Artificial intelligence needs electricity, and electricity needs freedom

By Travis Fisher and Jennifer Huddleston

This is a lightly edited excerpt of an article from the Cato Institute blog.

Energy policy will be a needed element of our AI infrastructure if we want to continue to see this technology grow and flourish in many beneficial ways. The rapid pace of innovation means the AI revolution won’t wait for multi-year permitting fights, cost-of-service hearings held by regulators, or planning processes built for the analog era. And yet those are the structures that still govern electricity in much of the country.

Building a new transmission line in the US now takes about 10 years, while generation projects spend multiple years stuck in interconnection queues, with more than 2,600 gigawatts of capacity now in queues nationwide. America is trying to power a permission-less innovation boom in AI with an agonizingly slow, permission-first utility regime, and the results are predictably bad.

Market participants are already trying to solve the mismatch. Major firms are seeking direct power purchase agreements with independent generators, building behind-the-meter capacity, exploring private microgrids, and even considering small-scale nuclear partnerships when the technology matures. These efforts aren’t futurist gambits—they are attempts to work around today’s regulatory regime, which assumes electricity is something the government must gatekeep rather than something people can freely build and buy.

But unfortunately, many of these ideas can run up against existing regulatory barriers or significant requirements. (Ironically, in some cases, AI would be able to help with these requirements, such as reviewing environmental impact analysis or other paperwork steps to allow new solutions.) For policymakers who want to support unleashing American energy and innovation, the AI moment may provide a perfect opportunity for reform.

State policymakers have shown how simple reform can be. In August, New Hampshire enacted a one-page law that exempts off-grid electricity providers from public utility regulation. The logic is straightforward: if you’re not using or impacting the legacy grid, you shouldn’t have to ask legacy regulators for permission. We call this policy Consumer Regulated Electricity, or CRE. Similar reforms have already moved forward in Ohio, Utah, Oklahoma, and West Virginia.

That makes room for industrial-scale networks, development that is consumer-driven rather than regulator-approved, and tailored contracts between energy producers and large customers. Responsibility for any cost overruns stays with the parties involved, rather than being socialized across captive ratepayers.

It is an open question whether a new federal law could enact CRE nationwide in one fell swoop, but there are immediate steps federal policymakers could take to embrace the same hands-off approach. As one example, if a new industrial network is not connected to the existing bulk power system, grid reliability watchdogs at the Federal Energy Regulatory Commission (FERC) and the North American Electric Reliability Corporation should exempt it from the stringent rules that apply to the broader synchronized grid. This could be done by FERC through a rulemaking or by Congress through a simple definitional change in section 215 of the Federal Power Act.

Unlike burdensome top-down regulation focused on AI’s application, reforming energy policy can provide a way for policymakers at all levels to provide an infrastructure that could power AI innovation without dictating its applications or limits.

Travis Fisher is the director of energy and environmental policy studies, and Jennifer Huddleston is a senior fellow in technology policy at the Cato Institute. 

_{*The opinions expressed in this column are those of the author and do not necessarily reflect the views of EnergyPlatform.News.}