Core Overview

  • New Jersey Democratic Governor Mikie Sherrill signed legislation on Tuesday aimed at improving electricity affordability, including a bill requiring state regulators to review "supplemental" transmission projects.
  • Another bill signed into lawrequires utilities to become members of PJM Interconnection, eliminating the additional 0.5% return on equity they received for voluntarily joining the grid operator. A third bill protects existing customers from potential rate increases by creating a new customer class and rate structure for data centers.
  • These new laws are part of recent efforts by states to keep residential electricity rates as low as possible—a central issue during last year's New Jersey gubernatorial campaign. Sherrill said in a press release: "I promised to control energy costs, and today we are delivering on that promise. For too long, New Jersey families have paid the price for inadequate oversight, outdated policies, and unchecked actors driving up demand on the grid."

In-Depth Analysis

In addition to signing the bills, Sherrill announced that New Jersey taxpayers will receive a $25 credit through the Residential Universal Bill Credit program, and low- and moderate-income households will receive an additional $150 credit through the Residential Energy Assistance Payment program.

Utilities affected by the new laws and bill credits include: Con Edison's Rockland Electric, Exelon's Atlantic City Electric, FirstEnergy's Jersey Central Power & Light, and Public Service Enterprise Group's Public Service Electric and Gas (PSE&G).

PSE&G spokesperson William Smith said the company understands customers' concerns about recent rate increases. In an email to Utility Dive, he stated: "As we continue to review this legislation, we remain committed to working constructively with policymakers to ensure New Jersey can maintain both energy affordability and the reliable electric and gas infrastructure customers depend on daily." However, he also noted that some provisions of the newly signed bills could weaken the stable investment framework that supports reliability improvements in New Jersey.

Enhanced Transmission Oversight

One of the bills Sherrill signed isstrengthening state oversight of supplemental transmission projects—projects that critics say receive little regulatory scrutiny.

Supplemental projects (also known as local projects) are typically used to replace aging infrastructure and are planned by utilities outside the PJM regional transmission planning process, so they receive relatively less regulatory scrutiny. According to Sherrill, between 2008 and 2025, supplemental projects in New Jersey totaled $14.7 billion, accounting for 79% of total transmission costs borne by ratepayers.

The new law aims to fill this regulatory gap by requiring transmission owners to apply to the state Board of Public Utilities (BPU) for a certificate of public convenience and necessity for supplemental projects. The agency will make a decision within 180 days; if the project includes advanced transmission technology, a decision must be made within 120 days.

Mandatory RTO Membership

Another law aims to reduce utilities' profit margins on transmission assets. To promote transmission development, the Federal Energy Regulatory Commission allows transmission owners to earn an additional 0.5% return on equity for voluntarily joining a regional transmission organization such as PJM.

States such as California, Maryland, and Ohio have passed laws requiring transmission owners to become members of regional transmission organizations, thereby disqualifying them from receiving the additional return. Courts have upheld these laws.

According to PSEG's recent annual report, due to being forced to become a PJM member, New Jersey's largest electric utility, PSE&G, could lose approximately $40 million in net income and cash flow annually. PSE&G's Smith said: "This legislation now requires utilities to join PJM, which ensures the market provides reliable, affordable generation resources for customers."

First-of-its-Kind Data Center Rules

The data center bill Sherrill signedrequires New Jersey utilities to set rates for data centers over 50 megawatts, including measures designed to protect ratepayers from the potential costs of serving these facilities. For example, data center owners must guarantee payment for at least 85% of the capacity they request for at least 10 years.

Under the legislation, data center owners may be exempt from these and other requirements if they commit to providing operational flexibility or commit to adding additional energy and capacity to meet their load.

The law also requires rates to include energy efficiency incentives, as well as incentives for data centers to self-supply new clean energy and storage facilities. Additionally, rates must include rules for co-located power supply.

Under this first-of-its-kind framework, data centers can offset their capacity obligations by paying third parties to reduce electricity demand elsewhere on the grid—such as through energy efficiency improvements, demand response enrollment, behind-the-meter storage, and controllable electrification—as detailed in the bill.