Breaking the gridlock: Rethinking policy for energy abundance

The tech industry is slamming into the regulatory brick wall that is the utility industry

Below is a recent interview with the good folks at Stand Together about policy reforms that could enable an era of energy abundance. Huge thanks to Stand Together—the interview can be found here.

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Electricity prices are rising, reliability is wavering, and the system built for the past is struggling to meet the demands of the future.

For decades, stable demand and heavy regulation kept the energy industry predictable — but that’s changing fast. A surge in energy-intensive industries, from artificial intelligence to advanced manufacturing, is putting unprecedented pressure on the power grid.

We spoke with Travis Fisher, director of energy and environmental policy at Cato Institute, about the forces driving this shift. He explains how decades of stagnation in electricity demand led utilities to prioritize financial stability over expansion — and why the sudden spike in consumption is now colliding with regulatory red tape.

How did we get here? What policies are holding back progress? And what would it take to ensure energy abundance in the United States? Fisher argues for rethinking outdated regulations, investing in infrastructure, and unleashing America’s energy potential to meet the challenges of a rapidly evolving world.

Stand Together Trust: In many places, electricity has been getting more expensive and also becoming less reliable. Why is that?

Travis Fisher: I think it's mostly because electricity has been one of the most regulated industries for about a century now. We’ve become complacent because of the lack of new demand growth.

We haven't seen much growth in demand for electricity over the past 2–3 decades; it has been relatively flat. I think utilities got comfortable with that and tried to figure out other ways to make money rather than increasing the volume of their sales.

Now that demand is picking up again for a host of reasons — including data centers, artificial intelligence, and some manufacturing returning to the U.S. — there is upward pressure on electricity prices. However, the industry has become more bogged down by red tape. There are also several side missions the industry has been focusing attention on, like reducing emissions, often through renewable portfolio mandates, which have contributed to a subtext of constraints on the industry's core function.

So, when there's pressure for the industry to grow reliable supply quickly, prices understandably skyrocket.

If present trends continue, what impact might we see on American homes and businesses, and what lessons can we learn from the experiences of other countries?

When it comes to American homes, it's important to know an increase in electricity rates means an increase in utility costs. Utility bills are probably one of the most regressive cost impacts you can have in the U.S. and elsewhere. There's an inherent unfairness to increasing utility costs because that hurts the least fortunate among us.

When it comes to American businesses, we have many energy-intensive and trade-exposed industries. However, the fundamental thing that makes the U.S. economy strong is that we have a reliable grid and relatively low costs, especially compared to Europe. So, our main competitive argument is that we're a better place to do business for other reasons, like the rule of law and stability.

But when you compare the U.S. to other places that international businesses could locate — like China, for example — we're becoming less competitive because our costs are going up. That's unfortunate.

There is a lesson to take from other countries, too.

Consider Germany. They have essentially deindustrialized themselves for no good reason. In a very top-down fashion, they have made a forced transition away from reliable energy and towards unreliable. That’s even the case independent of greenhouse gas concerns — they’ve shut down their nuclear fleet, which has practically no emissions. They’d basically taken everything that works, that’s stable, that’s low cost in terms of reliable, 24/7 energy, and they’ve turned it on its head. Because of this, their rates for electricity are something like three times what we pay in the U.S.

No energy-intensive industry can survive in that business environment. So, what we've seen is an industrial flight from Germany. It's happening in Great Britain. It's happening across the European Union, and to be candid, some of that's coming here.

So, I think we should take full advantage of being the better place to do business, and we can do that in part by not just being better than Europe but being better than any other place in the world. And we actually have the resources to do it.

What are the top three changes that need to happen to achieve genuine energy abundance in America?

1. We should continue to develop our resources. We’re No. 1 in terms of oil and gas production, and part of that is because we have a unique ability to access our shale resources.

Hydrocarbons, oil, and gas in shale rock formations are very deep. We're talking
7,000-plus feet — more than a mile deep in the ground. We've known that these resources existed for a long time. But a resource isn’t really a resource until you can access it; you can produce it.

It takes a combination of a physical thing — hydrocarbon bonds buried a mile deep in rock — and other advantages we have, which are ingenuity, innovation, rule of law, the political climate, and stability, to build the enterprises that can actually accomplish this feat.

That is the secret weapon that the United States has that a lot of countries don’t have either, because they don’t have the correct property rights in terms of ownership of things. In the U.S., we have mineral rights, which means we actually own the minerals under our feet, which is an amazing thing.

Combine that with technology — things like directional drilling and hydraulic fracturing — and we've been able to access those resources.

The business climate, the know-how, and the physical commodity all work together to help us access these resources. Other countries like China and [in] Europe have lots of shale resources — in some cases as much as the U.S. has — but they’re not developing them. I think this is so because of a combination of factors related to politics and very strict adherence to a “net-zero by 2050” goal, which puts any country that signs it on an energy starvation diet.

2. In addition to improving our production of these resources, we need to get better at transporting, especially if we want to supply the globe and not just be energy independent and supply ourselves. To be able to supply the globe with the gas and oil that we produce, we need more pipelines and more export terminals, like the few we have in the Gulf.

Of course, if we expand our ability to transport our gases, there will be increasing demand globally. So, if we want to supply Asia, for example, it would be nice if we had an export facility on the West Coast. We currently don't have one.

3. Regarding electricity in the U.S., we decided as a country — really, policymakers from 100 years ago decided — that we were going to regulate electricity because we thought it was a natural monopoly and that the only way to do it is to strictly regulate the rates. As a result, we have very well-defined rates that you can charge and cannot charge, but you also have this very heavy-handed regulation of entry and exit. In most cases, you have one company that serves customers. This is a very backwards way to approach it.

We never got to experience creative destruction, to borrow a term from economist Joseph Schumpeter. The idea of creative destruction is that the necessary churn of inventions leads to new innovations.

Instead of having the industry compete for “first place” among consumers, we decided to essentially assume what that looked like and give single companies entire franchises, in some cases entire states, and not let anybody else compete. That was a recipe for stagnation.

For a while, it was workable, and we got the predictable effects. We did have stable rates. A lot of people credit the expansion of the grid itself to that model working because we basically mandated it to.

We're in a very different place now. The grid is expanded almost everywhere. We have pretty close to universal service. The question now is, can the industry move fast enough, and can it supply these new large customers, especially data centers?

We're talking about customers that are as large, in some cases, as a nuclear power plant showing up to the grid now and asking for service under this paradigm of universal service.

What we’re seeing with this is the technological change and the new demands from the industry colliding headfirst. It's almost like the tech industry is slamming into the regulatory brick wall that is the utility industry.

I think we should embrace a paradigm change; we should be flexible and move with it. One way to do that is to relieve companies of their obligation to serve, almost unraveling both pieces of what they call the regulatory compact.

The way it stands now, there's the obligation to serve everybody under fair rates, but there's also a monopoly protection that goes with that. It’s like a two-piece system that was supposed to move together.

We could undo both of those. We could say you're not obligated to serve these new customers who have new demands and unprecedented size. At the same time, we are going to allow someone else to do that.

The facts on the ground have changed to make it so obvious that we need a policy change. We've basically gotten by with a substandard regulatory environment for about 100 years, and it's not cutting it anymore. So, we should embrace change.

Cato Institute is supported by Stand Together Trust, which provides funding and strategic capabilities to innovators, scholars, and social entrepreneurs to develop new and better ways to tackle America’s biggest problems. 

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