Low-Energy Fridays: How Congress Can Liberate Electric Generation 

Regulatory barriers to power plant development have never been greater, but the timing could not be worse, given resurgent demand. Fortunately, Senate momentum on electric regulatory reform presents an opportunity for Congress to liberate electric generation. 

A new Grid Strategies report found that the nationwide forecast for electricity growth over the next five years is 4.7 percent. This is eye-opening considering the previous year’s forecast was 2.6 percent, while the last decade saw relatively flat demand. The industry may see further upward pressure on demand depending on the extent of resurgent manufacturing, data center growth amplified by artificial intelligence, and the electrification of transportation and buildings. 

The industry has seen major demand growth before, but never with massive restrictions on supply. The convergence of these conditions puts regional grids in unprecedented territory. The prognosis was captured in a December report by the North American Electric Reliability Corporation, which found most of the country facing high or elevated long-term reliability risk. 

Historically, abrupt increases in power demand were not problematic because many power plants took two to three years to develop. That remains the case in Texas today, where new supply has kept pace with “remarkable” demand growth well above the national average. Elsewhere, states have effectively banned some forms of new generation, while those forms that governments deem acceptable often take a decade to develop. The discrepancy largely comes down to two regulatory approval processes: permitting/siting and generator interconnection. 

The largest permitting concerns are within states’ control. Unfortunately, state permitting laws do not account for the cost and reliability consequences that accrue regionally. This lack of accountability is untenable. Congress should prioritize a productive federalist dialogue. 

Federal permitting still adds years to development timelines and deters projects with mostly net beneficial environmental effects. The passage of the Fiscal Responsibility Act of 2023 brought modest relief and an encouraging bipartisan omen, but the most important reforms remain undone. One is to clarify “reasonable alternatives” criteria under the National Environmental Policy Act (NEPA). The law’s vagueness makes compliance unclear, and revisions do not need to reduce environmental stringency. 

A set of intertwined NEPA reform priorities are community engagement and judicial review. These can mitigate litigation risk, which is a primary driver of delays since permitting agencies draw out longer processes with complex filing requirements to contain legal exposure. Imposing page limits and timelines on agencies under the status quo may exacerbate litigation risk. 

Judicial review reform could reduce frivolous lawsuits by limiting who can sue. However, it must avoid excluding legitimate plaintiffs. Many proposed reforms do not seriously limit standing, but improve certainty and expedience in court document preparation. For example, lawsuit standing could require submission of public comment, while NEPA cases could be designated for specific courts. Adjusting community engagement complements judicial review reforms if it creates opportunities to remedy valid concerns proactively in the permitting process. Quality reform improves information to permitters without creating burdens. 

Although interconnection is substantively similar to permitting, it is new to Capitol Hill conversations. The Federal Energy Regulatory Commission (FERC) issued a new interconnection rulemaking last summer. This was helpful but left most essential reforms unresolved. Our December 2023 analysis provides the backstory and provides recommendations to finish interconnection reform.

FERC Chairman Willie Phillips recently announced FERC conferences on further interconnection reform, which is a welcome sign. However, given the underwhelming outcome of FERC’s initial reforms and the extensive evidentiary record it provided, Congress could shave a couple years from a traditional FERC rulemaking and ensure the job gets done thoroughly this time. Since reforms are technocratic, Congress should direct FERC to expedite a rulemaking to fix categorical problems identified in the record without prescribing solutions best left to industry experts. 

A proper permitting and interconnection reform package would lower energy costs, boost reliability, and improve the environment. That’s a bipartisan new year’s resolution if there ever was one.