Elizabeth Stelle: Deregulation didn’t cause the energy crunch — but re-regulation will make it worse

Pennsylvanians are feeling the financial pinch when they receive their monthly electricity bills. Statewide, electricity demand has reached record-level highs, but supply isn’t keeping up, resulting in higher prices. 

Sadly, these statewide price hikes could get worse if Pennsylvania lawmakers pursue re-regulating the power sector. Some pundits are quick to blame “deregulation” for our current energy woes, calling for a return to a bygone era of regulated utilities. 

Some pundits are quick to blame “deregulation” for our current energy woes, calling for a return to a bygone era of regulated utilities. 

“Our leaders must acknowledge that deregulation incentivizes electricity scarcity, and is a failed policy in a time of increased demand for energy,” writes Trish Reilly, a representative for Centrist Democrats of America, in the Pittsburgh Post-Gazette.

Others, like Gov. Josh Shapiro, blame PJM, the entity responsible for matching electricity supply and demand every minute to keep the lights on.

But blaming competitive markets or PJM for all of today’s supply challenges misdiagnoses the problem. Moreover, this blame-shifting risks steering the commonwealth toward costly and counterproductive policies.

The truth is more straightforward: Pennsylvania currently enjoys an enormous energy surplus. We have a market for electricity generation, and other states have leaned on Pennsylvania’s surplus to meet their needs. Pennsylvania is the number-one exporter of electricity for a reason.

Put simply, competition didn’t fail. Instead, it delivered nearly three decades of low prices and cleaner energy.

Pennsylvania adopted competitive electricity markets for a reason. Utility-built generation proved to be expensive and too easily influenced by politics.

Since policymakers introduced market competition in the 1990s, Pennsylvanians have enjoyed some of the lowest wholesale power prices in the nation. Wholesale energy prices remained stable over the past decade. And consumers benefited from a cleaner, more efficient fleet, with emissions in the PJM region reaching an all-time low.

It is simply inaccurate to suggest that “deregulation incentivizes scarcity.” The record shows the opposite: Competitive markets incentivized a significant growth in new generation, especially natural gas, without forcing ratepayers to bear the construction risk. Between 2012 and 2019, investors have put almost $13 billion into building new gas power plants in Pennsylvania, bringing in around 9,000 megawatts (MW) of generation capacity, including more than 5,000 MW in 2018 alone. That’s more than a quarter of all new gas power brought online in the U.S. last year.

The problem today is not that markets stopped working. Instead, it is that in the early part of this decade, lawmakers, primarily in neighboring states, enacted policies that put reliable power plants out of business. New Jersey, which prematurely shuttered power plants due to its own stringent “Clean Air Act,” faces the threat of blackouts and outages. Now that demand is increasing, heavy-handed regulations are proving to be myopic.

Pundits like Reilly argue that electricity generators “benefit” from scarcity and therefore choose not to build. But that’s not how competitive markets work. A generator earns revenue only if it invests capital, manages risk, and performs effectively. If prices rise, it attracts new entrants, not fewer. Demand shocks and regulatory bottlenecks — not merchant profits — drive today’s scarcity issues.

Meanwhile, demand is spiking from data centers, manufacturing, and the electrification of cars and appliances. No utility under the old regulated model would have built enough idle generation in advance to meet this surge, which explains why Virginia is importing more than any other PJM state.

Every region in the country—regulated or deregulated — is experiencing the same pressures. Georgia, Florida, and the Carolinas (all fully regulated) have the same concerns about shortfalls. This is, first and foremost, a national supply-chain and permitting challenge.

The push to “re-regulate” — or return to the olden days of regulated utilities monopolizing generation — may sound like “common sense.” But it comes with enormous costs. Under the old model, ratepayers — not investors — shouldered all financial risk for construction overruns, fuel miscalculations, and operational underperformance. That’s how Pennsylvania consumers ended up paying for power plants that were billions of dollars over budget.

Pennsylvania abandoned this model for good reasons. Competitive markets, when allowed to function, foster innovation and drive costs down. They do not guarantee perpetual abundance amid unprecedented demand growth and regulatory quagmires—no system does.

But abandoning competition to return to monopoly utility construction is not a solution. It is a retreat—and an expensive one, too.

Pennsylvania should remove barriers that stop new generation, not revive a model that shifts all risks back onto ratepayers. The commonwealth leads the nation in energy development, industrial capability, and competitive spirit. We should build on that strength — not dismantle it.

Elizabeth Stelle is the Vice President of Policy of the Commonwealth Foundation, Pennsylvania’s free-market think tank. Twitter/X: @ElizabethBryan