Powering Indiana’s Energy Competitiveness
For Hoosiers, the only thing as electrifying as Indiana University football is the literal need to electrify new industry. Powering data centers and manufacturers quickly, reliably, and cost-effectively fuels Indiana’s economic development engine. Furthermore, insulating existing customers from electric costs caused by new customers is key for new industries to secure a social license to operate.
To meet modern needs, Indiana must modernize its electric policies. Hoosiers remain wedded to an outdated electric supply model where the state grants a utility an exclusive franchise over the vertical supply chain to serve captive customers. Indiana adopted this arrangement in 1913 based on assumptions that are plainly outdated today. In exchange for monopoly rights, a utility would be subject to strict cost-of-service regulation by the Indiana Utility Regulatory Commission (IURC).
The role of the IURC in monopoly utility oversight is to substitute for competition. Such regulation is necessary because monopolies have a motive to overcharge customers, and the cost-of-service model creates a perverse incentive for the utility to overcapitalize its assets—upon which it earns a regulated rate of return—while socializing risk on captive ratepayers. This regulatory model does not work well for power generation and retail services because they are not natural monopolies. As witnessed in other states, competitive markets tend to outperform monopoly utilities. Transmission and distribution wires have some natural monopoly characteristics; thus, a more hands-on role for cost-of-service regulation is prudent to induce economic discipline.
Wisely, Indiana allows its utilities to participate in either the Midcontinent Independent System Operator (MISO) or the PJM Interconnection. Both MISO and PJM are independent system operators (ISOs) or regional transmission organizations (RTOs) that operate wholesale electricity markets and plan regional transmission. ISOs/RTOs induce cost savings and enhance reliability by playing the role of air traffic controller for regional grids.
The Merits of Markets
There are three main paradigms for wholesale and retail electric service. The most effective is the restructured model, wherein competitive markets prevail at both wholesale and retail levels. In other words, customers can choose a competitive retail supplier to buy power on their behalf on an ISO/RTO wholesale market consisting of competitively owned power plants. Most states, including Indiana, fall under the hybrid paradigm. This comprises a competitive wholesale market run by an ISO/RTO but with power generation and retail services remaining primarily under monopoly utility control. A dwindling number of states retain monopolies and do not participate in ISOs/RTOs.
The economic case for restructuring is convincing. Evidence clearly shows that competitively owned power plants operate more cost-effectively and induce innovation, including major efficiency gains in the fossil and nuclear fleets. Yet the core of the restructuring thesis—improving incentives for investment in new power plants—is chronically understudied. In 2025, an Indiana University scholar delineated the first causal evidence that competitive reforms affect investment patterns, suggesting economic efficiency gains. This is consistent with evidence from the practitioner domain. For example, competitive electricity markets are responsible for low-cost, high efficiency natural gas plants replacing higher-cost legacy power plants in PJM during the 2010s.
Importantly, these market advantages occurred in an era of fairly straightforward investment decisions between conventional power plants. States adopted restructuring in the 1990s largely because monopoly utilities made errors in technology choice and overinvested based on exaggerated demand forecasts. The resulting costs were not internalized by utilities; rather, they were socialized among captive customers.
Today’s technology landscape involves far more complex capital-investment decisions. Unconventional supply resources like wind, solar, and storage have reached economic parity, while demand-side resources remain largely untapped. This causes a breakdown in integrated resource planning (IRP) within monopoly states. State regulators like the IURC face a growing information deficit regarding which centrally planned utility investments constitute least-cost service. The return of highly uncertain levels of demand growth compounds this, creating a major risk that utilities will not identify the correct level of investment needed.
Under the monopoly model, such risks are borne by captive ratepayers. Under the market model, those risks are borne by competitive suppliers with a record of superior risk management. Although monopoly utilities strongly lobby to retain exclusive control over generation, a single utility often lacks the balance sheet to finance new investment. Conversely, independent producers are equipped to tap a robust private capital market for more expeditious, cost-effective, and lower-risk generation investments.
Markets are also better at insulating existing customers from the costs of servicing new industries, as they exclusively assign supply costs and risks to the competitive supplier and counterparty (e.g., data center). Traditional monopoly service socializes costs and risks across their customer rate base, prompting blowback of monopoly service for new loads from existing customer groups. Unsurprisingly, native customers and growing industries have attempted to serve new customers under a market model. Virginia, home of Data Center Alley, has entertained this strategy to avoid new, risky monopoly generation to cover data-center load growth.
Retail competition is essential for customers to take full advantage of generation competition. It has also produced an array of retail options that lets consumers choose supply arrangements best suited to their preferences regarding price, budget (e.g., payment structure), risk tolerance (e.g., fixed versus variable rates), and fuel or environmental factors. Retail competition is also associated with improvements in service quality and fosters innovation in product development and customer energy-management services. It requires well-informed consumers as well as protections from deceptive advertising or marketing practices.
With this in mind, R Street issued a state retail electric scorecard in 2025, with Indiana receiving a “D.” The state could improve its score by passing legislation that provides opportunities for customers to engage third parties for services currently available only through the utility. Further improvement is possible if the IURC ensures that utilities give consumers greater choice, avoiding monopoly activity beyond what is necessary to provide basic service.
Indiana’s neighbors all scored higher on R Street’s scorecard, with Illinois and Ohio each earning a “B+,” Kentucky a “D+,” and Michigan a “C.” A review of these and other hybrid states in MISO and PJM reveals momentum toward expanding retail competition:
- Illinois restructured and experienced economic benefits. The Illinois Manufacturers’ Association has been a long-time proponent of retail choice. They and other consumer groups are largely concerned with the state’s tendency to interfere with markets.
- Ohio also experienced economic benefits after restructuring. The state has had problems with ring-fencing distribution monopoly utilities, who engage in self-dealing with competitive affiliates in a manner that undermines the competitive generation and retail marketplace. Utilities now seek legislation to re-regulate power generation, which customer groups like the Ohio Manufacturers’ Association strongly oppose.
- Michigan caps its retail choice to 10 percent of the market. The choice program is fully subscribed, and thousands of customers remain in the queue—a strong demonstration of market demand for choice. Michigan’s large energy users group, the Association of Businesses Advocating Tariff Equity, has consistently pushed for expanded market competition through retail choice.
- Kentucky utilities mostly reside in MISO or PJM and generally lack retail choice. However, large power users in the western part of the Commonwealth were given special disposition to procure power directly from the market.
- Other MISO states (and some PJM states) fall under the hybrid model. Customer groups including the Wisconsin Industrial Energy Group, Louisiana Energy Users Group, West Virginia Energy Users Group, Iowa Economic Alliance, Missouri Industrial Energy Consumers, and Virginia Customers for Energy Choice have been pushing for retail competition in their states for years
The clock is ticking in Indiana, which has seen the seventh-fastest increase in electric rates in the country from 2008 to 2023. Indiana’s energy competitiveness is falling behind nationally and regionally. In 2023, a peer-reviewed study found that restructuring decreased average electricity prices across the Midwest.
Although economic considerations take center stage, the environmental and governance advantages of competitive power markets are also worth noting. Markets lower emissions by enabling capital stock turnover, inducing operating efficiencies, integrating unconventional clean energy, spurring innovation, and letting environmentally inclined customers voluntarily pay a premium for cleaner supply options. Competitive markets are also associated with lower environmental compliance costs, while monopoly utilities have historically lobbied for higher-cost environmental compliance policies in order to justify expansion of their regulated rate base.
It is important to appreciate that the instrumental business interest of a cost-of-service monopoly is to secure favorable regulatory and political treatment. This perverse incentive structure has induced dozens of ethics scandals involving utilities, regulators, and legislators, including one in Indiana that resulted in the firing of the IURC chairman and three Duke Energy Indiana officials. Flipping this incentive is key to avoiding cronyism and corruption. Indeed, “accountability through competition” was part of the original restructuring thesis. The last two decades have provided evidence that competition is “the antidote for bad behavior.”
Transmission Scrutiny
Indiana is also overdue for transmission reform. Transmission expansion lags economic needs driven by load growth and generation changes, thereby increasing grid congestion costs. Meanwhile, transmission expansion costs are overly high. Transmission is the fastest-growing segment of industry capital costs over the last two decades. In the eyes of consumers and independent economists, the fault lies with a deeply flawed cost-of-service regulatory architecture.
Ideally, transmission investment policy would leverage economies of scale, advanced technologies, cost-efficient planning techniques, and competition. However, utilities centrally plan over 90 percent of new and replaced transmission expansion without economic criteria, competition, or effective cost-of-service oversight.
- Overbuilt inefficient, local transmission
- Underbuilt efficient, regional and interregional transmission
- Underutilization of competitive forces
- Underuse of innovative technologies
Utilities are incentivized to overcapitalize their transmission rate base and stunt interstate transmission development in order to avoid lower-cost generation imports that could erode the utility’s justification for its generation rate base. A 2024 paper from the National Bureau of Economic Research quantified this perverse incentive in the MISO footprint.
Unlike generation and retail supply, which reside squarely within state authority, transmission regulation is a mixture of state and federal responsibility. The Federal Energy Regulatory Commission (FERC) has authority over the interstate transmission planning and cost allocation rules implemented by MISO and PJM. The IURC and similar organizations in other states play a prominent role in influencing MISO and PJM practices, and primary siting authority resides with states as well.
The best practice in independent transmission planning for regional and interregional transmission is to use robust cost-benefit analysis to identify needs before putting those needs out for competitive bid. Both MISO and PJM are updating their cost-benefit analysis approach to comply with a recent FERC rulemaking. The IURC could advocate for higher-quality analysis (especially transmission cost-savings accounting), as well as improved transparency and the use of independent expertise. All of this was mentioned in a 2025 FERC complaint on MISO’s current process.
Indiana undercut transmission competition in 2023 by passing a law giving incumbent utilities a right of first refusal (ROFR) to build new lines before those projects open to competitive bidding. Passed in response to a utility lobbying effort (over objections from consumers and the Indiana chapter of Americans for Prosperity), this law will prove costly. An R Street analysis estimated the added cost of Indiana’s ROFR at $129 million for just one set of MISO transmission projects, known as Tranche 1. The ROFR has faced a series of legal challenges, with a pending request for a permanent injunction. The case lies before the same judge who granted a preliminary injunction a year ago, making it likely that the courts will toss the ROFR law.
Not only is new transmission inefficiently developed, upgrades to the existing transmission system are grossly underused. Advanced transmission technologies (ATTs) are often highly cost-effective for expanding capacity on the existing system and reducing congestion costs. This, in turn, can accelerate new power plant development by alleviating the grid constraints that create generator interconnection queue backlogs. For example, one ATT pilot in MISO netted over $100 million in savings in 2024, while another in PJM saved $1 billion in annual production costs while unlocking six gigawatts of new generation interconnection. Unlike competitive markets, in which companies adopt cost-saving technologies voluntarily, the cost-of-service model’s perverse incentive means regulation must compel utilities to adopt ATTs consistent with “good utility practice.”
Given the interstate nature of most transmission, ATTs are best adopted by state leadership and coordinated within a regional context. Although FERC issued a rule requiring utilities to adopt one type of ATT, the catalyst of ATT adoption is more likely a bottom-up regional approach. Engagement with other MISO and PJM states by the IURC and the governor’s office is key to driving more independent assessments and connecting them with state utility prudence mechanisms.
Passed in 2025, Indiana’s SB 422 requires utilities to evaluate ATTs in their IRPs, makes ATTs eligible for cost recovery, and compels the IURC to issue a study on ATT use by 2026. This is a productive step, but insufficient by itself. IRPs alone do not directly translate into investment decisions in Indiana, and there is no prudence mechanism forcing utilities to adopt ATTs. This is largely because the IURC has little functional oversight over transmission.
The IURC has no process for scrutinizing transmission projects and lacks the institutional capacity to engage adequately with MISO and PJM on transmission or oversee local transmission within state jurisdiction. Leaders must work with their state counterparts to coordinate with FERC in closing the informational and regulatory gap over local transmission projects identified in 2022 as a core transmission cost management problem, triggering a flood of consumer complaints.
The IURC is not alone in lacking state capacity; in fact, only one of 15 MISO state utility regulators has a transmission expert on staff. Whether overseeing local transmission or engaging MISO and PJM on their regional transmission processes, the IURC needs proper staff, processes, and authority to ensure cost-effective transmission.
The Options Ahead
Indiana must avoid distractions in order to move forward. Last year, the IURC approved a proposal by the Northern Indiana Public Service Company (NIPSCO) to create a separate entity (“GenCo”) to serve data centers, which the utility claims will isolate the cost of new growth. However, GenCo functionally creates an inferior monopoly within a monopoly, forcing data centers to deal with a new monopoly without the cost-of-service safeguards applicable to NIPSCO. GenCo will have reduced IURC oversight over new utility generation, and the utilities’ finances will be more opaque.
The notion of any “ring-fencing” benefits of GenCo to protect existing customers is an accounting illusion. GenCo and NIPSCO still share the same parent company. Any risk GenCo incurs (e.g., costs for a failed data center deal) still falls on the balance sheet of the parent company, with credit rating and borrowing cost increases passed on to NIPSCO’s other customers. True ring-fencing would entail removing the supply risk off the utility’s books entirely by letting new business choose a competitive supplier. In other words, monopoly utility reorganization is not a substitute for retail competition.
Nationwide, the main trend in monopoly states like Indiana is to enable retail choice for business customers. Although full restructuring of generation and retail competition for all customers would be best, political economy factors sometimes favor only business customers securing competitive reforms. In fact, Indiana Industrial Energy Consumers has long called for competition. Now is the time to get it over the finish line—and two bills introduced into the Indiana assembly this January would do just that.
SB 272 would let businesses over 1 megawatt (MW) choose their electric supplier while utilities continue their role in power delivery. Businesses under 1 MW could aggregate their demand to qualify. The bill contains provisions for utility transparency and to protect against cost-shifting between choice-eligible and ineligible customers, which would elevate Indiana from laggard to on par with most states.
HB 1276 would propel Indiana to leadership status by taking competition even further, letting all customer classes choose their supplier in a phased manner: industrial customers in 2028 and residential and commercial customers in 2029. It would functionally separate competitive supply from monopoly delivery services and require utilities to divest their generation assets. This is crucially important for restructuring correctly—referred to as “quarantining the monopoly” by economists—which Ohio paid the price for not doing.
Since Indiana has a short legislative session in 2026, it is possible these bills will not pass. Nevertheless, it is important to build momentum for 2027. The topic should be studied further, such as by the State Utility Forecasting Group at Purdue University, following the legislative session. Additionally, generation and retail competition would feature nicely in recommendations from Gov. Mike Braun’s Strategic Energy Growth Task Force. This group should also eye the formation of future legislation that gives the IURC proper transmission authority and staffing expertise. While the fate of Indiana’s transmission ROFR is likely to be decided by the courts, customers would welcome reaffirmation of its elimination by the IURC and Gov. Braun.