Growing concerns about resource adequacy, electricity prices, interconnection delays, and emerging sources of electricity demand have prompted renewed debate about the effectiveness of US electricity market structures. In the March 2026 issue of Climate and Energy, Senior Managing Director Jeff D. Makholm and Director Laura T.W. Olive argue that US electricity markets are not true markets but administrative constructs that depend on regulatory institutions developed to attract investor capital and provide reliable public energy services.
Drawing on NERA’s decades of experience in electricity market design and regulation, the paper examines the evolution of regional transmission organizations (RTOs) and questions whether the electricity market model imported from the UK in the 1990s is well suited to the US regulatory system. The authors contend that multi-state RTOs have become vulnerable to rent-seeking behavior and have encountered challenges with the rapid growth of renewable generation, the extensive backlog of projects awaiting grid connection, and emerging electricity demand from AI-focused hyperscale data centers.
The authors explore tensions between state-based regulatory authority and multi-state electricity market administration, highlighting examples in which competitive entry and infrastructure development have faced significant barriers. They conclude that the challenges facing PJM and other multi-state RTOs demonstrate the limitations of the current market structure and support efforts to re-establish prudential state authority over public service matters affecting regulated utilities and consumers.
The article builds on themes Dr. Makholm addressed in testimony before the Federal Energy Regulatory Commission (FERC) during its 1998 Inquiry Concerning the Commission's Policy on Independent System Operators. In that proceeding, Dr. Makholm discussed transmission pricing, institutional design, and the role of regulatory structures in supporting efficient investment and system development. Readers interested in the historical context for these issues can learn more about the testimony here.
