Don’t Let Stealth Deregulation Sink Permitting Reform

Make Transmission Policy Technical, Not Ideological

As the last major effort for bipartisan permitting reform fizzled out at the end of the last Congress, both protagonists and observers settled upon two dueling explanations for the political failure of the Energy Permitting and Reform Act (EPRA). The first was that the green groups did the deed, opposing judicial reform and other key changes to the National Environmental Policy Act (NEPA) that spiked a deal with Republicans. The second was that the utility industry was responsible, opposing reforms that would have made it easier for the Federal Energy Regulatory Commission (FERC) to override state opposition to new interstate transmission lines because they feared that new transmission would increase competition from out of state generators.

The first of these explanations is undoubtedly true. Green groups made no bones about their opposition to the package pushed by then West Virginia Senator Joe Manchin and Wyoming’s John Barrasso. Despite a lot of handwaving in some green quarters about the need to build, not a single major green group came out publicly in support of EPRA.

But the role that utilities played is more complicated. Not every major utility opposed EPRA and some publicly supported it. Rural electricity co-ops and publicly owned utilities opposed the transmission reform provisions in EPRA as did a subset of investor-owned, vertically integrated monopoly utilities in states that have not liberalized their electricity markets.

The dispute, ostensibly, was about whether states should be forced to pay for transmission capacity that they don’t want or need. But it was also about an attempt to use transmission reform as a trojan horse to force states where utilities continue to be traditionally structured and regulated to allow competition from merchant power generators.

As Democrats and Republicans gear up for one more go at a permitting reform deal, there are lessons from the failed effort to pass EPRA in the dying days of the last Congress that might help avert a similar fate in this Congress. Transmission reform needs to work not only for utilities and states that have liberalized their electricity markets but also for those that have not. For decades, advocates for electricity market liberalization have argued that competition would lower rates and accelerate decarbonization. But the real world evidence for these benefits is mixed at best. Simultaneously, the ability of traditionally regulated utilities and regulators to plan for new generation, transmission, and distribution has real strengths that advocates for market competition have underestimated. Using transmission reform to force competition on states that have not signed up for liberalization is bad politics and bad policy.

Electricity Market Liberalization Has Been a Mixed Bag

Both renewable energy advocates and proponents of electricity market competition have long directed fire at traditional cost-of-service utilities, both believing that supply-side competition will drive down electricity prices by opening up the grid to alternative energy sources. Vertically integrated utilities, in this view, restrict the free market’s ability to lower prices and bring new energy technology to market. There is some truth to this argument. Data collected since restructuring in the 1990s shows that competition in deregulated markets does indeed improve dispatch and decrease production costs.

But the relationship between wholesale electricity market competition and lower observed electricity rates is tenuous. Lower production costs don’t necessarily lower consumer prices because electricity markets remain deeply imperfect. Generators can exert market power, markets are influenced by state policies, and public goods like reliability and grid inertia aren’t properly valued, even by capacity and ancillary markets. Multiple analyses of deregulated regions suggest that dispatch of cheaper generation doesn’t even translate into lower wholesale price, much less retail prices.

Production costs, moreover, are just a fraction of the prices seen by end users. In an analysis of utility spending reports to FERC, EIA found that, while production costs nationwide decreased 24% from 2003 to 2023, spending on transmission tripled and spending on distribution grew 160%. EIA goes so far as to explicitly state that “capital spending on the distribution system, responsible for delivering electricity to end users, was the main driver of electricity spending increases over the last two decades.”

In practice, the choice between competitive markets and cost-of-service regulation has real tradeoffs. For instance, deregulated markets tend to beget volatility. Prices subject to real-time swings in supply and demand expose consumers to the volatility of fuel prices and supply-demand imbalances. The cost-of-service model doesn’t eliminate these impacts entirely, but helps smooth them out over a longer time horizon, protecting ratepayers from feeling price spikes as acutely.

If one regulatory model were objectively better than the other, it would demonstrate so on the grounds of a utility’s core mandate: to provide reliable electricity at the least cost possible to consumers. Yet deregulation has not emerged as a clear winner.

Consider resource adequacy. Deregulated regions internalize resource adequacy with market structures like ancillary and capacity markets that offer profits to private developers willing to build generation needed for long-term resource adequacy. But resource adequacy, and reliability more broadly, are public goods that can’t be bought and sold in any organic market. Because of this, electricity markets struggle with proper valuation. Markets are also influenced by inconsistent risk tolerances between regions and states, distortionary political interventions (e.g., renewable portfolio standards and state tax credits), and regulations that cap energy prices during periods of extreme scarcity (e.g., Texas electricity prices hitting the state’s $9/kWh cap during Winter Storm Uri). On net, merchant developers in competitive markets typically wait to start new construction until they see strong enough price signals. This often leaves deregulated regions with thinner margins of excess capacity to act as a buffer against, say, an unanticipated explosion of demand from data centers.

Regulated utilities can tackle resource adequacy with the advantages of centralized decision making, stable financing, and predictable revenue. As both the system planner and the system builder, they don’t experience a coordination gap between the identification of a need and that need getting fulfilled. This lets regulated utilities construct larger projects that serve long-term resource adequacy forecasts rather than limiting new construction to what near-term market signals justify.

As a result, vertically integrated utilities are structurally better equipped to accommodate large loads like data centers and industrial facilities and to build energy megaprojects like nuclear, hydropower, and even offshore wind. Market liberalization has proven deadly for both firm, low carbon generation and large loads. Since restructuring began, liberalized markets have contributed to the closure of 6.5 GW of nuclear generation. The replacement of long-term industrial price agreements has contributed to the closure of 85% of U.S. aluminum smelting capacity since 1980. No liberalized market in the US or abroad has succeeded in deploying a new reactor or smelter. Ever.

Critics will point out that guaranteed rates of return on billion dollar megaprojects incentivizes utilities to overrun costs. Again, this argument is not wrong, but it is incomplete. Yes, the cost-of-service model puts the risk of overbuild onto ratepayers. But liberalized markets burden ratepayers with risk too; they only shift it to the opposite scenario by imposing steep scarcity prices if past market signals caused underbuilding.

Is it better to bill ratepayers for larger safety margins, knowing that utility gold-plating makes up at least some of those costs, or to use markets to ensure, on average, leaner spending on generation but increase household electricity prices at the times when that conservatism falls short? The case for the latter is by no means clear enough to justify fixating on competition and deregulation, a stance that only works to the country’s collective detriment at a time when bulk system reliability demands collaboration and coordination over homogeneity.

Figure 1: Conceptual table of societal risk burdens under cost-of-service versus competitive electricity market structures

At any rate, using transmission reform to increase competition in regulated markets in the name of affordability, reliability, and decarbonization fails to reckon with how deregulated markets have yet to deliver on their promises.

Decoupling Transmission Reform from Stealth Deregulation

Unfortunately, federal transmission reforms of the past few years have indeed erred towards the deregulatory thesis—directly and circumspectly proposing increases in federal authorities to promulgate competition.

The Energy Bills Relief Act introduced by Reps. Levin and Casten in March 2026, for example, would mandate minimum electrical transfer capacity between regions, give FERC ultimate authority to allocate the costs for a broad and vague classification of transmission lines of “national significance,” and require that demand response be “eligible to participate in all wholesale energy markets regardless of the State in which they are located.” Physical ties to neighboring deregulated regions exposes regulated utilities to the argument that lower cost imports should displace new local investment. While this would not definitively lead to deregulation, it allows ratepayer advocates to make the case to state commissions that utilities should trade with external generators and integrate with competitive markets in lieu of investing in local generation and infrastructure. Integration and interconnection may make sense in some cases, but those determinations need to be made in the context of comprehensive, long-term planning. Moreover, statutes like these in the Energy Bills Relief Act make no attempt to integrate with regional processes or the limits placed on FERC jurisdiction by the Federal Power Act, nor do they ensure ratepayers on one side of a line won’t pay for benefits received only on the other.

Even legislation widely considered to be bipartisan includes provisions that seek to encourage deregulation through federal authority. In addition to proposing that “improved access to lower cost generation that achieves reductions in the cost of delivered power” count as a benefit when calculating transmission benefits, EPRA would have let FERC circumvent state siting for any interstate transmission line at or above 100 kV. But more than half of the country’s transmission lines are at or over 100 kV [Figure 1]. And even if a 100 kV line crosses state borders, it poses relatively trivial implications for bulk system power flow and is significantly more expensive per unit capacity than a higher voltage line [Figure 2]. Clearly, this provision focuses on maximizing federal authority and gives little thought to whether doing so ensures best practices for enhancing reliability and affordability.

Figure 2: Number of transmission lines in the United States by voltage class. Approximately 52% (44,665) of lines with documented voltage levels are rated between 100 and 161 kV.

Figure 3: Cost per MW-mile (rated capacity) for a new AC, single-circuit transmission line at different voltage levels. Assumes a 100 mile line, addition of two breaker-and-a-half positions (one each terminal), power factor of 0.95, and conductor specs provided in MISO’s 2024 transmission cost estimation guide. Calculated data may not be accurate outside of the MISO footprint.

Rather than assuming that interregional or high-voltage lines maximize social welfare, federal policies should instead facilitate interregional planning processes that use local cost-benefit analyses to evaluate projects on their merits. States, utilities, and other stakeholders are far more likely to support federal transmission policies that let them participate in planning from the outset and that align with existing FERC rules. Even if interregional planning is federally required, it retains local autonomy, making it significantly more palatable than top-down, prescriptive transmission mandates.

It is also crucial that interregional transmission planning operate in parallel with both region’s internal transmission plans, and that these joint transmission plans use objective criteria that regions agree upon a priori to calculate a project’s benefits. Such criteria should consider both the least and most cost-efficient solutions across the shared geographic area that improve bulk system performance defined using quantifiable metrics already employed by the power sector. Importantly, such criteria should exclude more politically-laden criteria like promotion of clean energy, regional carbon emissions, and other vague benefits. After all, one state should not have to pay higher rates to help another state meet its clean energy policy targets. If climate advocates believe so firmly in the growing economic power of clean energy sources, they should take appropriate confidence that such characteristics will manifest empirically in cost-optimized reliability planning.

If interregional planning selects an interregional line as a worthy project, it stands to reason that the affected states and entities should cooperate to build and pay for them. To prevent intractable disagreements over the exact share of costs that each involved state’s ratepayers should bear, federal policy should also require in advance that states formalize agreements on a default cost allocation formula to pay for a project in the event that it meets cost-benefit criteria. Here again, the early involvement of key decisionmakers improves this transmission reform framework’s political viability by letting them craft the agreements that will hold them accountable moving forward.

FERC siting authority should only apply in cases where states refuse to issue siting permits as a veto to block transmission projects that regional planning has already singled out as desirable for the areas they would connect. In such instances, FERC is only intervening to enforce agreements that the relevant stakeholders have already consented to—to advance a public interest that participatory regional planning has already empirically identified. Notably absent from this framework is any ideological attempt to impose competition upon vertically-integrated utility territories for its own sake.

Market Neutral National Transmission Policy Is Good

In the end energy system evolution and decarbonization will have to move forward in numerous vertically-integrated, regulated jurisdictions as well as in deregulated electricity markets, federal organizations like the Tennessee Valley Authority or Bonneville Power Administration, and not-for-profit, community-owned utilities. Of these options, many states will choose to retain regulated monopolies in the electricity sector and have every right to do so.

Regions with competitive electricity markets are not going anywhere either. It is difficult to imagine putting Humpty-Dumpty back together, nationalizing all generation and transmission assets, and re-bundling everything under one roof again in places like New England, California, and Texas.

The United States, being a large and diverse country with strong regional and state-based identities, contains a myriad of regulatory flavors and will likely continue to do so. In a federal system, Congress should be expected to craft transmission policy reforms that let a thousand flowers bloom, rather than implicitly dictating one electricity market structure over another. If Congress and energy policy commentators want to build lines connecting wind and solar in the Great Plains to coastal population hubs or to restructure utility regulation in states that currently operate under the traditional cost of service monopoly utility model, they should debate such ideas explicitly rather than using transmission to fight a proxy war over competition and renewable energy despite the lack of clear evidence that these objectives efficiently improve affordability and reliability or accelerate decarbonization.

Meaningful and politically-durable transmission reform, rather, need only formalize how transmission planning regions coordinate to identify projects that genuinely benefit both regions, and to codify agreements between states for sharing project costs. Such a framework rightly leaves decisions over preferred utility or market structures up to regions and states, retaining federal siting authorities but only for transmission lines that participatory interregional planning has already identified as beneficial to all parties involved.

Even if critics of traditional monopoly utilities are correct that such territories would continue to block interconnections that might introduce competing sources of electricity generation, a compromise would still facilitate interregional transmission between deregulated areas of the country—a vast improvement from the currently intractable status quo. At the same time, the empirically-grounded regional planning processes mandated by this policy framework would focus greater political pressure upon bad-faith stakeholders if they were indeed seeking to prevent worthy projects from moving forward.

By the same token, if the vertically-integrated utilities are correct that their regional systems are cost-efficient, resilient, and in conformity with reliability requirements, then the regional planning process will vindicate their claims and deem additional interconnections unnecessary. If they are mistaken, then they possess an obligation to their regulators and their ratepayers to support new high-voltage lines identified as beneficial.

Just as grid operators and researchers rely on centrally-designed power system models to test scenarios and hypotheses, the solution to regionally contested transmission expansion is to evaluate results scientifically: 30 years of observations from the American Experiment with reconstruction fail to corroborate the hypothesis that competitive markets are more effective than cost-of-service regulation. Policymakers should adopt this narrow and more technically-informed mindset to decouple the transmission debate from fraught ideological goals around preferred market models and favored generation technologies, increasing the odds that Congress will enact politically durable and materially successful permitting and transmission reforms.