Pennsylvania Wants Data Centers to Pay Their Own Way. There’s a Better Way to Do It.

Pennsylvanians are worried that the artificial intelligence boom will drive up electricity bills, and for good reason. Data centers accounted for an estimated 63% of the increase in electric capacity demand across the PJM Interconnection between 2025 and 2026, contributing to billions of dollars in additional costs across the region. PECO (formerly Philadelphia Electric Company) recently sought a 13% rate increase.

Federal regulators recognize the same challenge. “The status quo across much of the country is not good enough,” said Federal Energy Regulatory Commission (FERC) Chairman Laura Swett. “Nowhere close.”

But retail bills are a state responsibility, as FERC also acknowledged. That means Pennsylvania cannot rely solely on federal reforms to ensure that new industrial customers pay their own way.

Voters understand the problem intuitively. If a new factory or data center requires major investments in electric infrastructure, ordinary households should not be forced to foot the bill. Some 81% of Pennsylvania voters support requiring technology companies to fund their own energy infrastructure needs.

Accordingly, Shapiro proposed the Governor’s Responsible Infrastructure Development (GRID) standards, which would encourage data center developers to generate their own power or pay for grid upgrades.

Yes, new loads should pay for the infrastructure they require rather than shifting the cost onto households. This is a good policy that the state’s Public Utility Commission has already adopted.

But Shapiro would bundle that sound principle with two problematic policies: an escalating energy portfolio mandate (similar to Pennsylvania’s Alternative Energy Portfolio Standards) and a discretionary certification that lets the state decide which projects qualify for privileged tax exemptions. This pairing awkwardly imposes a de-facto tax on most projects while freeing up tax exemptions for a favored few.

In any case, GRID reaches only customers who connect to the existing grid. Increasingly, major industrial projects are choosing a different path: building independent power systems outside the traditional utility framework and bypassing the grid entirely.

That trend points toward a reform that would entice the industrial customers who would rather not connect to the broader grid: light-touch regulation for customers who build or contract for electricity service through new independent power networks.

Call it consumer-regulated electricity (CRE). The principle is straightforward: If large customers would rather create or join a new electricity network than plug into the existing one, they should be free to do so without being subject to rules designed for public utilities. It’s a simple legislative change that would implement Shapiro’s pay-your-own-way policy.

Data centers are only part of the story. Because CRE would respond to the need for “speed to power,” large customers of all types, including advanced manufacturing facilities, would see Pennsylvania as a growth opportunity. Many industrial developers now face years of delays due to interconnection studies, transmission upgrades, utility-planning processes, and regulatory approvals. In some regions, obtaining grid service can take four to six years—or longer. New electricity networks offer a faster path to electricity service than the legacy grid can accommodate.

Just as important, CRE would open a market-based system built on voluntary exchange, not political privilege. Under the traditional utility model, complex regulatory proceedings or political dealings often decide who pays for new infrastructure or who is lucky enough to get service. These are areas where regulated utilities thrive, and no consumer can be quite as savvy. Instead, CRE would rely on private contracts among willing parties.

Finally, Pennsylvania families would benefit because new industrial projects would no longer rely on regulated utility infrastructure that socializes costs and risks to grid reliability across millions of customers. If a data center succeeds, private investors benefit. If it fails, private investors bear the loss. Either way, ordinary ratepayers will remain protected, and Pennsylvania’s growth won’t come at anyone’s expense.

Electricity-hungry industries should pay for the new power infrastructure they need. Allowing investors to set up their own power networks would guarantee consumer protection and offer a new path for industrial development.

Pennsylvanians don’t have to choose between prosperity and affordability; they can have both.

Travis Fisher is director of energy and environmental policy studies at the Cato Institute.

Joshua Schubert is a policy analyst at the Commonwealth Foundation, Pennsylvania’s free-market think tank.