How can we make utilities more affordable?
At a glance
- States are turning their attention to the traditional utility business model as affordability continues to be a central concern.
- New Jersey’s Executive Order 1 calls for near‑term bill relief and a review of utility incentives, planning practices, and regulatory structures.
- The review will assess the impacts of performance‑based rates, ROI, multi‑year rate plans, and securitization on energy costs and system reliability.
- Utilities have the deep knowledge to help develop modernization efforts that will align affordability, reliability, and long‑term resilience.
On January 20, New Jersey Governor Mikie Sherrill signed Executive Order 1, directing state agencies to address rapidly rising electricity costs and examine their underlying drivers. The order points to retail electricity rates increasing by 33% over the past two years and calls for near‑term consumer protections alongside a formal review of utility cost structures, planning practices, and regulatory frameworks. Central to the order is a directive to study whether traditional utility business models remain aligned with today’s grid conditions and customer affordability goals.
The order places the state among a growing number of jurisdictions re‑examining how utility incentives, planning approaches, and regulatory structures can evolve as grid conditions, customer needs, and cost pressures change.
Short-term relief, longer-term questions
The governor’s executive actions focus on near‑term relief through temporary cost freezes, bill credits, and reviews of certain charges. The order also calls for increased energy efficiency, utility‑scale solar, battery storage, and the use of virtual power plants to better leverage distributed energy resources.
More crucial for utilities, however, is the longer‑term directive to study the traditional electric utility business model and identify ways to “modernize” it. The intent is not to dismantle existing structures, but to assess whether today’s incentive mechanisms, planning tools, and regulatory approaches remain aligned with evolving system needs.
To support this effort, the New Jersey Board of Public Utilities has agreed to engage a consultant to conduct a data‑driven study that considers multiple stakeholders and contingencies. Areas likely to be explored include how utility revenues are linked to capital spending, and whether alternative approaches – such as performance‑based rates – could encourage targeted investments that improve reliability without placing additional pressure on customer bills.
The study may also examine authorized return on equity (ROE), as recent analyses suggest that in some jurisdictions, ROE levels may exceed what is needed to attract capital relative to other regulated industries. Any evaluation would need to balance investor confidence with customer affordability.
Financial considerations and oversight
Other potential focus areas include multi‑year rate plans (MRPs), which can reduce administrative costs and incentivize cost management, but also introduce forecasting risk and limit flexibility if large capital programs are locked in too early. The study may further consider least‑cost planning approaches that evaluate a broader range of supply and demand‑side options, accounting for uncertainty and the growing role of demand‑side resources.
Finally, the use of securitization tools may be reviewed. While securitization can lower borrowing costs for extraordinary expenses such as storm recovery, it also shifts long‑term investment risk to ratepayers and requires careful oversight as its use becomes more common.
What this means for utilities
Such studies represent both a challenge and an opportunity for utilities. Any evolution of the utility business model must carefully balance affordability, financial sustainability, and system reliability.
Areas likely to be explored include aligning incentives with performance outcomes, reexamining ROE, designing MRPs that ensure customer benefits, applying least-cost planning more holistically, and using securitization tools thoughtfully to manage extraordinary costs.
These are not abstract policy debates. Decisions in these areas directly affect how utilities plan investments, manage risk, and serve customers over time. Importantly, successful modernization efforts depend on utility leadership and expertise. Utilities bring deep operational knowledge, system insight, and customer understanding that are essential to designing approaches that are both ambitious and practical.
Rather than framing modernization as a critique of existing models, many states are approaching it as an opportunity to ensure that regulatory and planning frameworks evolve alongside the grid itself.
We translate policy into strategies
We work alongside utilities and regulators as they navigate these conversations. Our role is to provide objective analysis, planning frameworks, and performance metrics that help translate policy goals into actionable, utility-ready‑ strategies.
At Energetics, we support utilities through services such as least-cost and integrated planning, demand- side resource evaluation, and the development of metrics that connect investment decisions to customer and system outcomes. Our focus is on helping utilities assess tradeoffs, test scenarios, and design approaches that balance affordability, reliability, and long-t erm resilience.
As more states undertake studies like New Jersey’s, the intention is not to replace the utility business model – but to strengthen it for the realities of today’s energy system and the demands of tomorrow. Get in touch to discuss how we can help.