The Northeast Is Facing Its Steepest Rate Increases in a Decade
Commercial real estate operators across the northeastern United States are confronting a wave of utility rate increases that are unlike anything seen since the energy price shocks of 2014. From Massachusetts to Pennsylvania, regulated utilities are filing for and receiving approval of double-digit rate hikes that are landing squarely on the operating budgets of office buildings, multifamily properties, retail centers, and industrial facilities.
The increases are not isolated to a single fuel type or cost component. Natural gas supply rates, electric generation charges, delivery infrastructure surcharges, and capacity auction results are all moving upward simultaneously. For property managers accustomed to annual budget increases of two to four percent, the current environment represents a fundamental repricing of what it costs to operate a commercial building in the Northeast.
Understanding the drivers behind these increases is essential for anyone responsible for managing operating expenses, negotiating tenant leases, or forecasting capital requirements. This article breaks down the rate changes state by state, examines the structural forces at work, and outlines practical strategies for protecting portfolio economics in a rising-rate environment.
Massachusetts: Eversource and National Grid Lead the Surge
Massachusetts has been hit particularly hard. Eversource Energy, the state's largest utility, implemented a natural gas supply rate increase of approximately 30 percent for the winter heating season. The increase reflects higher wholesale gas prices on the Algonquin Citygate hub, the primary pricing point for New England gas deliveries, combined with pipeline capacity constraints that tighten every winter as heating demand competes with gas-fired electric generation.
On the electric side, National Grid's basic service rates for commercial customers have risen sharply as well. The utility's procurement costs are driven by ISO New England's wholesale market, where capacity prices have increased significantly following the Forward Capacity Auction results. Retirement of older generation assets, particularly the Mystic Generating Station, has reduced available supply in the capacity market and pushed clearing prices higher.
For a typical 100,000 square foot office building in Boston with combined electric and gas service from Eversource and National Grid, the annualized increase in utility costs could range from $35,000 to $55,000 compared to the prior year, depending on usage patterns and contract timing.
Massachusetts also continues to layer on policy-driven cost adders, including clean energy surcharges, renewable portfolio standard compliance costs, and energy efficiency program funding that is collected through distribution rates. While these programs serve important environmental goals, they add another dimension of cost pressure to commercial building operations.
Connecticut: United Illuminating and Eversource Hikes
Connecticut's utility customers are facing similarly steep increases. United Illuminating, which serves the southern portion of the state including the Bridgeport and New Haven metro areas, received approval for a generation service charge increase of approximately 23 percent. The increase is driven by the same wholesale market dynamics affecting the broader ISO New England footprint, compounded by transmission congestion costs that are particularly acute in Connecticut's load pockets.
Eversource's Connecticut operations, which serve the Hartford region and much of the state's interior, have also raised standard service rates. Connecticut's Public Utilities Regulatory Authority approved rate adjustments that reflect higher procurement costs, grid modernization investments, and the state's aggressive clean energy mandates under Public Act 22-5.
For commercial property operators in Connecticut, the compounding effect of electric and gas rate increases is creating significant budget pressure. Many operators locked in competitive supply contracts during the lower-rate environment of 2023 and early 2024 and are now facing sticker shock as those contracts expire. The spread between legacy contract rates and current market rates is the widest it has been in years, making contract renewal timing a critical financial decision.
Connecticut's relatively small geographic footprint means that most commercial portfolios in the state are concentrated within one or two utility territories. This concentration amplifies the impact of any single utility's rate changes and limits the ability to diversify exposure across different rate structures or market zones.
New Jersey: PSE&G and the PJM Capacity Auction Impact
New Jersey's commercial electricity customers are absorbing a supply rate increase of approximately 17 percent, driven primarily by the results of PJM Interconnection's capacity auction. The Base Residual Auction for the 2025/2026 delivery year cleared at dramatically higher prices than previous auctions, reflecting tighter reserve margins across the PJM footprint and the retirement of coal and older gas-fired generation units.
PSE&G, the state's largest electric and gas utility, passes capacity costs through to customers as part of its Basic Generation Service charge. The capacity component alone accounts for a substantial portion of the total supply rate increase. On the gas side, PSE&G has also implemented delivery rate increases to fund infrastructure upgrades and pipeline replacement programs mandated by the state's Board of Public Utilities.
New Jersey's status as a PJM state means that its capacity costs are determined by the broader regional auction rather than by local supply and demand conditions alone. When generation retirements in Ohio, Pennsylvania, or Virginia tighten the PJM-wide supply stack, New Jersey customers feel the impact through higher clearing prices even if local supply conditions are adequate.
The state's clean energy policies, including the offshore wind procurement program and the solar successor incentive program, are adding incremental costs to electric bills through socialized surcharges. While these investments are intended to reduce long-term dependence on fossil fuel generation, they represent additional near-term cost pressure for commercial building operators already contending with double-digit rate increases on the supply side.
Pennsylvania: PECO and the PJM Ripple Effect
Pennsylvania's deregulated electricity market exposes commercial customers to the same PJM capacity auction dynamics affecting New Jersey. PECO Energy, the primary electric utility serving the Philadelphia metro area, has implemented default service rate increases of approximately 12.5 percent for commercial customers. The increase reflects higher capacity costs, rising energy procurement prices, and transmission charges that have been trending upward across the PJM footprint.
In western Pennsylvania, Duquesne Light and West Penn Power customers are seeing comparable increases, with capacity costs representing the single largest driver of higher bills. The PJM capacity auction results affect all load-serving entities in the footprint, regardless of the local utility, making this a region-wide phenomenon rather than a utility-specific issue.
Pennsylvania's competitive retail market does offer commercial customers the option to procure supply from third-party electric generation suppliers. Operators who locked in competitive supply contracts ahead of the capacity auction results are insulated from the immediate impact, but those contracts will eventually expire, and renewal rates will reflect the new capacity cost baseline.
Natural gas costs in Pennsylvania have been somewhat buffered by the state's proximity to Marcellus Shale production. However, pipeline takeaway capacity constraints and growing LNG export demand from the Gulf Coast are putting upward pressure on Appalachian basin gas prices that is beginning to flow through to commercial delivery rates.
Budget Planning Strategies for a Rising-Rate Environment
The breadth and magnitude of rate increases across the Northeast demand a more disciplined approach to utility budget planning than most commercial real estate operators have historically employed. The following strategies can help portfolio managers navigate the current environment and position their properties for resilience against continued rate pressure.
- Build rate sensitivity into budget models. Rather than using a single projected utility rate, model operating budgets with low, base, and high rate scenarios. The spread between scenarios should reflect the actual range of potential rate outcomes based on current regulatory filings and auction results, not historical averages that no longer apply.
- Review lease structures for cost pass-through. In triple-net and modified gross lease structures, utility cost increases may be recoverable from tenants. However, the speed and magnitude of current rate increases can create cash flow timing mismatches between when costs are incurred and when they are recovered through CAM reconciliation or operating expense escalations. Ensure lease language supports timely recovery and consider interim billing adjustments where permitted.
- Evaluate competitive supply procurement. In deregulated states like New Jersey and Pennsylvania, third-party supply contracts can offer savings compared to utility default service rates. However, the savings opportunity depends heavily on timing, contract structure, and the supplier's hedging strategy. Work with an energy advisor who understands the regional wholesale markets and can structure contracts that align with your risk tolerance.
- Accelerate energy efficiency investments. Rate increases make the payback period for energy efficiency projects shorter and the ROI more attractive. Building envelope improvements, HVAC optimization, LED lighting retrofits, and building management system upgrades all reduce the volume of consumption exposed to higher rates. Prioritize projects with the shortest payback periods and the highest reduction in peak demand.
- Centralize utility data and analytics. Managing rate exposure across a multi-state Northeast portfolio requires real-time visibility into consumption, billing, and rate components for every property. Manual spreadsheet tracking cannot keep pace with the complexity of multi-utility, multi-state rate changes. Investing in a centralized utility data platform pays for itself by enabling faster response to rate changes and more accurate budget forecasting.
The rate increases hitting the Northeast in 2026 are not a temporary anomaly. The structural forces driving higher costs, including generation retirements, pipeline constraints, clean energy mandates, and grid modernization investments, will continue to push rates upward for the foreseeable future. Commercial real estate operators who recognize this reality and adapt their budgeting, procurement, and operational practices accordingly will be far better positioned than those who continue to treat utility costs as a stable, predictable line item.