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The Explainer: Factors Driving Electricity Prices in New Jersey

Cleaner energy, low-income subsidies come at a cost


Both goals are widely supported by policymakers, legislators, and various interest groups. But they come at a cost. In 2012, a surcharge imposed on gas and electric ratepayers raised $790 million. In the past decade, it has cost utility customers $5 billion. The two biggest chunks of the money go to finance clean energy programs ($309 million in 2012) and to a low-income energy assistance program ($292 million in 2012) to ensure those families do not spend more than 6 percent of their household income on energy bills.

The good news, at least for now

Historically low natural gas prices have helped to lower bills for electric customers for the past four years. Aggressive goals to curb energy usage in New Jersey also could lead to reduced costs to consumers -- provided the state achieves those targets. Three new natural gas plants are being developed in the state to increase capacity and lower electricity prices, but two of them may still be awarded ratepayers subsidies.

What lies ahead

Most probably, even higher bills. The state’s electric utilities are under the gun to improve their reliability to prevent widespread outages, such as those that occurred during Hurricane Sandy. They also stand to recoup expenditures they incurred during the superstorm and other extreme weather. Neither will be cheap. PSE&G is seeking $3.9 billion to upgrade its energy grid. Jersey Central Power & Light is hoping to recover $640 million it spent restoring power after the storms.

How to cushion costs for ratepayers

In New Jersey, the state has tried to reduce costs to utility customers by by "blending" power costs over three years, a system that has lowered utility bills when energy bills are rising, but has failed to deliver savings when fuel costs are dropping. Larger commercial and industrial customers pay more when energy prices rise, but less when those costs drop. In the most recent year, those costs have nearly doubled, largely because of higher capacity prices.

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