By the Building Electrification Committee of the NJ Chapter of the Sierra Club
Most NJ residents’ electric rates will increase by about 20% in June. In this article, we explain why this is happening. It’s not due to the push for clean energy.
Natural gas prices are expected to continue to rise as well, from $2.10/MMBtu in 2024 to $4.60/MMBtu in 2025 according to the US Energy Information Agency.
The Building Electrification Committee stands by its commitment to clean energy and electrification and refutes statements that tie the pending rate increases to clean energy. We continue to advocate for home electrification because it will result in additional energy efficiency and lower electric bills and will put less strain on the grid during peak demand. We offer the following explanations and recommendations to avoid and counteract future electric rate increases.
Your Electricity Bill
Your electricity bill is made up of two parts: delivery (about 40%) and supply (about 60%).
Delivery cost includes distribution lines, meters, etc. This portion of the bill is regulated by the NJ Board of Public Utilities (BPU). Delivery cost is not the cause of the large increase.
Supply cost covers the generation and transmission of electricity that your utility buys in the competitive electricity market. The Federal Energy Regulatory Commission (FERC) regulates this portion of the bill, not New Jersey. Supply cost is the part that is increasing. This is considered the wholesale side of electricity, and it is managed through a Regional Transmission Organization (RTO).
Supply Cost Explained
PJM, the RTO, manages the larger electric transmission grid for 13 states and Washington, DC. PJM decides how much to charge for electricity by holding regular auctions. The prices in these auctions are influenced by estimates of how much electricity will be needed in each state. These estimates are made by utility companies across the region and help set the final prices for electricity supply.
After over 15 years of almost level demand and rising efficiency, and therefore lower overall demand for electricity, electricity usage is now forecast to climb quickly without sufficient supply to cover it. This is due in part to new demand (e.g., data centers, AI, and onshoring of industrial manufacturing across the entire PJM region). Also, PJM and the utilities did not plan well enough to meet this growing demand without a sharp price increase.
It is not clear that the demand forecast is 100% accurate. PJM auctions recently understated the available supply of energy, resulting in an almost 10x increase in price of electricity for 2025-2026.
This was successfully challenged in court by a multi-state lawsuit joined by New Jersey, and a new auction to be held in July of this year (for 2026-2027) is expected to produce lower prices.
One cause of the supply and demand imbalance is that new power generation is not coming online fast enough. PJM must review every application for new power generation sources, and PJM is not completing these grid interconnection reviews fast enough. There is now a huge multi-year backlog of project proposals totaling approximately 140 gigawatts (GW), almost as much power as PJM’s peak summer load!
If PJM were approving new energy projects, including lower-cost clean energy generation plants, at a faster pace, this would make energy cheaper for consumers (Graphic).
The use of clean energy in New Jersey is not a cause of the price increases. NJ electric utilities are required by the BPU to achieve a 2% annual reduction in usage, and they have done so. Currently, electric vehicles represent less than 1% of the electricity used in New Jersey, and heat pumps consume even less than that. In fact, heat pumps help reduce the peak summer energy usage in New Jersey because they are more efficient than standard central air conditioners.
Peak energy times have high prices because expensive plants are used. Improving efficiency, using demand response programs (which encourage customers to reduce energy use during peak times) and adding solar power can help lower these peak prices.
Recommendations
What can you do to reduce your electricity bill?
Cut down on wasted energy by getting an energy audit and weatherizing your home.
Subscribe to demand response programs offered by your utility to qualify for reduced prices. Ask your utility how to sign up.
Buy and use lower-cost clean energy:
Install rooftop solar
Subscribe to community solar
Buy from an independent supplier instead of your utility, but be careful to read the fine print since a long term variable rate can also result in a higher bill.
Ask legislators, PJM, and the BPU to do the following:
Legislators
Press developers for quick build-and-connect solutions using already-approved energy sources (57 projects in NJ and 300 in PJM), such as new battery storage and capacity improvements to existing power plants.
Pass bill S4143/A5564 to require new, very large users of power, such as data centers, to guarantee:
They will use new renewable, zero-emissions energy,
Buy enough renewable energy certificates to finance their capacity, and
Employ the most efficient cooling technologies like geothermal heat pumps or thermal energy networks.
Enact into law 100% clean electricity by 2035. This would set the state on a path for efficient, cheaper and faster clean energy generation (bill number not yet assigned).
PJM
Urge PJM to drastically reform and speed up the review process for new energy sources.
Ask PJM not to bypass clean energy projects with fossil fuel projects. Demand that rules that have allowed artificially high prices be reformed and auctions be held on a regular schedule.
BPU
Encourage the BPU and utilities to broaden demand-response programs so that more customers can choose when to use electricity and also reduce the amount of electricity that utilities must buy.
Make offshore wind a reality: 11 GW have been proposed, and that would make a large impact on energy supply in New Jersey and help to hold down prices. The current federal administration may be holding offshore wind hostage for a while, but this is not the end. New Jersey must be prepared to bring offshore wind on full force after the Trump administration.
Resource
More about the rate hikes: shorturl.at/DhQ5g