Why electric bills are rising in New Jersey, and the role of a little-known grid operator

A Trenton-based think tank has released a 10-page report explaining the key role of a private regional organization called PJM Interconnection.

Electric bills in New Jersey are set to rise by an average of more than $20 a month beginning in June, driven in part by decisions made not in the State House or by utility companies, but by a regional grid operator headquartered in Valley Forge, Pennsylvania.

A new report by New Jersey Policy Perspective, released on May 29, breaks down the reasons why prices are rising and the important role of PJM Interconnection, LLC.

The increase in electricity costs for consumers is linked to the policies and market structures of PJM, a private regional transmission organization that manages the electric grid for 13 states, including New Jersey, and the District of Columbia. Despite its low public profile, PJM wields significant influence over what New Jersey residents pay for electricity, which energy projects get built, and how quickly renewable sources connect to the grid.

While utility companies are responsible for distributing energy, maintaining local infrastructure like wires and poles, and handling billing and customer service, PJM handles the grid and wholesale electricity markets.

New Jersey’s electricity rates are already about 20 percent above the national average. The state’s reliance on fossil fuel infrastructure and delays in approving new renewable projects are exacerbating the problem. With demand on the rise, driven largely by energy-intensive data centers, the costs are likely to continue to increase.

PJM’s governance model and lagging infrastructure planning have also created bottlenecks that have slowed the transition to clean energy and exposed residents to rising costs. The increase will particularly affect low-income households already burdened by high energy prices.

“Families are being asked to pay more while clean energy projects that could lower costs sit in a long line waiting for approval,” said Alex Ambrose, a policy analyst at New Jersey Policy Perspective who authored the report. “Meanwhile, data centers powering AI are fueling a huge increase in electricity demand. PJM hasn’t adapted fast enough, and now regular people are stuck with the bill.”

Understanding PJM’s power

PJM, short for Pennsylvania, New Jersey and Maryland, does not generate electricity or deliver it directly to homes. Instead, it manages the high-voltage transmission lines that move electricity from generation sources, such as gas plants, solar fields, and wind farms, to local utility companies, which then distribute power to homes and businesses.

PJM’s jurisdiction includes more than 65 million customers across its territory, making it the largest power grid operator in the United States. It plans new transmission lines, oversees the wholesale energy market, and runs the capacity market, a complex auction process where utilities secure enough power to meet projected demand years in advance.

These planning and pricing mechanisms, while technical, have direct consequences for households. Unlike the distribution charges regulated by the New Jersey Board of Public Utilities, the supply side of electric bills is determined largely by PJM’s regional markets, which are in turn regulated by the Federal Energy Regulatory Commission.

That division of authority has created friction in recent years, as PJM’s decisions increasingly affect states’ energy costs and climate goals.

Capacity market, high costs

The coming rate hikes are driven primarily by recent spikes in PJM’s capacity market, the mechanism through which utilities purchase future electricity supply to ensure they can meet peak demand. In PJM’s latest auction, held earlier this year, capacity prices surged. Utilities are now locked into higher payments that will be passed on to consumers starting in June.

According to PJM, the main factor behind the price jump is projected demand from new data centers, which require constant, high-power loads. Analysts say demand from data centers accounts for as much as 70 percent of the expected growth in electricity use across the PJM region.

But PJM’s critics point to the other side of the equation: supply. Renewable energy developers say they are being delayed from coming online because of PJM’s slow interconnection process, the technical review required before new projects can plug into the grid.

As of March, there were more than 140 gigawatts of energy capacity, the vast majority from clean energy and battery storage, waiting in PJM’s queue for approval. In New Jersey alone, 79 projects remain stalled. That is enough clean energy to power millions of homes, but most of it will not reach consumers for years.

Compounding the problem, PJM in 2022 paused its review of new projects until at least 2026, citing a backlog of applications. At the same time, its new resource reliability initiative fast-tracked fossil fuel proposals, giving natural gas plants a leg up while wind and solar developers wait.

Transparency and oversight

PJM operates largely out of public view, even though its decisions influence prices paid by tens of millions of consumers. As a private entity governed by a board of stakeholders, many from the utility and fossil fuel sectors, the organization has faced criticism for a lack of transparency and limited public accountability.

Its governance model, analysts say, gives disproportionate influence to entrenched energy interests and leaves states like New Jersey with little recourse.

In response, several states have begun pushing back. Pennsylvania sued PJM to cap capacity prices and won a settlement projected to save customers more than $20 billion across the region. In New Jersey, lawmakers held hearings to investigate rate hikes, and Gov. Phil Murphy has publicly called on PJM to revisit its capacity auction results. The state’s Division of Rate Counsel joined other Mid-Atlantic states in urging federal regulators to force PJM to re-run its auction and reduce costs.

At least six states, including New Jersey, have introduced legislation aimed at increasing transparency and accountability within PJM.

The Clean Energy Opportunity

Energy experts argue that New Jersey could blunt rising costs and improve reliability by accelerating its transition to clean energy. Renewable sources like solar and wind, especially when paired with battery storage, offer some of the lowest-cost electricity available and require no fuel.

But the state’s reliance on natural gas remains significant. Gas prices have become more volatile in recent years, and many plants depend on out-of-state fuel. These plants are also prone to failure during extreme weather, the very periods when electricity demand spikes.

During Winter Storm Elliott in 2022, gas plant failures were responsible for 70 percent of forced outages in PJM’s territory, according to the grid operator’s own report. In contrast, wind energy in the neighboring Midcontinent Independent System Operator region remained stable.

Other regional operators like MISO have embraced long-term planning strategies and coordinated infrastructure development. By comparison, PJM’s fragmented, project-by-project review process has slowed progress.

Disproportionate impacts

The burden of rising energy costs is not spread equally. Low-income residents, particularly in communities of color, are often disproportionately affected. Many live in proximity to aging fossil fuel plants, which are associated with higher rates of respiratory illness and other health issues.

More than half of PJM’s fossil fuel plants are located within one mile of environmental justice communities. New Jersey’s landmark environmental justice law allows the state to reject new permits in overburdened areas, but older plants continue operating under PJM’s market rules.

Expanding clean energy and distributed resources, such as rooftop solar and community solar programs, could help reduce both economic and environmental inequities, advocates say.

Policy Solutions

The NJPP report recommends accelerating the approval of clean energy projects, increasing transparency and public oversight of PJM’s decision-making, and managing energy demand from AI data centers. It also calls for expanding energy efficiency programs, strengthening utility assistance programs, and investing in local clean energy solutions, like rooftop solar and community solar, to make the grid more reliable and affordable for all residents.

State lawmakers have a range of policy tools available to them. Expanding energy efficiency programs like New Jersey’s Comfort Partners initiative could lower household consumption. Managing data center growth, for example, by requiring new facilities to source their own clean energy, could help mitigate demand spikes.

At the same time, officials could bolster support for ratepayers through expanded utility shutoff protections, increased funding for the Low-Income Home Energy Assistance Program, and the creation of energy relief funds for working families.

Several states are exploring innovative funding models, including using proceeds from climate programs or penalties levied on utilities that fail to meet clean energy targets.

Unless PJM reforms its planning process, streamlines interconnection for renewables, and operates with greater transparency, New Jersey residents may continue to see higher bills and slower progress on clean energy goals.

The stakes are high. Left unchecked, electricity bills in the state could exceed $2,000 a year by 2040. But with coordinated state action and a renewed focus on equitable, clean energy development, analysts say those costs could be significantly reduced while creating a more resilient energy system.

“The solution to keep electricity costs down is simple: add newer, more reliable energy sources like solar and wind paired with battery storage to the grid,” Ambrose said. “But PJM hasn’t acted with the urgency this moment demands. Instead, they’ve prioritized outdated fossil fuel projects while renewable energy projects sit stuck in the queue. PJM’s inaction is delaying critical grid improvements and costing ratepayers.”