The United States has delegated the weighty responsibility of keeping the lights on to a self-regulatory organization called the North American Electric Reliability Corporation (NERC). Despite the fact that NERC is one of the largest and most important examples of industry-led governance—and regulates in an area that is central to our economy and basic human survival— this unusual institution has received scant attention from policymakers and scholars. Such attention is overdue. To achieve deep decarbonization, the United States must enter a new “electric era,” transitioning many sectors to run on electricity while also transforming the electricity system itself to run largely on clean but intermittent renewable resources. These new resources demand new approaches to electric grid reliability—approaches that the NERC model of reliability governance may inadequately deliver.
This Article traces NERC’s history, situates NERC in ongoing debates about climate change and grid reliability, and assesses the viability of reliability selfregulation in the coming electric era. It may have made sense to delegate the task of maintaining U.S. electric grid reliability to a self-regulatory organization in prior decades, when regulated monopolies managed nearly every segment of electricity production. But many of the criteria that NERC used to justify selfregulation earlier in its history—electric utilities’ expertise, widespread agreement about the organization’s goals, and an industry structure in which regulated parties’ interests align with the public’s—no longer hold. The climate crisis creates a need for expertise beyond NERC’s domain, while the introduction of competition to large parts of the electricity sector blurs lines of accountability for reliability failures. NERC’s structure also perpetuates an incumbency bias at odds with public goals for the energy transition.
These shifting conditions have caused NERC to fail to keep pace with the reliability challenges of the electric era. Worse still, outdated NERC standards often help entrench fossil fuel interests by justifying electricity market rules poorly suited to accommodate renewable resources. We therefore suggest a suite of reforms that would increase direct government oversight and accountability in electricity reliability regulation.
Josh Macey, Shelley Welton & Hannah Wiseman, "Grid Reliability in the Electric Era”, Coase-Sandor Working Paper Series in Law and Economics, No. 992 (2023).