How to Lower Energy Costs: Break Up the Electrical-Grid Cabal

Power bills are exploding across the United States. Roughly one-third of Americans struggled to pay for electricity in the past year, and millions received service disconnection notices due to unpaid bills. New Jersey Governor-elect Mikie Sherrill and Virginia Governor-elect Abigail Spanberger both campaigned on energy affordability. When they take office in January, they could tackle an unlikely adversary: PJM, the grid operator for the mid-Atlantic and parts of the Midwest. Finally, states in this part of the country may be ready to restructure the electrical grid.

The grid is a wonky topic, easily overlooked. But it’s also the backbone of everyday life, delivering power to homes, hospitals, and businesses; affecting household and commercial budgets and thus the broader economy. Much of the American grid is managed by seven obscure private regional transmission organizations, or RTOs, like PJM, with generally little public scrutiny or accountability. And in recent years, RTOs have fumbled both price increases and the energy transition, failing to get grid infrastructure upgraded or built.

RTOs are a product of the power industry deregulation of the 1990s and 2000s. Outside of the Southeast and most of the West, states, with encouragement from the Federal Energy Regulatory Commission, or FERC, restructured their power systems to replace publicly regulated rates with private competition wherever feasible. The theory was that rivalry between utilities and power generators would yield lower rates over time than public regulation could. The results of this experiment are decidedly mixed. As part of this sectoral reform, states and FERC encouraged utilities to form RTOs to operate and plan the grid in a fair and nondiscriminatory manner.

RTO transmission planning does not fit any ordinary understanding of the word “planning.” Instead of identifying system-wide needs based on cost, reliability, and sustainability, new transmission projects are built through a bottom-up process. Lines are proposed and built based on expected profitability for developers. This discretionary approach means that few long-distance lines have been built, despite clear benefits of grid expansion, such as increased system reliability, lower energy prices, and reduced emissions of greenhouse gas and other air pollutants.

An even more extreme example of RTO planning dysfunction is the interconnection queue. Thousands of new generation projects, especially solar and wind plants, languish for years on end, waiting to be connected to the grid. At the end of 2024, the total proposed capacity in queue was greater than the present installed generation capacity of the nation. This also creates warped incentives for developers to submit speculative projects because they are unsure of the cost or timeline of interconnection and just want to secure a spot in line. Sherrill and Spanberger have both criticized PJM’s inability to bring cheap, low-cost renewable energy online quickly.

This non-planning at RTOs is structural. Their decisions are made by committees and subcommittees dominated by representatives of generation and transmission owners. Further, RTO boards typically are selected by the transmission owners, generation developers, and industrial customers participating in the RTO’s market. Their decision-making is also ordinarily opaque: Spanberger emphasized the lack of transparency at PJM in a June op-ed about her affordable energy plan. While FERC has regulatory authority over these institutions, its practical control is weak under the Federal Power Act and has been further weakened by adverse court decisions.

RTOs also tend to favor the interests of transmission owners, often private utilities. An RTO’s very existence requires a critical mass of transmission owners to join. No transmission facilities mean no RTO. Transmission owners can and have left RTOs when they believed their policies were not sufficiently favorable to them. This credible threat of exit means transmission firms’ interests are generally given priority. New lines can mean loss of revenues and profits for transmission-owning utilities that directly or indirectly own generation, commonly gas, assets. Thus, a new independently owned wind farm is a potential competitor to these transmission-owning utilities, which in turn can leverage their power over the RTOs.

Accordingly, RTOs sometimes have a vested interest in impeding grid expansions. This can be especially pronounced with long-distance transmission line proposals. Connecting solar-rich Arizona and New Mexico with the Pacific Coast or the bountiful wind of the Great Plains with the Gulf Coast would mean low-cost, abundant renewable power displacing higher-cost energy from natural gas power plants. By contrast, preserving inadequate transmission between areas can ensure continued energy sales and maintain highly lucrative pricing power for generators in the “congested” zone.

So what’s the solution? In the short run, there is room for creating a more public grid. Governors like Sherrill and Spanberger, in alliance with other state executives in their region, can use their political leverage over utilities in RTOs and through complaints to FERC to demand more transparent decision-making. They should insist that RTOs open their proceedings to the public to ensure that consumer advocates and state officials can monitor and scrutinize their decision-making. Further, they should select at least a few board members from slates proposed by governors of states in their service territory.

In the longer term, we should aim higher, through multistate compacts and federal legislation, regional or national public grid operators. A more democratic RTO system would transfer power from what legal scholar Ari Peskoe calls the “transmission syndicate” that governs regional grids to a public agency. Instead of governance defined and developed by the private RTO members, this would allow for new governance that considers the twenty-first-century grid and grounds decisions in the public interest.

This model already exists. California’s transmission operator, CAISO, is managed by a governor-appointed board that acts to advance state policy goals, rather than private objectives. Further, the federal Tennessee Valley Authority and Bonneville Power Administration are responsible for grid operations and planning in parts of the Southeast and the Pacific Northwest, respectively. In 1999, Public Citizen urged FERC to create publicly owned transmission companies, instead of private RTOs, for each of the three physical grids in the United States (West, East, and Texas).

Around the world, the national government holds planning power via public, nonprofit national transmission agencies. The Netherlands, the Philippines, France, and Uruguay are just some of the countries that manage their transmission grid via one nationalized transmission system. This system has helped them manage grid balancing, as well as decarbonizing the energy sector.

Shifting the United States to a national transmission company to manage grid load may appear radical. But it shouldn’t be: The grid, like roads and highways, is basic infrastructure on which domestic, economic, and social life depends. Transmission organizations should be public bodies leading the transition to an affordable, reliable, and sustainable power system, not private clubs obstructing it.