Data Centers and New Jersey's Energy Crisis: Understanding the Rate Spike
On June 1, 2025, New Jersey residential electricity rates jumped about 20%, causing the average monthly electricity bill to increase by more than $20. New Jersey already had among the highest rates in the country. By some estimates, from 2020 to 2025, New Jersey electricity bills had already increased by 55%, which was the sixth-highest jump in the country.
The highest levels of New Jersey government are alarmed. Energy costs were a central focus of the 2025 gubernatorial election, with Governor-elect Mikie Sherrill winning in part on a promise to freeze electric bill increases and declare a state of emergency.
What’s behind the spike? New Jersey is part of PJM Interconnection, the largest power grid operator in the country. PJM is responsible for distributing energy to 67 million people across the entire mid-Atlantic region. PJM operates as an energy wholesaler: it buys energy from generators and then sells it to one of New Jersey’s four utility providers at an annual “capacity auction.” Those capacity auctions directly impact what utility providers charge their customers. At the December 2022 auction, which determined prices for the June 2024 to May 2025 delivery year, prices were set at $28.92 per megawatt-day; at the July 2024 auction, which determined prices for the June 2025 to May 2026 delivery year, prices went up to $269.92 per megawatt-day, a nearly ten-fold increase; at the July 2025 auction, which set prices for the June 2026 to May 2027 delivery year, the price increased to $329.17, a 9.5% increase. And these increases are passed on directly from utility providers to consumers.
These rate increases are largely caused by data centers, which are demanding ever increasing amounts of energy. Sources estimate that data centers were responsible for 63% of the capacity price increases at the July 2024 auction, and consumers across PJM are paying $9.3 billion more in the 2025/2026 delivery year.
New Jersey is currently home to about 100 data centers, and that number is growing. Just last November a massive new data center went online in Vineland, New Jersey; it is now one of the largest data centers in the region. Farther north in Kenilworth, developers recently broke ground on a smaller data center. Together, the two new data centers are expected to require about 500 megawatts of electricity, which is enough electricity to power all of the homes in Kansas City. According to Abraham Silverman, general counsel for New Jersey’s public utility board from 2019 to 2023, “We are basically adding a Philadelphia’s worth of new electricity users to the grid every year, starting in 2025 and showing no signs of slowing. Where is that load growth coming from? The answer is data centers.”
But this is not just a New Jersey problem; it’s a regional problem. When a data center is added anywhere within PJM’s grid—which covers 13 states—it affects prices everywhere on the PJM grid. So data centers built in Virginia or Ohio also increase costs for New Jersey consumers. New Jersey legislators and regulators cannot solve this problem without cooperation from other mid-Atlantic states.
The increase in demand comes at a bad time for PJM. Aging and inefficient power plants are being retired, which reduces PJM’s capacity. But PJM has not kept apace with retiring power plants and new energy projects. As of April 2024, more than 225 gigawatts of energy projects have been sitting in a queue waiting for PJM’s approval; some of those projects have been waiting years for review. (About 98% of the pending projects are solar, battery or wind projects.) The PJM review process has thus become a bottleneck that is delaying renewable energy projects. Other factors, such as an aging electrical grid, the increased costs of building new transmission lines, and high natural gas prices have also contributed to rising costs for consumers.
These problems lead to serious legal and regulatory questions that will be addressed in the forthcoming series. Who should pay for grid upgrades needed to support data centers? Should data centers have special tariff structures? How can the NJ Board of Public Utilities, which regulates utility suppliers, protect New Jerseyans from rising costs? How can New Jersey balance economic development (data centers bring investment and jobs) with consumer protection? What role should transparency and reporting requirements play? Are there constitutional limits on how New Jersey can regulate data centers given interstate commerce and federal jurisdiction issues?
Much is already being done. Last July, Governor Murphy joined eight other governors from within PJM in a bipartisan call for fundamental changes to PJM’s leadership and governance structure. That same month he signed a law, P.L.2025, c.98, that directs NJ Board of Public Utilities to complete within 15 months a study on the impact of data centers. Last June, Governor Murphy announced a $430 million energy assistance program meant to offset rising energy costs. The program reallocated funds from the Clean Energy Fund, the Regional Greenhouse Gas Initiative, and the Solar Alternative Compliance Payment account, though some criticized the reallocations as hurting the long-term health of New Jersey’s clean energy sector. And there are multiple pending bills that aim to resolve this issue, including a recent bill that would, in part, require utility providers to propose tariffs to be levied on data centers, in an effort to protect non-data center ratepayers.
One thing is certain: New Jersey’s spike in energy costs is not temporary. At the December 2025 auction, which determined prices for the June 2027 to May 2028 delivery year, prices went up slightly to $333.44 per megawatt-day, showing that high energy costs are here to stay for the foreseeable future. And even at that high rate, PJM’s capacity fell short of demand, leaving a significant energy deficit for the 2027/2028 delivery year. How to regulate an industry that operates regionally while protecting in-state ratepayers is a complex issue, and the Sherrill administration will face immediate pressure to take action.
Whether you're a data center navigating New Jersey's evolving legal and regulatory landscape, a utility addressing regulatory and cost allocation challenges, a municipality evaluating the local impact of proposed facilities, or a business managing rising energy costs, understanding these market dynamics is essential. The regulatory response to this crisis will create both opportunities and challenges across the energy sector.