New Jersey Gov. Mikie Sherrill came into office promising to lower energy costs — even pledging to freeze utility rates.
Instead, they could soon be on the rise.
Electricity bills for New Jersey residents jumped about 20 percent last year, leading to record-high costs this winter — a spike regulators and consumer advocates say is being driven by the explosive growth of energy-hungry data centers powering the AI boom.
The surge is creating an early political test for Sherrill, a newly elected Democrat who made affordability the centerpiece of her campaign. She now faces rising costs driven by forces largely outside her control.
Much of that demand is coming from outside New Jersey. Northern Virginia — home to the country’s largest concentration of data centers — is causing a surge in electricity use across the regional grid that includes New Jersey.
Since New Jersey is part of a 13-state power market run by PJM Interconnection, Sherrill has few tools to stop the increases.
“Because it’s not a New Jersey problem, it’s not a New Jersey solution,” Brian Lipman, New Jersey’s ratepayer watchdog, an appointee of former Gov. Phil Murphy, said in an interview with POLITICO.
The tension is emerging as one of the clearest examples of how the AI boom is colliding with state-level affordability politics. Data centers promise jobs, tax revenue and long-term economic growth — but their enormous energy demands are pushing electricity costs higher for residents. Governors are increasingly being forced to balance the economic upside of attracting tech investment with the political risk of rising utility bills.
In his State of the Union address, President Donald Trump said companies building data centers would need to “pay their own way” to prevent electricity costs from rising, while governors in the region have pressed the grid operator for more transparency and reforms.
The proliferation of these massive computing warehouses are particularly challenging for Sherrill. Rising costs for living and housing in New Jersey, on top of a state budget scrambling for dollars, add to the financial strains posed by the tech boom.
New Jerseyans have already felt the costs of the data centers that power their AI prompts, with average utility bills rising more than any other state last year, according to data released by Democrats on the Joint Economic Committee.
The spike was the second consecutive one driven by the annual capacity auction process used by PJM. Lipman told POLITICO that the jump was “100 percent linked to data centers,” which have pushed the energy demand that drives the capacity auction.
It’s only expected to get worse.
There are 68 data centers in New Jersey, according to Data Center Map, a research tool that provides a global directory of data centers. They currently consume 5 percent of New Jersey’s total electricity — a number expected to more than double by 2030.
While Sherrill hasn’t commented extensively on data centers, her first steps as governor indicate that she is following through on her promise to make energy affordability a top priority. And the state Board of Public Utilities has taken actions, such as awarding battery and solar power projects, designed to address energy shortfalls primarily driven by data centers and to try holding down ratepayer costs in the long term.
On her first day in office, she signed executive orders acknowledging the factors driving up energy costs: the sky-high capacity auction prices for PJM and federal tariffs that hinder the development of renewable energy. The executive orders diverted state funding for clean energy infrastructure to offset increases on ratepayer bills and asked the Board of Public Utilities to accelerate the development of utility-scale solar, community solar and transmission-scale battery storage.
For some advocates, Sherrill’s focus on grid reliability and renewables marked a contrast to Murphy’s pro-AI approach.
He oversaw a $25 million initiative between the state, Nvidia, and a consortium of universities to accelerate AI research and education. On his way out, he also pocket-vetoed several bills aimed at increasing oversight of data centers and transparency around their energy and water usage.
In an exit interview with NJ Spotlight News, Murphy said data center growth must be approached “carefully,” stressing the need to strike “the balance right” between attracting AI startups and building the infrastructure to power them while “not making the ratepayer the victim.”
But the advocates say his administration underestimated how quickly AI-driven energy demand would grow.
“The Murphy administration didn’t see the monster that was coming,” said Anjuli Ramos, president of the Sierra Club’s New Jersey chapter. “Everyone was caught off guard by the need for this insane [energy] capacity, and it’s unfortunate that he didn’t take action right away at such a critical moment.”
Sherrill’s office has signaled a more cautious posture while still welcoming industry investment. Spokesperson Darwin Pham told POLITICO that the governor remains committed to “ensuring data centers pay their fair share for energy costs, manage their resource needs responsibly, and that communities see benefits through state policies.”
At the same time, the administration has indicated it may allow key Murphy-era programs to remain in place. When asked by Inside Climate News about a $250 million data center tax incentive awarded under Murphy, Sherrill spokesperson Maggie Garbarino said the governor “welcomes new opportunities to attract businesses — such as data centers — to our state.”
Pham declined to say if the governor intends to review or adjust the program, which would create nearly 150 jobs for New Jerseyans.
While his AI support drew criticism, Murphy also signed the PJM Governor’s Collaborative, joining other governors in trying to pressure more accountability from PJM and to increase state and consumer representation on its board.
That coordinated pressure resulted in the grid operator’s agreement last month to extend a cap on wholesale electricity prices for two years, which is projected to save PJM’s 67 million customers $27 billion on their energy bills.
Sherrill has already followed a similar approach, signing a joint letter to the PJM board this month with Illinois Gov. JB Pritzker. The letter warned that the grid operator’s plan to fast-track new power projects could sideline the Garden State Energy Storage program and other battery storage programs designed to stabilize the grid and provide faster relief for ratepayers.
Sherrill’s energy affordability and reliability transition team further pushed multi-state pressure on PJM in their recommendations released last month, urging her to take a leadership role in forming a multi-state coalition aimed at fixing flaws in PJM’s demand forecasting — particularly “ghost projects.”
Data center developers sometimes reserve capacity in multiple locations at once, making the same facility appear multiple times in forecasts. This can inflate expected needs and drive up auction prices even if some of those projects never materialize.
The transition team also recommended that Sherrill establish regulations requiring data centers to shoulder the cost of the additional capacity needed to serve them, advising mechanisms such as flexibility commitments in exchange for expedited interconnection or “bring your own generation” requirements.
Sherrill’s office declined to comment on whether she intends to follow the recommendations, but similar approaches are gaining traction nationally.
States including Virginia and Ohio have introduced new rate classes for large load customers like data centers that would require them to pay for a majority of the energy generation they need each month. State lawmakers in Connecticut similarly advanced legislation this month requiring data centers to supply their own power.
In Congress, New Jersey Sen. Cory Booker introduced legislation in January directing states to create new rate classes specifically for data centers and requiring them to secure their own power supplies. At the state level, New Jersey state Sen. Bob Smith took a similar approach, authoring a bill last year that would require new AI data centers in the state to arrange to supply their power from new, clean energy sources.
One challenge is timing. Lipman, the rate counsel advocate, noted that while a data center can be built in roughly 18 months, it can take two to three years to build the new generation to power it. Even so, he said the responsibility to find a solution lies with the companies constructing and operating the facilities.
“The money that many of these data centers throw around is like Monopoly money to them, and backing them should not fall on the residents of New Jersey,” Lipman added.
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