This piece was initially published in RealClearEnergy.

In a rare Level 3 alert, the North American Electric Reliability Corporation (NERC) warns that hyperscale data centers are introducing volatile, hard-to-predict load swings—where gigawatts can drop off the grid in seconds—that utilities aren’t equipped to manage, creating a new reliability risk as electricity demand surges. This comes on the heels of recent Senate and House hearings on the state of the bulk power system and how to meet growing electricity demand while protecting ratepayers.  In NERC’s warning and the Senate hearings, transmission policy featured prominently.

With rising electricity demand, America’s energy economy needs more transmission. That can be done at great expense and in an opaque manner. Or it can be done cost-effectively and transparently. These principles lay the foundation to ensure that transmission needs protect ratepayers, enable competition, and provide grid reliability at the lowest possible cost. That was the core argument of a recent op-ed by Cato’s Travis Fisher (who provided excellent testimony before the Senate) and me.

And it is a core argument in a framework developed by a coalition of right-of-center organizations, including C3 Solutions, the R Street Institute, Americans for Prosperity, the Pacific Legal Foundation, the Abundance Institute, the American Conservation Coalition, and the Conservative Energy Network. The framework lays out five principles for reforming transmission policy around competition, cost discipline, and accountability.

1.) Prioritize upgrades to existing infrastructure. The quickest and least-cost methods of expanding the transmission system are often upgrades to existing infrastructure. However, the cost-of-service regulatory model discourages transmission owners from pursuing upgrades voluntarily or solutions beyond in-kind replacements. That creates a structural incentive to build new infrastructure rather than upgrade what already exists, even when an upgrade would deliver more capacity at lower cost. Advanced transmission technologies, such as dynamic line ratings and high-performance conductors, can meaningfully expand throughput on existing corridors without new right-of-way. The regulatory model should reward efficiency upgrades, not discourage them.

2.) Remove barriers to merchant transmission. Merchant transmission projects are financed and built without guaranteed cost recovery, which means developers take on real financial risk and must identify customers willing to pay for the capacity. This model is economically advantageous given its use of voluntary planning and cost allocation, and could be deployed more to build more regional and interregional transmission. However, high regulatory barriers can disadvantage the merchant transmission model, which is routinely usurped by mandatory planning processes or deemed ineligible for compensation for providing key grid services. 

3.) Addresses mandatory planning and cost allocation. Reforming these processes means applying the beneficiary pays principle consistently. The majority of greenfield transmission expansion will inevitably occur under mandatory planning and cost allocation processes run by utilities or regional transmission organizations (RTOs). The most economical manner to plan such projects is through robust cost-benefit and scenario analyses, planning horizons appropriate for long-lived infrastructure, allocating costs based on the beneficiary pays principle, and putting transmission needs or solutions out for competitive bid. Developers should have a reasonable expectation that beneficial transmission lines can be deployed.  This should include ensuring that developers have a credible means of proposing lines, that regulators will evaluate them based on neutral criteria, and that, if selected, costs will be borne only by those who benefit, and only to the degree they benefit. 

4.) Streamline permitting and siting. New transmission lines routinely take a decade or more to permit, which is simply incompatible with the pace of data center development and the urgency of meeting rising load. Reforms to the National Environmental Policy Act, the Clean Water Act, the Endangered Species Act, and the National Historic Preservation Act will benefit all forms of energy, including transmission. Priority improvements should be made at the state and local levels while protecting private property rights. Tying permitting decisions to evidence of demonstrable harm rather than speculative objections and establishing credible appeals processes for developers who face arbitrary denials would meaningfully accelerate deployment. Federal backstop authority should remain available but be a genuine, appropriate last resort.

5.) Improve transmission governance, particularly outside of regional transmission organizations. Inside RTOs, there are at least formal structures for oversight and transparency, however imperfect. Outside RTOs, covering a substantial portion of the country, governance is weaker and less accountable. Independent institutions, such as an Independent Transmission Monitor, could audit and assess transmission operations and planning. Closing the governance gap between federal and state authority over local transmission projects, a gap that has allowed costs to accumulate without clear accountability.

Policymakers who care about energy affordability and grid reliability should take these principles seriously, and where possible, put them into practice. Transmission investment should be guided by market signals and by rigorous cost-benefit analysis. Costs should be borne by those who benefit, not socialized broadly across ratepayers to subsidize favored resources or developers. Governance should be transparent enough to identify and correct decisions and to steer resources away from projects that yield marginal benefits at higher costs. To meet America’s growing energy demands, the entire system should be oriented toward delivering reliable power at the lowest possible cost to the households and businesses that depend on it.

The views and opinions expressed are those of the author’s and do not necessarily reflect the official policy or position of C3.