NJ energy policy: It’s all about the subsidies

Energy deregulation means higher rates and more pollution

When I was just starting out working on energy issues almost 50 years ago a congressman said to me: “Kid, the key to energy policy is who gets the subsidies and who gets screwed. The utilities and the oil and gas industry get the subsidies. Consumers and clean energy don’t have the clout, or the cash.”

That is still the system today.

When New Jersey’s massive energy deregulation bill passed by just one vote, signed by Gov. Whitman, we were told competition would lower electric and gas prices. Environmental and consumer groups were wary. Utilities and energy lobbyists cheered and gave a standing ovation. That moment should have told us everything.

Energy deregulation was brought to us by the same people who gave us trickle-down Reaganomics. Instead of lowering prices, our energy bills skyrocketed.

We deregulated monopolies without creating real competition. Utilities were allowed to spin off underperforming assets into the rate base, meaning consumers, not shareholders, paid for their bad decisions. Ratepayers were forced to cover more than $3 billion to pay off the cost of building PSEG’s nuclear plants and cleaning up toxic coal tar sites, closer to $5 billion in total. Add another $2.9 billion for nuclear decommissioning funds, still controlled by the utilities.

Utilities then sold off their generation plants at large profits to shareholders. But when those same utilities bought power back from those suppliers, with a markup, the costs were passed on to consumers.

Jersey Central sold off plants, invested overseas, lost money, then raised rates and cut service and maintenance. PSEG spun off its different sectors but kept control. PSEG Gas could sell gas to PSEG Generation with a 12% markup. PSEG Generation could then sell to PSEG Utility with another 12% markup. Then PSEG Utility sells to consumers with yet another markup. Through compounding, that 12% became closer to 20%, compared to the original 12% before deregulation.

Profits soared. Consumer bills followed.

Utilities were also allowed to move into other energy sectors, building power lines, pipelines, HVAC systems, energy efficiency and resiliency programs, smart meters, and solar, all with guaranteed returns and markups.

There is no real competition. The system is backwards.

Utilities buy power through the PJM auction run by PJM Interconnection, our regional grid operator. The price is set by the highest successful bid, not the lowest. Independent producers that try to sell directly to consumers must pay fees and rent to utilities to use the grid and distribution system, making them more expensive and limiting competition.

The deregulation law also eliminated the Certificate of Need requirement from the Board of Public Utilities (BPU). Power plants can now be built “on spec,” even if we don’t need the power, because developers can sell it into the regional grid or out of state.

Governor Sherrill’s current plan calls for increasing gas plant capacity to lower costs. But these plants can sell their power out of state. New Jersey both imports and exports electricity. Facilities like the Bayonne Energy Center (660 MW), Ridgefield (640 MW), Linden (815 MW), Sayreville (450 MW), Sewaren 7, and the Woodbridge Energy Center together total roughly 2,600 MW, with peak capacity around 3,500 MW. Yet power also flows out of state through high-voltage transmission lines, including a 230 kV line from Salem Nuclear Plant to Delaware.

We produce power. We export power. Yet consumers still pay high prices, and we still import electricity to meet demand.

New Jersey’s Renewable Portfolio Standard is currently 35%. It was scheduled to increase to 38%, but that increase was frozen. Despite the mandate, most of the renewable credits we purchase are from out of state. Only a small fraction of our renewable generation comes from in-state solar, placing New Jersey near the bottom nationally for in-state renewable production.

And there is no guarantee that out-of-state renewable power physically reaches our communities. The grid is like a highway. Electricity enters and exits at different points. A wind turbine in West Virginia may clean up regional air, but it does not necessarily reduce pollution in Newark. There have even been cases, such as in Maryland, where renewable credits were sold to multiple states. We need a full audit of the program.

The deregulation law also created the New Jersey Clean Energy Fund. It was added to the bill to provide political “green cover” from groups like Environmental Defense Fund and Natural Resources Defense Council, organizations that received utility funding. It undercut opposition from groups like the Sierra Club and NJPIRG.

Instead of consistently funding low- and middle-income energy efficiency programs, the Clean Energy Fund became the state’s piggy bank. Nearly $3 billion has been diverted since 2010.

Now Executive Order No. 1 directs the BPU to provide temporary bill credits, pause rate hikes, and divert additional funds from the Clean Energy Program and RGGI.

Raiding Clean Energy and RGGI funds effectively cripples those programs. Consumers will pay more to live in colder homes. Pollution will increase. Jobs will be lost. Using long-term climate funds for short-term political relief is not affordability. It is a gimmick. These funds were designed to reduce emissions, weatherize homes, lower demand, and deliver permanent savings.

This is not reform. It is regression.

Key problems

• Surging Capacity Prices: Capacity auction prices through PJM Interconnection have spiked dramatically in recent years, and those increases are directly passed to consumers.

• Middleman Marketers: Deregulation created an army of middlemen bidding for profit, increasing residential bills instead of lowering them.

• Data Center Demand: Rapid growth in AI-driven data centers is increasing demand. Some secure special utility deals, shifting infrastructure costs onto ratepayers.

• Grid Bottlenecks: PJM has been slow to connect new renewable projects, creating artificial shortages that keep prices high.

• Consumer Gouging: The deregulated market has attracted suppliers offering teaser rates and confusing contracts, leading to widespread complaints.

Structural failures

• Stranded Costs: Ratepayers paid billions in stranded costs, approximately $3 billion to PSEG alone, for investments that became uncompetitive.

• Plant Closures Without Replacement: Closures like Oyster Creek tightened supply without equivalent new generation.

• Regional Dependency: As a net importer within the PJM region, New Jersey’s prices are heavily influenced by regional market rules.

Years ago, I nicknamed the BPU the “Board of Promoting Utilities.” Under both Democratic and Republican administrations, it rarely met a rate hike it didn’t approve.

Governor Murphy gave nuclear plants a $300 million per year subsidy, costing ratepayers $2.7 billion, despite serious questions about financial need. He also approved billions in spending on smart meters and new transmission lines to export power out of state.

Now Governor Sherrill is calling for a rate freeze, but not structural reform. Instead of reversing or fixing deregulation or addressing PJM’s structural failures, her approach doubles down on past mistakes: expanding nuclear, increasing natural gas capacity, waiving standards, and fast-tracking permits.

Those projects take years. In the meantime, we lock in more air pollution in overburdened communities, more greenhouse gas emissions driving climate change, and more infrastructure that will become stranded assets as the world moves toward clean energy.

The fastest and most economically sound path forward is energy efficiency and in-state renewable generation, not expanding fossil fuel infrastructure.

If we truly want affordability, we must fix the structure, including confronting our dependence on PJM, instead of repeating the same failed policies and expecting different results.

Because in the end, the system still answers the same question that congressman asked me years ago:

Who gets the subsidies, and who gets screwed? The consumer, the ratepayers, and the environment, unfortunately.