Gubernatorial hopeful Rep. Mikie Sherrill wants to freeze electric rates — a plan that faces some hurdles if Sherrill is elected governor in November. (Getty Images)
A pitch by Democratic Rep. Mikie Sherrill to freeze energy rates for a year if she is elected governor in the fall could boost affordability for New Jersey residents amid a steep and continuing spike to wholesale electricity prices — but designing such a freeze won’t be simple.
Sherrill’s path to rate caps would prove winding because the price-setting capacity auctions spurring recent rate spikes fall outside of state officials’ control, and offsetting those increases elsewhere could cost the state hundreds of millions in revenue, risk delaying new power generation, or leave ratepayers with larger bills down the line.
New Jersey and the 12 other states on the grid run by PJM Interconnection have seen electricity prices soar as artificial intelligence data centers’ mammoth energy needs push demand toward the edge of the grid’s peak power output, spurring concerns over affordability across the system.
Sherrill’s pitch comes as New Jerseyans’ rising electric bills have become a key issue in this year’s race for governor. Sherrill in November faces Republican former Assemblyman Jack Ciattarelli.
“A lot of the costs in a customer’s bill are direct pass-throughs from PJM. Those costs can’t really be frozen. You’re going to continue to see those costs show up on your electric bill,” said Abe Silverman, a research scholar at Johns Hopkins University who studies energy regulation.
But regulators still have opportunities to offset rising energy prices to keep the consumer rates steady by requiring regulators to temporarily bar investments in grid infrastructure, delay utilities’ ability to recoup the cost of prior investments, or lower utilities’ profit margins on those investments, Silverman said.
Utilities’ profit margins on investments are typically fixed at about 9.6% in New Jersey, and the state’s four electric distribution companies — regulated utilities like PSE&G and Jersey Central Power and Light that deliver bills and electricity to customers — do not profit on the sale of electricity, which they pass through at cost.
Each of Sherrill’s options comes at a cost. Delays to some infrastructure upgrades can lock out new generation and reduce grid reliability.
Regulators have already delayed some transmission infrastructure related to offshore wind projects that are stalled amid a federal permitting and leasing freeze.
Delaying utilities’ ability to recoup their investments could expose the state’s four electric distribution companies to financial harm, while lowering their ability to profit from infrastructure projects could disincentivize future grid upgrades.
It’s not clear how ready New Jersey’s four regulated utilities are to withstand the economics of a rate freeze.
A spokesperson for the New Jersey Utilities Association did not return a request for comment. A statement issued by the association’s president, Rich Henning, in response to Sherrill’s proposal acknowledged growing price concerns but did not directly state a position on a rate freeze.
“We share New Jersey residents’ frustration with the significant bill increases from higher energy supply costs,” Henning said in the statement. “It’s important to remember that New Jersey electric companies don’t control or earn any profit from electric supply prices. We have been sounding the alarm on the power supply-demand imbalance and advocating for market reforms for years.”
Wholesale electricity prices are set by a three-year blend of annual auction prices. New Jersey’s electric distribution companies play no role in that process, though polling has shown residents still place the largest share of blame for rising prices on their utility provider.
Other parts of ratepayers’ bills, like certain energy sales taxes or the state’s societal benefits charge — a roughly 3% surcharge on all New Jersey electricity bills — could be targeted to reduce rates, Silverman said.
Changes there could also be unattractive for a new governor facing budgetary challenges. Reducing energy sales taxes would impact revenue at the state and local levels. The state is expected to collect more than $1.1 billion from sales taxes on energy in the current fiscal year, including through energy tax receipts that are meant to be passed on to municipalities but are mostly retained by the state.
The societal benefits charge helps fund energy assistance and efficiency programs, and officials have tapped its funds to incent solar and battery storage projects, which come online far faster than other types of generation.
The New Jersey Board of Public Utilities can delay utility projects and recoupments under its own regulatory power. Legislation could force a freeze, as it did when lawmakers overhauled the state’s regulatory system for energy in 1999.
Though much about Sherrill’s proposal remains unknown — her campaign did not return answers to a list of detailed questions about a rate freeze — she has said the freeze would remain in place for a year.
“On Day One as governor, I will declare a State of Emergency on Utility Costs and freeze rate hikes so families will not see bill increases as we massively expand cheaper energy generation to bring costs down,” the congresswoman said in a statement. “My priority is relief to New Jersey consumers, and I will bring everyone to the table to deliver it.”
Capacity prices are set to rise again next year as a result of a price-setting auction held in July. PJM has said those results are expected to raise ratepayer bills by between 1.5% and 5%, depending on a resident’s state, beginning June 1, 2026, or about six months into the new governor’s term.
Board of Public Utilities officials expect further increases to flow from next July’s capacity auctions, which would affect energy prices beginning June 2027.
There’s another, simpler avenue to freezing electricity rates: Officials could keep energy rates locked in place by directing utilities to defer seeking payment of the portions of bills that exceed price caps.
Bill deferrals aren’t unprecedented in New Jersey, though prior efforts have delivered mixed results.
In a bid to boost competition and reduce costs, New Jersey in 1999 decoupled electricity generators from the state’s regulated utilities. (PSE&G continues to operate nuclear plants in South Jersey.)
The Electric Discount and Energy Competition Act mandated that electricity rates be reduced by 10% then locked in place for a period of years, and allowed electric distribution companies to recover their generation costs, even when those costs exceeded price caps. Effectively, ratepayers were billed for only a portion of their electricity use, while the remaining portions were deferred.
A task force convened on the issue by then-Gov. Jim McGreevey estimated residential ratepayers’ deferred balances would reach an average of $299 by August 2003, before interest. That would be about $523 in real terms.
Commercial and industrial customers’ deferred balances were far larger, averaging $2,362 and $34,827, respectively. At the time, utilities said they could need rate increases as large as 20% to cover the difference.
Silverman, a former general counsel for the utilities board, warned deregulation may not be the best point of comparison, as that shift entailed broad changes to the state’s regulatory system and allowances for utilities to recover costs from generation-related investments they were now required to shed.
“The better example might be pandemic cost recovery issues because restructuring was sort of a one-time thing where all the parties got together and negotiated and talked about how you were going to handle the transition, who was going to be paying what, what costs were locked in for what period of time,” he said.
When COVID-19-related business closures led to skyrocketing unemployment rates, utilities were barred from shutting off service for nonpayment between March 2020 and March 2023. Pandemic arrearages across hundreds of thousands of accounts rose above $416 million at the end of March 2023.
Jersey Central Power and Light, Atlantic City Electric, and Rockland Electric Company reported nearly $109 million in arrearages in July and June. PSE&G said its customers owed nearly $262.8 million in February, the most recent month for which filings are available. Utilities have forgiven millions in pandemic-related customer debts.
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