Data Center Regulation (Or Not) in Pennsylvania: Part 1

The data center boom poses serious energy policy challenges. Narrowly, they include how to reform markets and rules to ensure that data center costs are not borne by electricity ratepayers. In Pennsylvania, the average cost of electricity (a calculation that masks much higher regional variations) increased 14.6% over the past year, and the average electricity bill has increased 20.6% since 2024. A record 387,000 households faced utility shutoffs in 2025.

The impact of data centers on the communities where they are built is no less important. State law requires municipalities to zone for all legal purposes, including data centers, and they can’t legally be banned. At this writing, there are 81 active data center development proposals in Pennsylvania. Counties and municipalities are scrambling to pass moratoria or zoning amendments to deal with the onslaught, and community opposition is growing. So, too, is opposition to utilities’ use of eminent domain to build new transmission lines to serve them.

Arizona, Illinois, Ohio, New York, and Massachusetts are pausing data center incentives or development to consider imposing some rules, and new rules may be coming in Texas.

Pennsylvania lags behind.

There’s been lots of performative talk and voting on bills that would have paused or put some controls on the explosion of data center development, but not one of them has passed.

The House overwhelmingly voted to repeal the state’s open-ended state sales tax exemption for (very generously defined) data center equipment, which is currently projected to cost the state at least $1.9 billion through 2031. That’s in the face of a structural deficit and a projected $5-billion operating deficit this year.

The repeal legislation died in the Senate.

The only data center legislation that was passed during this year’s budget frenzy was an innocuous requirement tucked into the catch-all fiscal code bill. It requires that data centers using more than 10 MW of electricity annually disclose their energy and water usage. The latter will, by definition, be significantly underreported, as it doesn’t include water used at power plants that supply their electricity to data centers.

For his part, Governor Shapiro proposed voluntary standards for data centers. But they would have teeth only if they are legislatively tied to receipt of the sales tax exemption, which many legislators, in the House at least, want to repeal. Efforts to codify the Governor’s proposal also failed before the legislature’s summer recess.

The Governor is now promising executive action. What will that look like—given his limited authority in this space? And will it make a difference?  

Measures to reduce or eliminate the significant impact of data centers on electricity rates are urgently needed in Pennsylvania and the 12 other states in the PJM region. In PJM’s last four base capacity auctions, data center-driven capacity charges totaled $29.4 billion—almost half of the $63.6 billion in total capacity charges incurred in that period. PJM’s inability to manage growing demand—largely from data centers—and deal with its chronic interconnection backlog has prompted FERC to announce that it’s poised to impose governance and stakeholder reforms on PJM.

The on-the-ground impacts of hyperscale data centers in host communities have not received the same level of political attention as their impact on electricity prices.

Hyperscale data centers change the character of communities. Lackawanna County, for example, is facing at least 11 major projects, with seven of them proposed in Archbald Borough, population 7,508. One of them, the proposed Wildcat Ridge Data Center Campus, would contain a whopping 588 backup diesel generators to power 14 data center buildings.

Many proposed projects are speculative, and municipalities don’t always make good decisions. But it’s clear that the facilities that are built will have multiple, local, cumulative impacts that state law and regulations do not adequately address.

In part 2 of this post, I’ll present a description of those local impacts and examine the Governor’s GRID proposal.

John Quigley

Senior Fellow

John Quigley is a senior fellow at the Kleinman Center and previously served on the Center’s Advisory Board. He served as Secretary of the PA Department of Environmental Protection and of the PA Department of Conservation and Natural Resources.