Is New Jersey’s Model Rewarding Utilities for Spending More and Fueling Higher Bills?

The BPU (Board of Public Utilities) held a stakeholder meeting to figure out whether NJ’s utility model is feeding into rising costs residents are paying for electric. The slide deck from that meeting explained how this would be studied, which included walking through factors driving up bills and possible reforms to address the issue for public feedback.

These efforts boil down to a simple/not so simple question – is the current model rewarding utilities for spending more instead of keeping bills down?

The deck starts with the affordability problem and states energy prices have increased across North America, including New Jersey, due to inflation, aging infrastructure, generation, policy impacts, along with other factors.

One chart in the deck breaks down an example ’26 residential electric bill of about $195 per month, assuming 750 kWh per month, and shows energy and capacity make up 52% of that bill, transmission 19%, distribution 24% and programs/adders make up 5%.

The BPU study is honing in on distribution with the explanation (within the deck) that energy, capacity and transmission are also significant costs, but are largely regulated through PJM, FERC or other processes outside BPU’s direct distribution-rate focus.

Under the current model, electric distribution companies get back approved distribution costs through regulated rates which includes local grid infrastructure and operations. The deck presents the flow as follows:

• Utilities determine the investments they need for distribution
• Those investments become part of the rate base
• The revenue requirement is calculated
• Costs are allocated to customer classes
• Rates are translated into customer bills

Example: if a utility replaces poles and the BPU approves those costs, the utility can not only recover the cost for that project from customers but actually earns a return on that investment over time.

That return becomes part of what ratepayers help fund through their bills.

So the concern here is obvious – if utilities can earn money from approved projects that can incentivize building more versus cheaper alternatives (targeted repairs, demand reduction, distributed energy resources, etc).

The deck also compares an example residential bill from 2021 to 2026. Using 750 kWh per month, the illustrative bill increased by $68 per month. Energy and capacity increased by $43 per month, transmission by $10 per month, distribution by $15 per month and programs were flat.

While the largest increase came from energy and capacity, distribution still rose by $15 per month, and distribution is the part of the bill where BPU’s utility business model study is focused.

The deck also includes suggested reforms..

Financing and cost recovery

Return on equity is the profit rate utilities are allowed to earn on certain investments. If the approved return is too high then customers end up paying more than they should. If it’s too low utilities will complain they aren’t getting the money they need to keep up. The fact that BPU is studying ROE as part of affordability reform is important because it directly connects to how much profit customers are required to fund.

Ratemaking/Revenue design.

This includes multi-year rate plans, performance incentives, a comprehensive performance-based regulation framework, revenue regulation and decoupling, formula rates, annual reconciliation models, TotEx regulation and shared savings mechanisms.

The deck says these options can break the link between how much a utility spends and how much it earns, and can provide incentives or penalties based on performance. Examples include interconnection speed, reliability, verified peak reduction and system utilization.

A good design rewards utilities for better outcomes. Faster interconnection of new generation could matter because delays can affect supply, competition, reliability and costs. Better system utilization could matter because customers should not be paying for underused infrastructure if there are cheaper ways to meet the same need.

Loads, cost allocation and rate design

This includes improving use of existing and new resources, rate design options and customer programs for distributed energy resources (energy efficiency, flexible loads and distributed generation).

One way to reduce pressure on bills is to make better use of the grid New Jersey already has before approving more expensive projects – exploring whether demand shifting, demand reduction or local distributed resources can be used instead of going to an expensive capital project.

The deck also lists emerging options

Direct state procurement/support– NJ could buy or support resources directly versus utilities
Sandbox– Test context, pilot programs under temporary rules
Differentiated reliability service– folks could pay different rates for different levels of reliability.
Direct EDC procurement in PJM– allowing utilities to buy power/capacity directly from PJM
Moving programs from rates to taxes and re-regulation of generation– use the state budget to cover some of the costs connected to policy decision

The study has two phases.

Phase 1– qualitative analysis that looks at NJ’s current business model and affordability challenge, what other jurisdictions have tried, possible policy pathways for New Jersey and what it would take to implement promising reforms.

Phase 2 – quantitative analysis that looks at how different reform options and combinations of options could affect rates, bills, energy burden and other metrics.

Written feedback is due June 30 under Docket No. EO26040117.

The Executive Order report is expected to be released July 20, 2026.

So the public comment window is happening before the report is finalized.

You don’t need to be fluent in utility regulation to understand the basic issue – electric bills are impacted by decisions made way before you see the charge.

Online Form:

Go to: https://publicaccess.bpu.state.nj.us/CaseSummary.aspx?case_id=2114273
Click “Post Comments”
Enter your name, contact info and comment (you can also upload a document with your feedback).
Hit Submit

Email

To- [email protected]
In subject line, write: Docket EO26040117 – Utility Business Model Comments
In the body of the email, include your name and comments .

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