NJ utility rate legislation advances despite warnings that it could lead to higher bills

Consumer advocates question why lawmakers are moving ahead while the state is studying ways to make electricity more affordable.

New Jersey gas and electric power companies could raise rates based on projected future expenses and adjust charges over several years under legislation that advanced in the state Senate last week.

Utility companies and business groups say the so-called “alternative plan” proposal would make rates more predictable and help finance infrastructure improvements. But the state’s consumer advocate warns that the move could lead to more frequent increases and make it harder to scrutinize utility spending.

The Senate Economic Growth Committee voted 3-0 Thursday, Oct. 8, to advance the Public Utility Rate Stabilization Act (S4052), which will now go to the Senate Budget and Appropriations Committee. Two lawmakers abstained.

The bill would give the New Jersey Board of Public Utilities, which regulates gas and electric companies, more flexibility in deciding how much those companies can charge customers.

Under the traditional system, utilities must justify rate increases by documenting their expenses, investments, and the amount of profit they are allowed to earn. The BPU reviews that information before deciding whether to approve increases.

The legislation would allow utilities to seek approval for plans lasting at least three years, with rates adjusted periodically based on factors such as inflation or infrastructure spending. Companies could also request increases based on expenses they expect to incur in the future, rather than relying primarily on past costs.

Utilities would still need BPU approval before adopting an alternative plan, and the board would be required to hold a public hearing. The legislation does not establish a cap on rate increases.

Consumer advocate warns of higher bills and less oversight

Brian Lipman, director of the New Jersey Division of Rate Counsel, which represents utility customers, opposed the bill at the hearing, warning that it could lead to regular rate increases and make it harder for consumers to challenge utility charges.

Lipman rejected supporters’ arguments that the proposal would address rising energy costs, calling it “not an affordability bill.”

In an Oct. 7 letter submitted to lawmakers the day before the hearing, Lipman warned that the bill would result in higher costs and reduced oversight of utilities.

“While the name of the bill is the ‘Public Utility Rate Stabilization Act,’ its actual result will be anything but stable rates,” Lipman wrote. “Implementation of this bill will guarantee annual rate increases, reduced regulatory oversight, and will almost certainly exacerbate our affordability crisis.”

He argued that allowing utilities to set rates based on anticipated expenses could force customers to pay for infrastructure projects before companies complete the work. He compared that approach to paying a contractor the full cost of a home renovation upfront and hoping the work is finished correctly and on time.

Lipman also warned that utilities have a poor record of accurately predicting future construction expenses. If the estimates prove inaccurate, customers could end up paying more than necessary.

He raised concerns about plans that would allow rates to change automatically under previously approved formulas. Such systems can make it harder to challenge costs because utilities may contend that individual spending decisions fall outside the scope of review, he said.

Lipman urged lawmakers to require stronger protections, including limits on how much rates could increase over a specified period.

Why are lawmakers moving ahead of a state review?

Consumer advocates questioned why lawmakers are advancing the legislation before the BPU finishes a study ordered by Gov. Mikie Sherrill to examine how utilities operate and whether changes could reduce electric bills.

Sherrill’s first executive order, signed in January, directed the BPU to examine alternatives to the traditional rate-setting system, including ways to control costs and change how utilities earn revenue.

The BPU hired an independent consultant and released the first phase of the study in July. The second phase, which will analyze potential reforms and their effects on customers, is underway.

In an email to legislators, Dena Mottola Jaborska of New Jersey Citizen Action urged lawmakers to hold the bill until that review is complete.

“By moving this legislation now, you are getting ahead of the public process that the Governor and NJBPU have established through EO1 to evaluate the utility ratemaking process in NJ and reform it to the benefit of utility customers,” she wrote.

Jaborska said New Jersey Citizen Action, AARP New Jersey and other consumer and environmental organizations oppose the approaches authorized by the legislation. She urged lawmakers to focus instead on changes to the existing system that could produce measurable savings.

The BPU’s initial study found that the portion of electric bills directly affected by state-regulated utility reforms accounts for roughly one-quarter of a typical customer’s bill. Most other charges come from electricity supply and transmission costs, which are heavily influenced by regional and federal markets. The report also found that no single change to utility regulation would solve the affordability problem.

Maryland abandons similar system after disappointing results

Sen. Shirley Turner, D-Mercer, the committee’s vice chair, questioned Andrew McNally, senior director of government and regulatory affairs at South Jersey Industries, about Maryland’s experience with multiyear utility rate plans.

Just a week before the New Jersey hearing, Maryland regulators announced they were ending a pilot program that allowed electric utilities to set rates based on anticipated expenses over several years.

The Maryland Public Service Commission concluded that the program had largely failed to achieve its goals. Regulators found no clear financial benefits for customers and determined that the system had not made rates more stable or predictable than the traditional approach.

The commission also found that reviewing rates under the program had become more complicated and required additional time and resources. Maryland is now studying whether a redesigned system could produce better results.

McNally told Turner that Maryland intends to adopt an improved framework for multiyear rates. He said New Jersey would not be a “guinea pig” because other states have already adopted alternative methods.

He also said S4052 primarily addresses the cost of delivering electricity and gas to customers, not the cost of producing or purchasing energy.

Electric bills include charges for the energy customers use and the cost of delivering it through poles, wires, and other equipment. Rising wholesale electricity prices have been a major driver of recent increases, and changing how delivery rates are set would not directly address those costs, he said.

“Part of the problem is that you put this in, and electric supply costs go through the roof like they have,” McNally said. “You can help to stabilize rates through this distribution method. That’s not solving the supply side problem. That’s a different problem.”

Utilities and business groups back the proposal

Former state Sen. Bob Gordon, who also served as a BPU commissioner and now represents the New Jersey Energy Policy Coalition, testified in support of the legislation.

“At the end of the day, New Jersey will need to build new infrastructure and new power plants,” Gordon said. “These approaches allow regulators to consider expected costs, evaluate plans over several years, or use an approved formula to adjust rates.”

Supporters argue that utilities need more predictable revenue to maintain aging infrastructure and plan investments.

Hilary Cherba, director of government affairs at the Chamber of Commerce Southern New Jersey, and Chris Emigholz, chief government affairs officer of the New Jersey Business & Industry Association, also supported the bill, saying greater predictability would help businesses manage energy expenses.

The legislation would allow regulators to consider several approaches, including tying rates to a utility’s performance and requiring companies to share certain profits above an approved level with customers.

But Sen. Britnee Timberlake, D-Essex, questioned whether the proposal would make electricity more affordable. Timberlake said the BPU already has the authority to reject rate increases but often approves them. She described high energy costs as “the new redlining” and warned that the proposal could benefit utility companies and investors at consumers’ expense.

“I’m not going to be in support of anything unless it actually cuts the ratepayer’s bill,” Timberlake said.

The Senate Economic Growth Committee advanced the bill on a 3-0 vote, with Sens. Nilsa Cruz-Perez, Kristin Corrado and Joseph Pennacchio voting in favor, while Turner and Timberlake abstained.

“I can understand a certain predictability that the utility company wants, but I don’t want increases to also be predictable,” Pennacchio said. “They should not be predictable. They should be very, very hard to get.”

The legislation is sponsored by Sens. John Burzichelli, D-Cumberland, and Paul Sarlo, D-Bergen, and co-sponsored by Sens. Vin Gopal, D-Monmouth, and Nilsa Cruz-Perez, D-Camden.

A companion bill, A3608, is pending in the Assembly.