Understanding Your Electric Bill
You may have stumbled across this article after hearing a solar company talk about rising utility prices during their pitch. Or perhaps you’ve noticed that your electricity bills are higher than ever and you’re curious to know why.
As a homeowner, it is important to have some sort of grasp on what your utility company is charging you on a kWh basis. Or, at the very least, know what your monthly charges are. That way you can be aware of changes in the bill and whether they are due to a consumption increase, a price increase or a combination of both.
Homeowners in New Jersey are now seeing an average electric bill of around $200, which is up about 20% from a year ago. This increase reflects the growing costs and demand for electricity in the state which we will dive deep on throughout this article.
Why is it good to know this? So that way you can take proactive measures in reducing your electric costs, whether that is through solar energy, improving your homes insulation, converting to energy efficiency appliances, or all of the above.
It also doesn’t hurt to keep track of what you’re paying so that way you can better budget for electric expenses. Not everyone can go solar due to certain circumstances like poor credit, shading issues, home structure issues, non optimal roof pitch or orientation, amongst some other reasons.
So if you are unable to install solar panels, you have to anticipate and plan for electric bill increases. Just like paying taxes, rising electric costs are unavoidable and should be planned for in your bill budgeting.
What Are The Current Electric Rates Across New Jersey?
As an energy consultant, part of our job is to track electricity prices and monitor utility rate increases so we can better inform our clients on the best strategies to lower costs and make their homes more efficient.
Electricity Costs: A Breakdown by Major Providers
| | PSEG | ORU | JCPL |
| Service Fee | $4.95 | $5.75 | $14 |
| Supply/Generation | 14.4¢ | 11.59¢ | 9.7¢ |
| Delivery | 6.4¢ | 10.6¢ | 6.6¢ |
| Total Retail | 20.8¢ | 22.19¢ | 16.3¢ |
This information is gathered from the utility provider’s websites and data extracted from the hundreds of electric bills that we review weekly.
Please note that rates can vary slightly between towns, so your specific rate might be different. Electric rates usually change every six months and fluctuate somewhat between summer and winter. In New Jersey, most residences are billed at a flat rate, referred to as Residential Service (RS).
Are New Jersey Electric Rates Really Going up?
New Jersey is the most densely populated state in the country, with a growing population and an unprecedented demand for electricity. Asking or questioning if electric rates are going up is like asking if inflation is real. Not only do electric rates rise just like everything else, but electricity is what makes the world move. It is the most in-demand commodity in the world. Electricity prices go up all right. And it goes up quicker than inflation.
Why Are New Jersey’s Electric Rates Increasing?
The answer to this is in the demand of electricity and the investment the utility companies are putting into their grid.
New homes being built are entirely electric, and many vehicles are now charged at home. Electricity is the most in demand commodity in the world and the way it is created and delivered to homes is currently going through one of the largest shifts in history.
PSE&G, New Jersey’s largest utility company, has announced significant rate increases due to substantial investments in grid modernization and renewable energy integration.
Their annual rates are projected to rise by 6-8% over the next decade as they work to meet growing energy demands and enhance infrastructure reliability.
This trend is mirrored by other major utility companies in the state, like Orange and Rockland Utilities (O&R) and Jersey Central Power & Light (JCP&L), which are also raising rates to fund similar infrastructure improvements and meet growing energy demands.
How Green Energy is Changing Future Electric Bills
Electricity rates, like many other commodities, follow the basic rules of supply and demand.
The supply rates of electricity are closely tied to gas prices since a majority of the energy produced is coming from power plants that use natural gas to power turbines. However, as we move towards a greener future, utilities are gradually shifting their energy sources from fossil fuels to renewable options such as solar and wind.
While the cost per unit of energy generated from these renewable sources is typically lower, the overall retail cost of power is expected to rise. This is primarily due to the substantial investments required to upgrade the existing infrastructure to accommodate renewable energy sources and the increasing demand for electricity driven by the adoption of electric vehicles (EVs).
How Upgrades to the Electric System Affect Your Bills
One of the key reasons for rising electricity rates in New Jersey is the significant investment in infrastructure by major utility companies.
Public Service Electric & Gas (PSEG) has announced plans to invest $40 billion over the next decade. This massive spending plan is aimed at modernizing the grid, adding in renewable energy sources, and increasing the capacity to meet the growing demand from EVs.
I’m sure that you have been inconvenienced with the utility company blocking off roads and working on the wires and poles. These upgrades have been ramped up the last few years and will continue on for the next decade until the entire transmission system is eventually replaced with a more efficient and advanced infrastructure.
After spending a certain amount of capital, the utility company then submits a proposal to the board of utility for a rate increase to get a return and maintain profitability, which usually gets approved. These rate changes happen every six months.
PSEG projects an annual rate increase of 6-8%.
Source: PSEG
https://nj.pseg.com/newsroom/newsrelease342
Other utility companies, such as Orange and Rockland Utilities (O&R) and Jersey Central Power & Light (JCP&L), are also working on similar infrastructural improvements, contributing to the upward trend in electricity rates.
Rate increases beginning June 1, 2024
Source: nj.gov
https://www.nj.gov/bpu/newsroom/2024/approved/20240209.html
How Government Rules Are Making Electric Bills Go Up
The Federal Energy Regulatory Commission (FERC) has introduced new mandates to push for major transmission upgrades.
These regulations make it mandatory for utilities to enhance their transmission capabilities to support the switch of renewable energy into the grid and ensure reliability. However, these upgrades come at a significant cost, which is passed on to consumers in the form of higher electricity rates. The cost of replacing transmission wires is incredibly expensive ($200,000-300,000 per mile).
For context, PJM, which is the regional organization that manages the Eastern Grid, has 56,000 miles of transmission lines. These new wires operate a higher voltage and are often made of expensive materials like carbon fiber.
Additionally, because of the higher voltage, they need to be placed higher up from the ground level which also means they will have to replace the poles as well.
How Seasonal Demand and More Electric Vehicles Affect Your Bills
Another factor contributing to rising electricity rates is the congestion cost during peak summer months. As temperatures rise, the demand for electricity spikes due to increased air conditioning usage, leading to congestion in the grid. This results in higher costs to distribute the power.
Additionally, the growing adoption of electric vehicles is creating a new layer of demand on the grid. As more residents switch to EVs, the need for electricity to charge these vehicles is rising, making it mandatory for more investments in the grid to handle this demand.
Source: PSEG
How Weather Affects Electric Bills in New Jersey
Weather patterns also play an important role in determining electricity rates.
Severe weather events in New Jersey, such as hurricanes, storms, and heat waves, can disrupt power supply and damage infrastructure. The cost of repairs and the measures taken to hedge against future weather-related disruptions add to the overall cost of electricity.
A lot of the capital spending from utilities goes to making the grid safer and more reliable. Though this is a great thing for reliability, it certainly is not free and someone has to pay for it.
Preparing for Higher Electric Bills: What You Need to Know
Preparing for higher electric bills involves understanding the factors that contribute to increased costs like everything states above in this article.
It’s crucial to monitor your usage patterns and habits and stay informed about any rate hikes from your utility provider.
For homeowners unable to install solar panels due to reasons like poor credit or home structure issues, planning becomes even more critical.
Electricity companies in New Jersey historically increase rates by 4-5% annually, but the massive infrastructure investments currently underway are expected to have a more significant impact on future costs.
By staying informed and planning ahead, you can navigate these changes more effectively and ensure you’re prepared for potential increases in your electric bills.
Below is an infographic that outlines where New Jersey is investing in terms of the electric grid. It’s a catch 22. Because investing money into our electric system is important and generally positive, but it affects our pockets directly.
Source: PSEG
https://poweringprogress.pseg.com/energy-strong-ii/
Long-Term Outlook: New Jersey’s Electric Rates Beyond 2024
While the long-term outlook focuses on creating a cleaner and reliable energy future, we should all brace for higher electricity bills in the coming years.
In an inflationary environment, energy costs tend to rise the most. Energy prices have consistently outpaced inflation, and this trend shows no signs of slowing down.
Over the past few years, the cost of everything has increased, with electricity being one of the most in-demand commodities globally. Regardless of political views, it is safe to say that little is being done to lower these costs for everyday homeowners.
While I believe in clean energy and the shift to renewable energy is promising, it may not meet our growing electricity demands in the near future. Utility companies say that they will try to keep rate increases minimal, but they are also using this opportunity to invest heavily and ensure continued profits for their shareholders.
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