Last month, the Federal Energy Regulatory Commission issued a notice of inquiry asking for ways to improve incentives for the construction of electric transmission. It is pertinent to understand the incentives that exist today for the construction of the nation’s grid.

In a new policy study, R Street Director of Energy Travis Kavulla discusses how the electricity markets of the United States operate in silos, even though many of them are physically interconnected and trade a commodity that moves at the speed of light. Kavulla argues that electricity markets need to seek out ways to facilitate trade between them, across what experts call their “seams.”

The author argues that there are “software” solutions that can make our grid more efficient, even before we spend money on additional “hardware,” like new transmission lines. When we do need more “hardware,” we should consider innovative business models to pay for its construction, and the FERC is currently paving the way to do that.

The author concludes that “ISOs have conferred significant advantages in terms of the efficiency of the American power sector. Yet by becoming free-trade zones unto themselves, they in some ways make it difficult for those outside the ISO to trade into it.”