By Avi Salzman
Early signs of a political backlash against utilities played out in New Jersey and New York this week, in a preview of what could be a rocky year for the sector.
Pressure is building on utilities across the country to slow electricity rate increases. It's likely to hurt returns for utility investors.
In New Jersey, incoming Gov. Mikie Sherrill declared "a state of emergency on utility costs" in her inauguration speech on Tuesday. It appears to be the first electricity emergency declared by any state in recent years. New Jersey's residential electricity rates increased by 42% in the past five years, based on the latest government data, which runs through October.
In her first executive order, Sherrill told the state's Board of Public Utilities to rebate residents for another expected increase in utility prices slated for later this year. The money for the rebates is expected to come from fees that power plants pay into a greenhouse gas fund.
Sherrill also wants the board to pause any rate increase requests, and scrutinize the financial models of utilities operating in the state, with a close eye on things like their return on equity. Utility companies tend to make returns on equity of around 10% on their investments in new infrastructure, but that number could start to trend downward.
If New Jersey starts to claw back the financial returns of utilities, it would almost certainly affect the stocks of those utilities. Shares of Public Service Enterprise Group, or PSEG -- one of New Jersey's largest utilities -- have fallen 3% since Sherrill was elected in November on a platform of stopping rate increases. The stocks of power plant owners in New Jersey and nearby states, such as Constellation Energy and Vistra, have also struggled since Friday, when the White House and governors called for changes to how electricity costs are allocated to try to slow down rate hikes.
Similar dynamics have been playing out in New York. On Thursday, the New York State Public Service Commission announced it had come to an agreement with utility Con Edison that will cut the utility's latest rate request by 87%. Con Edison agreed to the reduction.
Rate hikes will come in at around the rate of inflation for the next three years, the state said, after New York households saw an average 40% increase over the past five years. To save money, the state will defer nonessential capital improvements, along with other methods. Utilities make money by earning a rate of return on their capital investments; if their allowable investments decline, their returns will, too.
After years of rising rates, politicians are focused on stopping more increases this year. New York Gov. Kathy Hochul, who is up for reelection this year, released a plan this month "demanding strict fiscal discipline from utilities" and saying the state won't approve "gold-plated rate cases" anymore.
Utilities have benefited in the past two years from growing power demand from data centers and other users. This year, there are forces that could slow their momentum down.
Write to Avi Salzman at avi.salzman@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
January 22, 2026 16:56 ET (21:56 GMT)
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