New Jersey Gov. Sherrill signs data center legislation that aims to protect ratepayers

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New Jersey Gov. Mikie Sherrill signed legislation this week that aims to protect ratepayers as the increasing demand for data centers threatens a surge in electricity bills.

The goal of the new legislation is to prevent data centers from passing on the costs of required infrastructure expansion and energy usage to residential customers.

Specifically, the new law creates a separate ratepayer class for data centers to prevent energy costs from being passed down to other utility customers. The bill also requires data centers to pay for the electrical and clean energy infrastructure upgrades they create.

“For too long, New Jersey families have paid the price for poor oversight, outdated policies, and rising demand on our electric grid by unchecked actors,” Sherrill said in a statement. “Today, we’re putting money back into people’s pockets while holding utility companies and large data centers accountable through stronger oversight and smarter incentives that will drive down costs and strengthen our grid.”

The measure comes as the price of electricity is soaring. Though freezing weather conditions contributed to high utility bills this past winter, rate hikes have also been driven by a supply-and-demand imbalance, slow construction of new energy-generation infrastructure and an increased power demand from data centers.

PJM Interconnection, which manages the region’s electrical grid, has pointed to the increase in data centers as a reason for higher electricity bills.

Data centers, operated by big tech companies, house large computer servers necessary to power the growth of online processing, storage and artificial intelligence. While they have been around since the mid-20th century, the acceleration of AI has boosted demand for more energy and larger sites.

Though proponents of data centers tout the prospect of increased tax revenue, some local residents are concerned about their impact on air quality, increased water use and rising electricity bills.

“Data center growth will drive up the cost of electricity if we don’t create guardrails,” said bill sponsor Assemblyman Dave Bailey, D-Salem, in a statement. “We want to make sure data centers pay for the energy they use and the infrastructure they need, not our constituents. This bill is about protecting ratepayers and preventing households and small businesses from paying for data centers to connect to the grid.”

Sherrill also signed legislation that aims to prevent utility companies from taking advantage of ratepayers. The “Repeal ROE Adder” bill requires electric utility companies to join the regional power grid, and prevents them from charging ratepayers an extra “bonus” fee for voluntarily connecting to the grid.

The Advanced Grid Technologies Act requires the state’s utility regulators to closely monitor so-called “supplemental” grid projects, such as wires, poles and substations, in an effort to prevent wasteful spending that increases ratepayers’ bills. The legislation also speeds up the approval process for projects that use advanced transmission technologies.

Electricity bills are already on the rise in New Jersey. In 2024, there were 128,828 electricity shutoffs in New Jersey, according to the U.S. Energy Information Administration. Since then, electricity rates have increased by more than 16% in the state, according to a U.S. Senate committee report.

“New Jersey’s energy infrastructure faces growing demands, making modernizing New Jersey’s electric grid more important than ever,” said bill sponsor Assemblyman Cody Miller, D-Gloucester, in a statement.

“We are establishing new review processes that will ensure that projects meet better grid performance benchmarks. At the same time, by requiring State oversight, we’re making sure that investments in supplemental utility projects are necessary, cost effective, and meet our energy goals.”