Hot Weather Causes Electric Bills to Rise?  NJUA Explains

 Mother Nature hasn’t been kind to us this summer. New Jersey has endured the second-hottest June on record, the seventh-hottest July and we are looking at a top-5 or top-10 hottest summer – the warmest in nearly 15 years. This summer is also on track to be the most humid ever in 85 years of recordkeeping based on observations of dew point.

And when we look at our electric bills, we get even hotter – under the collar. Electric utility bills have been higher this summer, but it isn’t a case of your electric utility taking advantage. It is a confluence of events, as we all used more energy to keep ourselves cool.

Collectively, New Jerseyans are running our air conditioners harder and more frequently than they have run in more than a decade. In fact, the last time our state experienced rising electricity demand like this was before the early 2000s because of a growing economy, a larger population, and a corresponding change in consumer adoption of electric products, such as air conditioners, computers and incandescent lighting.

Today, we are faced with ever-evolving technologies such as electric vehicles, artificial intelligence (AI), data center expansion, new domestic manufacturing, and electrification. It all causes even more electricity demand, with total energy demand potentially growing an estimated 15-20% in the next decade, according to the federal Department of Energy. 

In fact, one New Jersey electric utility reported that demand this year soared approximately 20% just in July alone.

So why are our electricity bills getting so expensive? The answer is complicated. Power in this region is generated by private firms, not utilities. And those prices grow higher as demand surges. We are using more energy than ever and energy prices have been creeping up across the nation for more than a decade. The latest consumer price index saw inflation dip below 3 percent for the first time since 2021, but inflation for electricity prices nationwide remains stubbornly high at 4.9%. 

Higher demand is one key reason, along with underlying inflation and the need to fortify the distribution system in the face of more extreme weather.

To understand these dynamics, it helps to divide your electric bill into two parts: one for supply and one for delivery.

Electricity supply comes from power plants, via nuclear or natural gas, or renewables, such as wind and solar. Their prices are set by the Basic Generation Service (BGS) auction, a national marketplace overseen by the New Jersey Board of Public Utilities (NJBPU). New Jersey utilities do not profit from BGS charges; they are passed along to customers with no markup.

This system is designed to reduce price volatility by averaging costs over three-year periods, so customers today are paying electric supply rates that reflect the average cost of electricity over 2022, 2023, and 2024.

 This price averaging is important to protect customers from large fluctuations in the cost of wholesale electricity that can occur between one year and the next. Instead, New Jersey utility customers see incremental rate increases over time to make up the difference.

The cost of delivery, or transmission and distribution, reflects the electric utility’s investment and expense in getting the supply from the power plant to your home or business. This includes operating and maintaining the grid for repairs or upgrades, such as optimizing the efficiency, reliability, and quality of the electrical power system or installing new high-voltage transmission lines.  These costs are regulated by the NJBPU, which sets prices so ensure a reasonable return for the utilities.

The NJBPU and your electric utilities have been anticipating and planning for rising electricity demand underscored by the state’s goal to reach net-zero emissions economy-wide by 2035. Addressing rising electricity demand requires a portfolio approach to meet near-term growth with commercially available technologies, while also paving the way to support long-term growth.

For those having trouble paying your electric bills, there is help available. New Jersey residents may qualify for utility assistance programs  designed to help take that burden off those who need help. Customers can also reach out directly to their utilities for information on payment assistance. 

Higher-than-expected electric bills are frustrating, but smart, simple steps can help manage the impact. New Jersey’s utility companies also offer energy efficiency programs to residential and commercial customers, such as energy audits, appliance recycling, rebates, and potential financing for energy efficiency initiatives.

As electricity costs have climbed, consider it a partnership between you and your utility company to keep your bills as low as possible, as we continue to provide safe, reliable and affordable service.

Richard W. Henning is the president and chief executive officer of the New Jersey Utilities Association, which represents electric, gas, telecommunications, wastewater and water utilities throughout the state.