Data Center Surge Risks Energy Affordability Crisis In Pennsylvania

This is Part 2 of a two-part feature on Pennsylvania's data center development boom. Read Part 1 on how the industry's growth is causing a rift between state leaders and local officials. 

Pennsylvania's booming data center development pipeline is increasing utility costs statewide, and Keystone State policymakers are urgently seeking ways to protect consumers without halting data center growth.

Seemingly overnight, Pennsylvania has become one of the U.S.’s fastest-growing data center hotbeds. More than 14 gigawatts of data center projects have been proposed in Pennsylvania over the last year, according to a Bisnow analysis. The state today has well below a gigawatt of data center inventory.

The core of the commonwealth’s appeal to data center builders is its abundance of energy resources. But data centers’ hunger for Pennsylvania’s energy is making that electricity far more expensive for its residents.

Electricity prices for customers of all major Pennsylvania utilities have risen over the past year. In PPL Electric's service area, monthly bills increased by an average of 16%. Even more substantial price increases are expected, with some studies projecting retail electric bills to surge by up to 60% in certain areas within the next five years. 

This would carry a real human cost in a state where over 375,000 households had utility services terminated last year, says Patrick Cicero, an attorney with the Pennsylvania Utility Law Project, an organization that represents the interests of low-income utility customers.

Pennsylvania is facing a looming electricity affordability crisis that Cicero, along with other consumer advocates and a growing chorus of state policymakers, attributes to a single industry: data centers.

“These price increases that customers are paying are solely caused by data center development,” Cicero said. “We're really worried that these data centers are being built on the backs of utility ratepayers, a significant percentage of whom can't afford to pay utility bills now, let alone when these prices get baked in.”

Rising power prices have alarmed state lawmakers and energy regulators, prompting efforts in both the legislature and the Public Utility Commission to enact measures that mitigate data centers’ impact on Pennsylvania’s energy economics. 

But the Big Tech firms driving the data center boom are pushing back, arguing that some of the proposed regulations are overly punitive and would deter investment.  

The array of policy options being debated at the state level aim to tackle two distinct ways that data centers dramatically drive up power costs. 

First, Pennsylvanians' power bills are increasing because utilities have to pay more for power from regional grid operator PJM Interconnection. This stems from a supply-demand imbalance: new power generation can't keep up with soaring electricity demand from data centers. PJM's peak power prices could jump over 1,000% from 2024 levels as projected data center consumption will far exceed new generation capacity.

To combat rising PJM costs, new GOP-backed legislation in Pennsylvania would allow state utilities to self-generate power during peak demand, a practice currently prohibited.

Pennsylvania officials lack direct regulatory power over PJM, which operates across 13 states and falls under federal oversight.

But the state does have authority over its own utilities, allowing lawmakers and the PUC to address the second way data centers contribute to increased power costs: by leaving consumers with the bill for new transmission infrastructure specifically built for these facilities.

Facing unprecedented demand from data centers, Pennsylvania utilities have ramped up capital expenditures to build billions of dollars’ worth of new transmission infrastructure. But there is broad consensus that at least some of the demand utilities are anticipating is a mirage. Many of these projects are likely redundant or speculative, many will never come to fruition, and even those that do may use just a small fraction of the power being requested. 

If there is no buyer for the electricity this new infrastructure is built to deliver, the cost of building that “stranded” grid capacity is spread across the utility’s other ratepayers, driving up retail electricity prices. 

“There’s projects in these queues that won’t end up getting developed, and there's a lot of triple-counting on expected data center capacity,” said Benjamin Lee, a University of Pennsylvania engineering professor who specializes in data center energy use. “It's a question of risk and who has what share of that risk, and it's sensible for data centers to bear more of that cost.”

There is agreement among state policymakers, and even within the data center industry, that at least some measures are needed to prevent ratepayers from bearing the infrastructure costs of failed data center projects.

In April, Pennsylvania’s Public Utility Commission began developing a comprehensive regulatory framework for data centers. Central to this effort is the development of a specialized rate structure, or tariff. This tariff will likely require data center operators to pay up-front for most of the power a utility allocates to them, whether they use it or not. The PUC anticipates publishing the first draft of its model tariff in the coming weeks.

Beyond these “minimum take” requirements, data center tariffs developed in a handful of other states are typically accompanied by provisions requiring developers to make large up-front payments, put down collateral or fund expensive studies as a condition of their grid connection. 

These measures help utilities separate the wheat from the chaff in their data center pipelines, pushing speculative proposals and other unlikely projects out of interconnection queues and reducing stranded costs that are ultimately passed to consumers. 

Still, there is deep disagreement on the specifics of how this regulatory regime should be designed. 

Consumer advocates like PULP are pushing for data centers to bear almost all the financial risk associated with utility expenditures incurred to serve them. They propose measures like stringent minimum take requirements and a regulatory presumption that data centers are the sole beneficiaries of infrastructure investments made on their behalf.

PULP is also pushing for data centers to be treated as their own utility rate class rather than being lumped with other industrial customers like manufacturing facilities and hospitals. The organization says data centers are unique in how they impact the economics of the grid and, therefore, need to be treated differently by regulators. 

“They’re not like other industrial customers. We’ve never seen load growth like this, and we've never seen this quantity of energy consumed,” PULP’s Cicero said. “If they're in a separate rate class, then you can more readily assign costs just to them.”

But representatives for the world’s largest data center operators call such measures discriminatory. Tech giants like Amazon Web Services and Google, as well as third-party developers, have aggressively pushed back against measures proposed in Pennsylvania and a handful of other markets that they frame as overly punitive and untenable from a business standpoint. 

Testifying before the PUC, Google representative Brendon Baatz warned against implementing what he called unreasonable minimum take requirements and mandates to fund expensive studies as a condition of interconnection. Such measures, he suggested, risk making projects in the state unworkable. 

“As demand forecasts have increased over the last few years, so have the number of concerning policy proposals that we've seen to address large load growth,” Baatz said. “While the challenges of large load growth are real, they do not justify abandoning fundamental regulatory principles.”

In Pennsylvania and other locations, tech giants and data center developers have warned that specific tariff provisions could deter development. They have also readily committed substantial resources to mount coordinated legal challenges, seeking to overturn new tariffs in crucial markets such as Ohio.

Few expect such a battle in Pennsylvania, where state-level elected officials across party lines have been supportive of the influx of data center development. Regulators and lawmakers on both sides of the aisle are walking a tightrope — trying to create a regulatory groundwork that can foster the state’s nascent data center boom while limiting its damage to their constituents’ pocketbooks.  

“Many Pennsylvanians know all too well the cost of poorly planned development. While our rich industrial heritage has contributed to our economic prosperity, we have left future generations to deal with the impact of poor or no planning,” PUC Chairman Stephen DeFrank said to Democratic lawmakers last month. 

“Now, at the beginning of this new wave of technological growth, is the time to make sure things are well planned and done right.”