil generators come online, but natural gas prices also spike simultaneously, rooted in basic incentive structures.

      "Consider what happens if you’re a natural gas seller at Algonquin, the natural gas hub in New England. You realize that anyone purchasing natural gas likely stands to make a great profit since they can use it in a natural gas generator and charge the oil price while only paying the natural gas price," he explains.

      The reasoning is solid. If power generators can sell electricity at the oil-determined price while using natural gas, the profit margin is significant. An astute gas seller will recognize this and increase the gas price until that arbitrage opportunity disappears. Prices will continue to rise until the cost of generating power from natural gas aligns closely with that from oil.

      “It benefits you to keep increasing the natural gas price until it’s nearly the same cost to produce a megawatt of